In this low interest rate environment access to capital has been plenty. Your clients should be taking advantage of this opportunity and reviewing their finance facilities to determine if they are getting the best possible financing deal.
As we come out of the latest COVID lockdown what has remained consistent during this period is that we have seen high levels of lending and refinancing of facilities. The Australian market has seen financiers offering a whole suite of different kinds of facilities and the growth in facility offerings continues. Business operators and advisers should now be exploiting this opportunity and undertaking a finance facility review. This can be done in-house or with advisers such as ourselves who undertake security and finance reviews.
It is important for advisers and their clients to regularly review their finance facilities. This should be undertaken on an annual basis. When building a strategy or operational plan for a business, investing in new projects, making acquisitions or seeking additional working capital, businesses and their advisers should investigate the various facilities on offer.
Facilities from real property loans (mortgages) to invoice financing to R&D funding, to plant & equipment financing are usually the kinds of facilities that businesses seek to use. However, it is the various ways these facilities are structured and are being offered today that their advisers and their clients should seek to explore. We are seeing financing products sit within software platforms such as Xero. We are also seeing very established and reputable brokers provide broad offerings to suite the needs of their customers.
It is important to find a reputable and capable finance adviser. Accountants may choose to assist their client in house without the need of a finance adviser. There are plenty of finance advisers, however, finding the right one is critical and choosing an adviser should be based on the kind of funding needs your client requires.
There are many brokers that write home loans and can easily find you the right bank or financier to deal with your personal home. However, as the business and the personal financing positions grow and become more complex, many of those brokers are incapable of assisting you when it comes to the best deal for your client and their business. If your client is in some form of financial distress the need for a restructuring practitioner might also be required.
Key Considerations
There are some key questions that business owners and advisers should ask when reviewing the current financing needs. They include:
- Does my adviser have the capability to assist or do I need to find an adviser/finance broker?
- What is the purpose of the financing?
- What charges and interest am I currently paying on my facilities?
- Do I need a finance adviser and if so, what is the reputation of that adviser?
- What kind of assets do I have to offer up for security?
- Do I want to offer up assets for security or do I want it to be an unsecured loan?
- What is the financial position of the business?
- What is the term of the loan?
- Can my cashflow meet the funding needs?
- Is the purpose of funding aligned to the business overall strategic goals?
- If the business is in financial distress, should I consider alternative options such as safe harbour or a formal restructure under the insolvency options whilst seeking further funding?
- What is the reputation of the lender?
- What is the financial arrangement between the chosen lender and the broker?
Make sure your client seeks appropriately qualified advisers with a strong reputation. As Aaron Johnson of Partner Point says:
“We are approached by trusted advisers, like accountants, keen to help their clients navigate through some of the opportunities and roadblocks, especially those presented by the last 18 months. Often, we partner with restructuring practitioners like Cathro & Partners. Some of the trusted advisers’ clients are looking to simply take advantage of the consistently low cash rate and refinance. Some are looking for more complex solutions to their needs that their current brokers and advisers cannot service. This might be because their current lenders and advisers don’t consider the entire lending market – banks, non-banks and private – and cannot access the absolute best solution for their clients. Others may not operate independently from lenders and cannot provide an objective lens. And others just simply do not always keep the client’s circumstances at the heart of each transaction.“
As a restructuring practitioner, I often work alongside the adviser or finance broker in special situations to assist the client undertake a restructure. These engagements either happen through the safe harbour provisions or through an informal restructure. Businesses that are experiencing financial difficulty are sometimes oblivious to the ability to seek funding that may resolve their financial problems.
Often a business is faced with a short-term funding need and have chosen the wrong funding product off the back of poor advice. The business fails to review the cash flow impact to the business and before too long the business is both in breach of the terms of the facilities and potentially facing insolvency.
