Worm turns for non bank financiers
The ‘worm may be turning’ for PM Kevin Rudd, but consumers and SME’s are still feeling the credit squeeze.
Glenn Donaldson of Cash Converters Australia, says his organization (which is the largest dealer of second hand goods in the world), has enjoyed substantial growth over the last couple years through a brand realignment exercise, but conceded that there’s been an industry upsurge over the last financial period.
According to Glenn: ‘Short term lending has been strong, but consumers still need to realize that there are restrictions and that we practice due diligence.’ Whilst restrictions apply, they’re certainly not as forbidding as the banks, and there’s probably no reason for this current trend to abate in the near future.
Just as consumers have been looking toward non-traditional lenders for answers, so have SMEs. Small-business owners report banks routinely reject applications for loans that were readily available just two years ago. Kerry Hudson from commercial finance broker Leaseworks, says: ‘If they (the banks) consider an industry risky, they’re not even interested in considering the assets of a business or the strength of its books.’
Leigh Dunsford of invoice finance provider AR Cash Flow (ARCF), says that businesses in his sector have always been a magnet for start-ups or established businesses looking to expand, but lately the demand has been overwhelming. ‘If a prospect has a solid customer base, we’ll take them on, even if they’re asset-poor or have a wobbly credit history.’
Leigh contends that he’s had to fast-track financial products to meet demand. ‘Requests for PO (Purchase Order) finance have been running hot, particularly from importers.
Purchase Order finance is used by companies that wholesale or retail goods but often manufacture them overseas. It is a relatively new line of business —Leigh claims it’s about 20 years old — and a twist on the ancient and much larger practice of factoring, in which a business sells an invoice at a discount to get its money faster, providing the factoring company with a fee.
Purchase Order finance, though similar to factoring, is further up the financial food chain. Purchase orders are written guarantees from a buyer that it is committed to purchasing a product. By financing purchase orders, AR Cash Flow essentially pays the factory to manufacture the goods. It also pays to have the finished products shipped from the factory.