Business borrowing in the new banking climate
Business borrowing in the new climate, – what’s changing? Where is it heading?
Part 1 of 3
This article will be the first in a 3-part series talking about the monumental shift in the borrowing conditions facing Australian business today. We will answer questions such as,
In the wake of the banking royal commission how do businesses navigate the current banking environment?
We will run through a difficult application we were involved with and the stumbling blocks faced by the client and how you can avoid these issues in your application.
The current banking climate is not like anything I have seen before, the blow back from the royal commission and tightening of the controls around lending is pumping the brakes on the Australian economy and will have a lasting effect on business growth around the country.
It is harder now to navigate through the application process and convince banks to take a chance on business then any time I can remember.
We are seeing a push back against the recent banking royal commission. The banks are clamping down hard or procedure and process, making sure the full letter of the law is followed, no exceptions.
If it doesn’t fit in the box, it bounces straight back out. This has proven to be frustrating to a number of our clients, with some of them already having existing loans with banks for projects that were seeking further funding. These clients are being forced to jump through more hoops in the refinance, then they were to get the project rolling.
This shows is the difference between 12 months ago and today and how the banks and the whole structure of their approval processed has shifted.
Not only have the banks shifted in the information they require to approve loans, but they have also changed the way applications are processed. The approval process isn’t just one person, but applications are pushed through a centralised processing division that is struggling to cope with the title wave of items that need to be approved, slowing further the application process and making life hard for business to keep projects rolling.
Back many years ago when I started in business, you dealt with a local banker. A person who you said “Hi” to when you went to the bank to either deposit or withdraw, they were always available for a chat and when it came time to borrow. The borrowing process was smooth, and you felt like the bank was a business partner, accessible and helpful in giving you the products and help you needed.
This is not the model the banks are following know, they have centralised the business banking environment in to a couple of offices around Melbourne, focusing all applications through a central processing hub.
This has created two problems in the banking process, one is these hubs are so over worked, it takes weeks to even look at your application, so if there is a small issue or change that needs to be made, you can expect at least a 2 to 3 week turn around before you get to move one space up in the line.
Another issue that has sprung up that makes life difficult for business is these hubs seem to have a revolving door of staff moving up, sideways and out. If you take on a large project that spanned a number of years, you would be hard pressed to have the same banker finish the project as the one who started. We have one client who has a 4-year project and soon we will be moving on to our 6th business banker in the near future.
Its true in business as it is in life, that the longer you work with people the more of a trust relationship you build up. Trust enabled the bank to approve loans to businesses they knew had the experience and knowledge to get projects from concept to completion.
With this relationship now gone its up to the processes to fill the void, and as we stand at the moment the processes are struggling to cope, because no matter how many boxes are ticked the basic relationship is still the same between a bank and a business.
You are taking a change on the skills, work ethic and reliability of the individual or individuals running the business, there is very little in the application process that deals with the people side of the application and without this basic understanding your end up being a number in a long list of numbers and we feel this is a massive step backward in the way business is done in Australia.
In our next article we will cover a real application process start to finish and the issues and problems that we have faced.