Banks go through phases. One of them, the “cleansing” phase, is where they exit any business that no longer fits their lending covenants – illogical as it may sometimes seem.
We’re not talking about businesses that have reached the end of the road. We’re talking about those that may be struggling in the current conditions – and can turn around, having the potential to fully recover.
Naturally, it takes some time for these businesses to reduce staff, dispose of surplus plant and reduce other expenditure. Those that have done well recently may have expanded property portfolios and have large commitments to meet. The banks too often don’t give businesses adequate time and they take the big stick approach, pulling businesses from their owners, terminating relationships and slamming the bank doors shut.
The level of business confidence, and the timing and degree of business contraction, is very sensitive to bank actions in distressed situations. Decisions they make can trigger a cascade of threatened businesses right up and down the value chain.
As short term lending specialists, the concern we have at Quantum Credit is that the banks take severe action too often against companies that remain viable. They simply sell up the business and the owners’ assets – long before it is ‘too late’. They even strong-arm profitable businesses, and those within lending limits, for breaching revised LVR ratios or other covenants or for the dreaded 'overtrading'.
Over the past year, Quantum Credit has assisted several SMEs which, in our view, were being treated very harshly. Here’s a recent example of how our funding changed the fortunes of a business.
With a large order book, the bank decided their business client was over-trading and could not cope. They declined a temporary overdraft increase and required their client to refinance. With a prior year net profit over $1 million, strong cash flow, a flexible and receptive attitude from the directors and a strong security position, Quantum Credit funded the business out of the bank by providing a six-month first mortgage facility. This allowed time for a new CFO to bring better discipline and financial controls to operations and to arrange a refinance package with another mainstream bank in a considered timeframe.
With 14 years’ experience in the short term lending arena, Quantum Credit has helped out many SMEs with urgent, temporary funding solutions – saving and protecting reputations vital in today’s commercial environment. The irony so often is that a short-term lender manages the high-care phase for a distressed company and then returns it fit and healthy to where it should be – in a mainstream bank.
If you're a broker, adviser or accountant to a fundamentally good business client that has fallen on hard times, and you believe in a second chance for it, why not give Quantum Credit a call? We are good listeners and willing to discuss any scenario that you may have. You'll never know what situation might be saved if you don't ask. At Quantum, our motto is "Let's Talk" – so give us a call.