A business mortgage broker has lifted the lid on exactly what business equipment banks and finance companies are willing to lend money for – and it’s a very short list.
Daryl Raggatt, managing director of Enterprise Finance Australia, says banks are really only willing to lend for “anything with wheels” such as cars, bulldozers, earth-moving equipment and even surprisingly, aircrafts.
All these products have reasonably strong secondary markets, meaning the lender should be able to sell the asset relatively easily if the business fails.
The no-go zones for equipment lending are large. Specialist products such as machinery and heavy equipment are extremely difficult to obtain credit for, while shop fittings, office furniture and even IT equipment are considered impossible assets for which to secure bank finance.
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Despite strong conditions in Australia’s rapidly growing health sector, even medical equipment has been put on the banks’ no-go lists.
“The medical profession is probably one of the safest places you can lend, so the risk of that equipment ever coming back is very minimal. Now, in days gone by, you’d laugh at that. You’d go to one of the other 20 banks in the market, but those 20 banks aren’t there.”
Raggatt was speaking at a special industry roundtable on SME finance conducted by Business Spectator and SmartCompany and attended by fellow brokers Michael Pratt of Pratt & Co, and David Gandolfo, president of the Commercial Asset Finance Brokers Association of Australia.
A full video of the forum can be viewed on the Business Spectator website.
The three brokers said the banks continue to take an extremely cautious line on risk management and are paying little attention to the experience and record of entrepreneurs when assessing loan applications.
“People who are in business don’t do this to lose money. They know more about their business than the bank is ever going to know, with all respect to the banks, and if they’ve done their own due diligence they know what they need and they know that they can afford it and they’ve budgeted for it,” Gandolfo says.
“The banks aren’t taking account the acumen within the business owners or within the business. They’re just taking a pure risk position on the asset itself.”
“To our mind if you have been through the last 18 months or two years and you’ve come through unscathed and you’ve managed to stay in business and make all your commitments and so forth, then you’re a no brainer for the next 18 months or two years.”
Pratt says he is already seeing companies being forced to shelve or even abandon expansion plans and worries that by failing to update their equipment some firms will be hurt in the longer term.
“If you came to me and said I’ve got a business that employs 50 people, that probably means an update of your computer system of probably $200,000 in round figures. You’ve got to put in new software, printers, servers and screens and things like that. Unless your business is a substantial business these days, you know, which would have to have exceptional profits it would be very, very hard to place that transaction.”
As well as the general lack of competition in the market place, where the number of lenders has fallen from around 20 to just eight, the brokers says the way the banks have centralised the credit approval process has meant that there are few bankers with specific industry knowledge and the ability to properly assess a company’s credit worthiness.
“It’s our job to explain to the bank and put the bank in the picture as to what the client situation, requirement and acumen is, but it’s extremely difficult when the person receiving that information and judging it is looking at a set of accounts and not at the big picture,” Gandolfo says.