What a difference three months can make in the world of finance.
It doesn’t seem that long ago when interest rates were stalled at historic lows and inflation wasn’t even uttered in conversations among businesses and households.
Yet in three consecutive moves, the Reserve Bank of Australia has raised the official cash rate sharply, banks have followed suit and price rises are causing angst among policy makers and business owners.
Our industry is now facing a new economic environment in which to operate.
Navigating the best possible financial path through these challenges has as much to do with relationships as it has risk management.
Relationship building
Now more than ever it’s important to have a strong relationship with your bank and one that is built around communication, honesty and transparency.
This is critical, particularly at a time that requires review and reassessment of your financial situation and goals.
However, for many SMEs, the relationship with the bank can often feel like a one-way street – with a business only hearing from its lender when its accounts exceed borrowing limits or repayments are missed.
An experienced commercial finance broker can be integral in enhancing a fruitful relationship with a lender by understanding the information requirements of the lender, packaging and presenting loan submissions and negotiating pricing and loan terms.
Be willing to share
The number one rule for any relationship is open communication.
Many business owners and operators fall into the trap of not sharing vital information with their finance providers for fear of it being viewed negatively.
However, with this approach you run the risk that decisions will be made purely on numbers rather than an understanding of your business’ situation.
It’s important to share key information such as financial statements and business plans as well as identify current and upcoming risks, as this all may have changed in recent months.
Review
From commercial objectives to family interests, having the right finance arrangements in place is critical.
Now is the time to review current banking arrangements to ensure they meet the immediate and future needs of the business and those of the individual owner or operator.
This may mean researching the market and identifying options to seek new and increased finance if required.
Such a review would likely involve a close inspection of current financial products in use as well as consideration of others that may be more suited in the new economic and business climate.
This can take in everything from term deposits and equipment finance to line of credit and overdrafts and even household mortgages.
It should also consider loan repayment and refinance options if applicable.
Again, this is an area in which your finance broker can provide valuable objective guidance.
Risk management
It is generally expected that this rising interest rate and inflation cycle will be with us for the foreseeable future.
There are various hedging products on the market that can provide a level of protection from rising interest rates. Your finance broker is well positioned to help select the right product to match your specific needs.
For more information on positioning your business for growth despite recent economic factors, please contact your local William Buck Business Advisor.
