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Secure business loans in economics downturn

Small businesses (SMEs) are critical to economic growth and development. It is important to provide them with strong support to weather an economic downturn. If business owners manage their business professionally and know the right ways to get help from banks, they will be able to survive or even grow during difficult times.

For many SMEs, financing from a bank is a key source of support in an economic downturn. Getting financing does not have to be difficult, providing the SMEs have the ability to repay. This is the most important factor a bank considers when evaluating any business loan application.

Repayment ability an overarching factor SMEs should exercise due diligence on their own business before deciding to borrow in an economic downturn and ensure that loan repayments are manageable before they even approach the bank.

Banks value transparent and candid borrowers. Consider this: would you say ‘yes’ if someone tried to borrow money from you but refused to let you know why? By the same token, if customers who do not have any loan records with the bank are not able to provide adequate background information, it will be very difficult for the bank to offer a suitable financing solution. Given a comprehensive and true picture of the company’s situation, the bank will be able to tailor-make a financing solution that is suitable for customers and viable for the banks.

Recently, one of our SME customers, a construction company, asked for an increase in its loan facility. The company sees business opportunities in view of the launch of several projects by the government. Being our long-term customer for the past decade, the company has established a very close relationship with the bank, and we understand that the company has been growing and making considerable profits every year. The bank approved over BND500,000 in loans for this customer.

SMEs should consider that in line with good banking practice, banks usually require some form of collateral, such as inventory or assets of the business owners, so that the risk taken is shared fairly between the bank and the customer.

But the primary consideration from the bank’s point of view is repayment ability. An SME can prove its repayment ability in a number of ways, including strong cash flow, profits and good credit history, and favourable business outlook. SMEs should regard banks as their business partners and let them know their financial conditions. If an SME can prove its ability to manage its finances properly and to follow through on a long-term development plan, it is a further reassurance to the bank.

Choose the right type of financing In the current economic environment, the best solution for many SMEs is structured lending, such as trade finance, which can be matched closely to their working capital cycle, the time between spending cash on purchases and overheads and collecting cash from customers.

It is up to the SMEs to get a clear picture first of their own assets and liabilities and assess themselves what its real needs are so that it can work with the bank to choose the right type of loans for their specific needs. When SMEs approach a bank for a business loan, they need to be open about the purpose of getting a loan so that banks are able to assess risk and offer the best financing solution.

Build mutual trust to weather difficult times together It can also make it much easier for a business to obtain financing if it has an established relationship with the bank. Demonstrating that the business is using bank accounts and credit responsibly at both good and bad times give the lenders comfort.Acompany that has established a good long-term relationship with a bank – even just by setting up operating accounts – is usually able to get financing from the bank more easily and quickly than a business customer “just off the street”. This is because a business’s financial track record gives the bank a better understanding of the customer’s circumstances so that it can process its loan application and offer the best financial solution in a speedier manner.

For example, a company short of cash flow should not take out a mortgage loan to speculate on a rising property market. Even if the company applied for such loan, a responsible bank would likely turn down the application to avoid putting the company in an even more difficult financial situation

We believe that SMEs are the lifeblood of most economies and it is their success that will create economic growth. HSBC is a proud supporter of businesses who are rising to the challenges of this environment and finding opportunities for growth.


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