New Zealand may be in recession but there are steps businesses can take to protect their positions – and even expand and thrive. Whether you are planning purchase to drive immediate cost savings or to increase productivity, or you are thinking about strategic investment to position your business for future success, then it’s likely you’ll be looking into finance options.
The lending environment has changed dramatically over the past 12 months. While lenders may be tightening up their criteria, funding is still available for businesses which meet the lender’s criteria. Here are some points to consider when looking at finance for your business.
• Is now the right time to buy? Goods and machinery in New Zealand are currently well priced but with the fall in the Kiwi dollar, the price of newly imported goods may rise by up to 20 percent in the short term. If you plan to purchase equipment in the next year, it may be more cost effective to buy now rather than later.
• Can you afford it? Look at your business’ monthly outgoings and other loan commitments to check that it can comfortably afford the repayments. Consider how revenue and expenditure may change over the short to medium term. Over the past year, interest rates have come down significantly. This may lessen the financial impact of your purchase, and make loan repayments more attractive. There are many websites that offer calculators to work this out, or talk to your accountant.
• Fund assets in the right way Apply for the right type of loan. If you are buying an asset, it makes sense to use the asset as loan security. This leaves bank lines free for other purposes, which is particularly important in today’s market. If you need to ease cash flow or free up working capital faster than your overdraft can allow, then an invoice finance facility may be best for your business. Also ensure that your loan term and payments are structured correctly for your business, for example, seasonal payments or revolving credit facility, as these may provide your business with tangible benefits such as cost savings in interest or allow you to better manage your cash flow.
• Demonstrate the asset’s future value New plant and equipment can help to boost productivity and increase your business outputs, while saving on repair and maintenance costs. Show your lender that the loan will purchase an asset that will generate additional income or provide beneficial cost savings and demonstrate how your business has experience creating income or savings from similar purchase in the past.
• Be honest and upfront Your lender takes your credit and payment history into account, so keep up monthly payments on loans and utilities to keep your credit history clean. If you have mark on your credit history, explain the circumstances, so these can be taken into consideration.
• Provide current information Last year’s accounts no longer give an accurate picture of your business, so make sure that your application and records are current and complete. Your lender will want to see accurate financial reporting and examine your other finance commitments in detail. If you also provide current cash flow forecasts with supporting notes, this will assist your lender in making quick and informed decision.
• Be flexible If you’re unable to borrow the amount your business needs, ask your financier what may help to have your loan approved. This may include taking smaller loan, putting down bigger deposit or providing additional loan security.
• Ask for top up If you have an existing loan still secured by an asset and have built up good equity, ask to increase the loan or extend the term before taking out new loan. You’ll be dealing with one lender instead of two and can negotiate favourable terms with company you already know and one that knows you.
• Consider consolidating The advantages of debt consolidation include reduced management by only having one lender to deal with, the opportunity to extend your term and ease the monthly repayments as well as the possibility to restructure your loan to purchase new asset that your business needs.
• Keep talking to your lender Get to know your lender and develop good and open relationship. If your situation changes, be proactive and get in touch early. Your lender may be able to restructure your finance deal and offer solutions to help you to meet your financial commitments and keep your assets.
Mike Fickling is manager (commercial) at Marac. www.marac.co.nz
