Credit drought

The entrepreneur behind a large company has started negotiations about rolling over his company’s loan facility. He’s been a loyal customer of the bank for a long time and the business is travelling well. Should be a piece of cake.

Not quite. The bank manager is happy to rollover the loan facility, but there’s a cost – a big, one-off rollover fee. Nice doing business with you.

Across town, a property developer walks into his bank manager’s office to talk about rolling over funding on one of his projects. It’s 90% completed, it’s a bit behind (which property development isn’t?) but it’s all gone pretty well, considering.

But the bank manager has a different view. There won’t be any rollover. In fact, he says that the bank is worried about this project and considering its options, including receivership. The developer was told his best option was to put in more equity – hardly an easy thing to do.

These are just two of the stories told to me this morning by Cliff Sanderson, managing director of Restructuring Works, a consultancy that helps battling companies get back on the right track.

He’s just released a slew of figures showing that bad debts remain a huge problem for our banks and any suggestion that the banks might try and nurse struggling customers through is just not true.

The GFC might be over, but don’t for a minute think that the credit squeeze is over for small business.

In the last 12 months we’ve seen risk premiums raised, covenants being reviewed and rate cuts not being passed on. You can now add these rollover fees to the list of horrors.

The worst part of this is the fact that SMEs generally have to just sit there and take it. As Sanderson said to me this morning, what’s the alternative? All of the banks are taking the same hardline stance and there appears to be very little real competition in the small business end of the market.

The problem is, what can be done? While business groups have been urging both sides of politics to intervene, and we’ve seen summits and talkfests to address the issue, very little has changed. That list of horrors is just getting longer.

And the Government needs to realise this is a threat to the economic recovery.

A survey by the Master Builders Association of Victoria found more than half of its members have had projects fall over because clients couldn’t get funding.

That impact spreads to hundreds of workers, hundreds of suppliers, hundreds of property investors, hundreds of developers and, for the Government, hundreds of millions of dollars in lost tax revenue.

If the Government can’t force the banks to change their attitude (which they probably can’t) then it’s time to do more to foster competition in this marketplace.