Equipment Lending & Banking Update – June 2020

Australia Retains it’s Triple A Credit Rating

Today’s equipment lending environment is amidst of the global recession placed upon us by none other than, COVID-19, Australia has managed to retain a Triple A credit rating.  Moodys Investors Service recently revealed a clean rating on Australia’s economic strengths and governance and decided to retain the AAA credit rating.  This firm also predicted the economy to shrink by 5% and not surprisingly warned of a reduction in demand for Chinese exports.  In hindsight of the report, Moody’s analysis shows support for the Australian economy’s ability to bounce back from the global recession and predicts positive growth next year.

Tighter Lending Criteria for Equipment Lending

Will Finance, a Finance Broker specialising in the equipment lending environment has noticed major tightening in equipment lending criteria facing customers through this COVID-19 economic climate.  Tighter restrictions have been implemented, such as obtaining a letter from the borrower stating how they have been affected by COVID-19.  This letter needs to confirm that the borrower has sufficient cash, working capital and work in progress (WIP) to trade through a 6-month downturn whilst still maintaining payments to their lenders.  In addition, some lenders are requesting an extra credit reference from a reputable finance company with at least 12 months satisfactory conduct.  Many borrowers wanting to progress and recover from this recession, feel these additional restrictions are unnecessary and may be stalling the availability to credit for many Australian businesses.

Support Australian Business

Economists and many others have been saying for years to support ‘Australian Made’.  Until COVID-19, there has been nothing but a flood of ‘China Made’ and ‘Made in India’ products on our retail shelves.  As Will says, “there is no reason our resourceful country cannot manufacture many of the products we previously imported.  Government needs to back and support Australian business with encouraging finance for Manufacturing and Agriculture and truly support buying ‘AUSTRALIAN MADE’.

Australia’s Deferred Loan Statistics

Since the COVID-19 Pandemic 780,000 loans worth $236 Billion have been deferred in an effort to help build a bridge for Australia to reach the other side of this pandemic.  The banks and lending institutions are to be commended for this action, however if these stringent restrictions for new business and equipment lending is not eased, fewer businesses will be able to recover, unemployment will rise, and existing deferred loans will not be repaid. 

The Council of Financial Regulators (CFR) which involves members of the Reserve Bank, Treasury, Australian Securities and Investments Commission (ASIC) and Australian Prudential Regulatory Authority (APRA) have stressed the importance of access to credit to prevent further havoc from the virus.  APRA has reiterated that the large capital buffers above regulatory minimums, which were built up in more favourable times, ought to be used during these unprecedented times.  Members of the CFR have been encouraging the banks to use their buffers to support Australian Business.

$150K Instant Asset Write Off Needs Accessible Equipment Lending Options

Equipment lending brokers from Will Finance believe that Brokers play a significant role with stimulating the Australian economy.  The government’s announcement to extend the $150K Instant Asset Write Off scheme for business equipment has been welcomed by many business owners.  WillFinance Pty Ltd also said that Finance Brokers have a responsibility to source the most cost-effective finance for customers to purchase assets that will provide high returns and growth.  However, the once quick and easy process for businesses to obtain finance for equipment that is often essential for their operations is now more difficult than ever.  During this time when business needs assistance more than ever, access to finance has never been so difficult.   It’s all very good for the government to extend their $150k Asset Instant Write Off scheme but what business, in the best of times has $150K cash to pay for needed assets.  If lenders do not relax and revert back to their previous lending criteria the government’s Scheme is useless, the economy will decline, unemployment will rise, and the recession will progress. 

Hopefully our next update will have some good news about Equipment lenders easing their criteria and reverting back to their pre COVID-19 standards.

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