Credit must flow again

The Rudd Government can’t make it rain. But it can help to get credit flowing again by putting more pressure on the banks. And it must do so soon, or it will see huge collapses in the small and medium business sector.  

While many SMEs have been struggling for some time, others have just felt the pain in the past few months. But it is pretty safe to say the whole sector is suffering from a fall in sales and profits. Worse, their customers are paying their bills late and, to boot, they can’t borrow money from banks or the cost of credit is too high.

The poll that we did this week shows how bad the crisis is. The survey of 155 respondents shows just over 43% of those surveyed say their business is currently battling cashflow problems, with almost 58% of respondents reporting that customers are taking longer to pay their bills. And this is causing a lot of stress. About 40% of respondents report that cashflow problems are affecting their home/personal life.

Behind the scenes I am hearing that the banks are wielding extraordinary power. One source who deals with banks and large companies says the banks are forcing companies to bring all their business to them. “They are saying ‘your transactional lending is at another bank, so if you bring it to us we’ll consider the deal’.”

They are also asking companies for enormous amounts of information. Anger is at boiling point, with many of these companies reporting that they will take action when the recovery comes and will welcome the re-entry of foreign banks with open arms.

Other countries that have provided a guarantee to the banks have been able to put pressure on the banks in order to ease some of the stress on credit flow. The latest business barometer by PricewaterhouseCoopers revealed that 62% of businesses wanted the Federal Government to help improve the flow of credit and reduce the cost of borrowing.

And in the long run, some pressure now might be good for the banks. Because people in business have long memories, and business is based on relationships. And may I finish with just one more cliché? What goes around, comes around.