Funding Rollover Delays Put NZ Businesses At Risk

Funding Rollover Delays Put NZ Businesses At Risk

Many New Zealand businesses may be putting themselves at risk by delaying the process of securing funding facility rollovers.

Carl Griffiths, an Associate Director at Bancorp Corporate Finance, says a tendency to focus on short term gains rather than long term certainty means that some businesses gamble by leaving refinancing as late as possible in the hope that costs will drop.

“The recession may appear to be easing but vigilance is still needed. Certainty counts for a lot in today’s volatile economy, so savvy businesses begin the funding rollover processes a year out,” he says. “Businesses beginning three months out or less take a huge gamble.”

Mr Griffiths says risk levels rise as the funding rollover’s due date approaches.

“Credit is still not readily available and there’s a lot of competition for it. Businesses can be caught out because banks are being very selective and exacting – they’re really putting funding applicants under the microscope.

“Some businesses may only secure partial funding, meaning that they have to approach other banks to make up the shortfall. Time becomes of the essence when this happens and it’s always good to have time in hand before the funding facility expires.”

Mr Griffiths commented that banks prefer clients that provide an opportunity to offer a whole funding solution rather than just a loan, and the banks are seeking to secure ancillary business such as the company’s transactional business, cash deposits, interest rate swaps, foreign exchange, etc.

Businesses that fail to secure full funding could end up in default. At best this could cost the company money (e.g. penalty interest) and severely hamstring business decision making. At worst a defaulting business could be put into receivership, sold or liquidated.

“In these uncertain times, moving early to secure funding rollovers means there is one less risk for the business to worry about.

Leaving it late is akin to funding rollover roulette. The stakes are high and a business contemplating this decision should think long and hard about whether the gamble is worth it.”

THE FOUR ‘Cs’ OF SECURING FUNDING FACILITY ROLLOVERS
Businesses can greatly assist their chances of getting a full funding facility rollover by following the four ‘Cs’:

Confidence: Provide banks with evidence that they should be confident in the business’s management and strategy. Demonstrate that management understands, and is responsive to, the operating environment.

Covenants: Ensure the business is fully compliant with all covenants and other financial commitments. If it looks like it could be tight, then provide evidence of a plan to redress the situation.

Communication: Banks don’t like unpleasant surprises! Ensure communication is proactive, responsive and timely. Provide financial projections for profit and loss, balance sheet, cash flow and rolling cash flow forecast. Advise the bank of issues before they arise and provide solutions for the problems.

Customer value: Demonstrate how the bank will benefit from funding the business beyond what it can earn from the loan. Highlight opportunities to provide the bank with other business and demonstrate a commitment to doing so.

ENDS

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