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The Royal Commission: CEO Neil McKay explains the financial effects

As I write this post I am reading about a proposed class action against the banks. Those represented are "incurring financial losses as a result of entering into mortgage loan contracts " citing irresponsible lending practices.  The Royal Commission has certainly unveiled some more than irresponsible practices across the sector, but I can’t help thinking that surely borrowers also have responsibility for their financial outcomes as well. At the end of the day it is either an individual or business owner’s decision on how much debt they need to have and to be comfortable that they can meet the repayments. Has the concept of people being responsible for their financial wellbeing been lost in these times of people seeking extraordinary wealth most likely well beyond their means?

At SME Finance Group we are already experiencing changes in how financiers are underwriting applications in response to the allegations of “irresponsible lending practices”.  Consumer and SME borrowers are required to provide extensive information to convince the funder on why the loan should be approved. For consumers, a deep dive in to actual living expenses is now undertaken rather than using generic data based on marital status, number of children and residential circumstances. For SME borrower’s financiers will now request the most recent financial statements including monthly figures from your accounting software, tax portals, comprehensive statements of position for the directors/partners and details of all financial commitments that the business has. Whilst it would be foolish to say that gone are the days when being either a long-term customer of a bank, a good payer or that you regularly buy your bank manager a beer was a good reason for your loan to be approved, it is certainly not how business is done today or in the foreseeable future.  

Compounding all of this are the changes in credit reporting, the introduction of personal and business credit scores and the up coming introduction of open banking that gives your financier more visibility to your credit history, both positive and negative than ever before.  For businesses, this includes visibility to trade and creditor payments which are assessed against industry averages.  In simple terms, it has never been more important to pay your bills on time.

None of this is bad news.  In fact, in some other countries the introduction of comprehensive credit reporting has resulted in the conversion rate for credit approvals increasing.

The doomsayers will lead you to believe that there is a credit squeeze underway.  That is certainly not the case.  There is more funding available today from a diverse range of lenders than we have ever seen before. Todays challenge is to be up to date with all your financial information. Not being able to meet a simple request, such as providing management accounts from your accounting software will make the financier concerned that you are not in control of your business.  

The message is simple.  Have your financial affairs under control and know your ability to meet your commitments, and the funding will be available to support your personal and business growth.   

Of course, it would be remiss of me not to say that a good broker can assist you to get the right outcome for your funding needs, as they are experiencing this new environment every day.

 

Neil McKay is the CEO of SME Finance Group (We arrange funding for business assets, residential or commercial property, fleet management services and vehicle purchasing to support SME businesses)

 

 

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