Companies Ask For Leeway On Loans

Posted on June 28, 2009
Filed Under Uncategorized |

As the worldwide financial crisis continues to deepen, banks are cautious and hold on to their dwindling funds for dear life.

Banks hesitate to invest in businesses, despite the stimulus given by the government. From small business owners to big corporations, they are most likely to face some difficulties obtaining capital to finance their businesses. For small business owners and entrepreneurs, they are turning to non-traditional lending facilities such as online cash loans to borrow some money for their capital.

Recently, more than 40 percent of Australian corporations were calling for eased lending requirements and debt covenants. There is also added pressure to beef up refinancing on tighter terms and higher margins. According to Brad Upton, Westpac head of syndications and infrastructure finance for Victoria, there is a demand to lessen the leverage and take another look at the risk to people’s balance sheets.

Nowadays, banks are marching to a different tune. They are tightening the criteria and terms of loans after the deals are signed. Business borrowers now are unable to lock away terms for five years or more. Three years of lock-in is now the usual terms for clients. According to another report, compared to 10 percent two years ago and 15 percent three years past, only a measly four percent of loan deals last year have terms from five to nine years. It is a noticeable significant drop.

In addition, the report also said that short term cash loans from banks shrunk to less than one percent in 2008, as compared to 14 percent in 2007. Small businesses can look for alternative sources of funds, either internal or external sources of funding. If enterprising persons want to start a backyard business, they would likely use internal funds such as personal savings to finance it, or take out a small cash loan to increase the capital. These loans are now available online, and not just through traditional money lenders. For external sources, they could get it in the form of debt or equity. But for big corporations, banks are the way to go.

Still, whether small backyard businesses or international corporations, there are three important factors to consider that affect the viability of financing packages, namely time duration, interest rate, and the management participation of the funds provider. These are the important factors that play a key role in the dynamic relationship between corporations and banks. It is imperative that there are strict guidelines to adhere to in order to keep this financial relationship strong and stable.

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