Banks Take a Beating in the Fin Rev

Last weekend’s edition had several articles about the big banks and small business owners, some of whom have a recurring need for Medical Equipment Finance.  The small businesses interviewed did not include any Medical Practitioners, but as mentioned in a previous post, the banks’ credit managers still refuse to recognise the much lower risk profile of the Healthcare Industry, preferring instead to apply rigid, one-size-fits-all finance approval criteria.

The general tone of the articles was that the banks heavily favour big business and residential property business at the expense of small business.  The expense was quantified in relation to bank bills swap rates – big business pays a premium of about 2%, whereas small business pays close to 4%.  This closely correlates with my own experience and provides a pretty good guide about rates in general.

For example, 90-day bank bills were quoted at 4.82% last Friday, so small business can expect to pay in the high 8s, and big business will get rates in the high 6s.  That, of course, assumes that credit is forthcoming, and many small businesses are getting squeezed by tougher credit criteria that ignores longstanding relationships and good credit histories.

One SME owner made reference to his bank’s moving the goal posts on lending covenants and said, “When the sun’s shining the banks give you an umbrella but when it’s raining they want it back again.”  Another said, “They will only give you money if you give them something of greater or equal value.”  An embarrassed banker had to say to one client, ‘Come back when you don’t need the money.’  The comparison of the banks’ current actions with that of pawn shops seems valid to me.

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