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Businesses with financing struggles trapped in a catch-22

Adrian Flores
Adrian Flores
18 August 2020 1 minute readShare
Businesses with financing struggles trapped in a Catch-22

COVID-impacted businesses are struggling to secure bank funding due to no longer being able to demonstrate they can service the debt, according to a financial services firm.

According to Tarek Omar from Royce Stone Capital, businesses are unable to get capital through traditional sources of funding at a time when they critically need it.

He said regional businesses, especially those in agriculture that used to export overseas to Asian markets and/or were supplying domestic hospitality businesses, have been severely impacted.

“This could explain why more regional businesses were being declined by financiers,” he said.

“Right now, the banks are taking a very conservative approach to funding businesses and property asset prices. The market doesn’t know when things will go back to normal, especially for businesses in hospitality.

“Cash flow-based businesses such as those in hospitality dont have any line of sight when their pre-COVID-19 revenues will return to what was previously normal.”

The comments from Mr Omar are in response to the August Sensis Business Index, which found that more than one in four businesses (26 per cent) have been knocked back in trying to get finance over the past three months.

The figure was worse in regional areas, with 37 per cent of those applying in regional towns being knocked back compared with 25 per cent in the cities.

Despite the long path to recovery for many businesses, a recent survey from peak industry body Business NSW suggested that businesses are less pessimistic about the months ahead.

Business NSW chief executive Stephen Cartwright said the relaxation of trading restrictions appears to have provided welcome relief for the most impacted sectors.

“Accommodation and food service businesses recorded the strongest turnaround when asked to look ahead to the September quarter,” Mr Cartwright said.

“Reopening our regions to visitors has bolstered the business outlook in regional centres and provided a much-needed jolt for their business operations.”

While there are positive signs, Mr Cartwright warned that the outbreak in Victoria has clearly impacted border communities and put in doubt what could otherwise have been an even stronger recovery.

“Subsequent restrictions have impacted business confidence. There was a 20 per cent drop in the number of NSW businesses expecting a stronger economy, and 41 per cent of businesses reported that they were more pessimistic about the impact of COVID-19 in July than they were in April,” he said.

“Businesses have entered a cost-cutting phase, which is starting to have a flow-on effect for customer demand, jobs and the potential for our economy to bounce back.”

Businesses with financing struggles trapped in a catch-22
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Adrian Flores
Adrian Flores

Adrian Flores is the deputy editor of MyBusiness. Before that, he was the deputy editor for SMSF Adviser as well as features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.

You can email Adrian at [email protected].

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