Why can’t I get cheaper money?

Dear Aunty,


I am livid, to put it mildly.
We are a large company that made conservative forecasts last year, and so have been able to meet our forecasts. We have not breached any covenants and are not in a high risk industry.


So why the hell is the cost of credit rising to such a ridiculous level! Why can’t we get cheaper money, and what is the responsibility of banks. They got that guarantee from the Government. Why can’t they pass it on to us?
And what’s likely to happen? Will it keep going up until there isn’t a business left in the country?


Pissed Off,
Canberra

 

Dear Pissed Off,

Ouch, ouch, ouch! Yes, the cost of credit is ridiculous! And as we report today, this has become a big barrier for business. It is one of the biggest problems that companies face going forward. And it will have a domino affect, because the whole credit cycle is slowing down because companies can’t get credit or have to pay too much for credit.

But the bad news is that it is likely to get worse, and you need to factor that into your projections for 2009/10. Why?

The banks say they are now pricing for risk and loans could go bad. So you might have made your forecasts, but the banks are essentially arguing that the economy could get a whole lot worse and your forecasts could well be wrong.

As for passing the guarantee on to you? The banks have to pay for the guarantee, which helps them raise money in offshore markets, so rather than that being “passed” on to you, that is being added to the cost of credit.

So it will get worse before it improves. And bankers tell me that it is likely that later in the year you might not even be able to get money from a bank even if you do meet your forecasts.
I know you are livid. But this is the new reality. Forget touchy feely relationship bankers. The credit gnomes are patrolling the banks.

So my advise is this. Your banker and your accountant are your new best friends. Having an event? Ask then along. Tell them everything until they are screaming “too much information!” Do very careful forecasts that include worst-case scenarios. And remember – no surprises.

Good luck,
Your Aunty B.

 

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