Changes to how banks are assessing loans
At the moment there are some significant changes happening in the banking market that we are seeing have an impact on client outcomes. So here are the top 2 issues we are seeing in Consumer finance and Business/Commercial Finance.
Consumer Finance Update
Credit card reform is here - this is starting to have a big influence on some people’s borrowing capacity, as banks are moving to a far more aggressive servicing model when it comes to credit card limits.
For example, if you have multiple credit cards or large limits that aren’t being used the banks will still factor these limits as if they are fully drawn and having to be repaid at the highest rate over 3 years. For some this is the difference of passing a banks servicing test and failing.
If you are looking at applying for a loan could consider reducing the number of card or card limits to what you actually use.
Comprehensive Credit reporting is live with the big 4 and more second and 3rd tier funders will be obligated to join in the next 12 months. What this means is that general account conduct is now holding up some application approvals.
Where someone might be a bit lax on paying on time or regularly go over on their credit limits, these “minor” events will now be shown on their credit report and will negatively impact their credit score.
Conversely good account conduct is being rewarded by a higher credit score.
So again, if you are habitually late with paying accounts, this will now start to damage your credit report and could make it more difficult to borrow funds in the future.
Commercial Finance Update
SMSF is now virtually unsupported by banks. NAB is the only Major bank supporting SMSF loans for commercial premises only and on case by case basis. That said they have made us aware they are “reconsidering” their SMSF policy in the next 3-6 months with a view that SMSF lending will be harder to obtain.
BOQ still have a policy but have put their net asset test (prior to the transaction) at 800K which takes out a lot of Self-employed people.
We have 2 non-bank lenders in LaTrobe and ThinkTank that will look at applications on case by case basis but their costing is much higher on entry and rates are much higher so it is important to ensure that the higher cost of lending doesn’t erode any benefit of the SMSF strategy.
Overall SMSF funding is now difficult and where debt is required to fund the purchase you may be best placed to work with your financial planner and accountant and investigate other property ownership structures.
Think Outside the square with Working Capital – Traditionally a business needs working capital banks will offer an overdraft.
However, we have a number of alternative and sometimes better solutions for you to consider to use with instead of an overdraft, such as; Debtor Finance, Trade Finance, Short term loans (if just a spike in need and not sustained) or a restructure of existing debt to free up cashflow.
Sometimes debt is not the solution at all and of course we look to provide advice around your actual working capital cycle to with a view to free up cash in the business such as debtor management, Creditor terms, Stock management and turn over.
All in all, it is best not to accept what you bank can offer as a solution but look at the entire market and alternative solutions before committing to new working capital debt as the wrong choice may not help but hinder your business.
If you have a need for any type of finance from consumer to business debt the best place to start is a review. It is Free and at worst you confirm that your current strategy is the best way to go, but the best outcome sees clients saving money on interest and borrowing less money to start with.
Contact any provident broker to start your review.