Financial advisers looking for support from the banks to keep their businesses afloat during the lockdown are discovering the government-backed scheme is not quite as rosy as it first seemed.
While the government has agreed to guarantee 80% of any COVID-19-related bank loan to business owners, the remaining 20% of the loan has to be guaranteed by the borrower – and that could involve putting their home or some other asset on the line.
In addition, there is anecdotal evidence that banks are taking a hard look at loan applications and in some cases declining them; having decided that even with a loan to get a business through the worst, the enterprise is not viable in the long-term.
Katrina Shanks, CEO of Financial Advice NZ, says the banks still have to make responsible commercial decisions when they lend money.
“All the normal criteria are still in place and the government is there to ease the process for the banks to be able to extend money knowing there is some backing behind them,” she says.
Shanks is sure many business owners will apply for a government-backed loan, but agrees there has been some confusion over the ease in obtaining one. She expects the government to monitor this situation.
“The unintended consequences of this policy is that businesses thought they had access to these funds more easily than a normal process,” she says.
The unintended consequences of this policy is that businesses thought they had access to these funds more easily…
“If government sees there are adverse outcomes or it isn’t as they intended it to be…well, these are rapidly changing times and policy has been made very quickly, to be responsive. I imagine it will be reviewed over time to ensure that it is meeting the requirements of that policy.
“But the banks have responsibilities – government policy doesn’t absolve them of that. The banks still have to be responsible lenders.”
Tough climate
Shanks is under no illusions the current business environment is tough going, and may get tougher over the coming weeks and months.
Not all businesses will survive COVID-19 due to the financial impacts of the lockdown…
“I think it is very tough out there for a lot of business,” she says. “And this is where you have to understand your business, what’s happening in your business, and knowing the levers you can pull and push in terms of revenue and expenditure, profit & loss, and understand how to activate your balance sheet in terms of debtors and creditors.
“Not all businesses will survive COVID-19 due to the financial impacts of the lockdown. But I think there is goodwill among all parties to try and help as many business as they can.”
Opportunities
However, there are opportunities for financial advisers beyond ensuring their current clients are supported, says Shanks. In particular for products that do not require health or medical checks.
Show your clients what a professional financial adviser looks like…
“There are opportunities where you don’t need to activate those types of procedures to get a policy in place,” she says. “There will still be some new business coming through but it will be limited for a period of time.
“In times of stress and pressure, and with time to spare, people will look at what they have got in place now and some may see they haven’t got the cover they require to meet the risk they face. So they will be reviewing their insurances, and so that’s where the opportunities are for advisers.
“But there is no doubt that financial advice is based on trusted relationships and now is the time to build on them. Show your clients what a professional financial adviser looks like. Financial advisers can really demonstrate their value.”
Lockdown
Shanks says the government has been great on the lockdown and controlling the virus but the economic implications of such a bold move are still to play out.
A lot of [commercial] landlords are playing hardball…
“You can’t just pull a lever and have the economy running again,” she says. “People have their own private houses on the line.
“A lot of small business owners do not have a small business to build a business. They have a small business to make a living off – there is a big difference. They just draw a salary or a wage like their workers. And that’s what a lot of small businesses are like in New Zealand.
“A lot of [commercial] landlords are playing hardball out there in the market which makes it really hard for business. Some tenants will review if they need to lease that space or might consider a small space later on.
“And what will happen if someone comes in with the virus again? Do we go into lockdown again? And that’s what people in business will be thinking about now they have staff working from home.”