“First to boom and first to bust” -the construction industry.
Road to Recession
Australia was moving dangerously closer to recession prior to Covid. To stimulate the economy by encouraging Australians to spend, the Reserve bank lowered interest rates. However debt is the very worst and most dangerous way to spend money. It is money that you don’t have to spend!
But Australians refused to be drawn into debt, having glanced what was happening elsewhere in the world. Lower and lower fell interest rates, but still Australians refused to borrow for fear of bad times ahead. So rates fell further to entice them.
But then Covid hit and to stop the economy from “tanking”, the government threw billions of dollars at the Australian people and at businesses in particular. Too much perhaps as it turned out. With enough for deposits and interest rates at unbelievably low rates, people rushed into borrowing for businesses, investment properties, farms and homes, cars and yachts, trips abroad. Prices skyrocketed with a bit of help from Russia to cut supplies. Debts skyrocketed along with them.
The low interest rates were too good to be true. It is said that if it is “too good to be true” then maybe it isn’t. Maybe it wasn’t. The interest rates started to skyrocket too.
When we bought our home the mortgage interest rate was 11% fixed for 25 years. The difference was that prices were very much lower even allowing for CPI. It was the same when we bought or expanded businesses and farms. The ultra-high prices as the growing Australian population recently moved into spending mode, meant that the interest was being charged on very high loans and so was very high itself in dollar terms.
What to do – Act early and fast!
There is a Christian perspective in all that we do, so crisis time is a time to reflect on Christ’s teachings. Proverbs has a brief warning “The borrower becomes the lender’s slave.” How true that is for many borrowers today as the media refers to “Mortgage Prison”.
Christians may need to seek assistance or give assistance. The Good Samaritan story guides us and Christ’s warning not to judge others is pertinent. Crisis time is not the time t decide whether someone was unwise to get into difficult debt that puts their business, farm or home at risk. It is time to help. Even a staid Chartered Accountant like me found that in an earlier recession in my younger days I faced a cash crisis with large staff and clients battling to pay. With a big home mortgage to pay I could not go to the bank so in fear and trepidation I asked two friends if I could borrow $10,000 from each. They happily and kindly said yes. I survived and the loans were repaid within a year as my clients were able to pay their bills. It was a great act of kindness. Neither loans were secured or documented except by brief note.
Keep a look out for anyone you can help in any way possible. That is what being a Christian is about and it may help us remove the blot on the Christian copybook caused by some totally inappropriate past behaviour in some churches.
Back to businesses bracing for battle with banks:-
Professionals are not likely to help you if it looks like you or your business will be facing bankruptcy or receivership within 6 months, as there is a serious risk that any fees you pay them could be clawed back by a liquidator or trustee in bankruptcy. So act early to get assistance or you may miss out.
Loans are being extended to cut the regular repayments, but that will increase the actual cost of everything bought on borrowed money, as more interest will be charged and the debt will go longer.
If you spend like mad in your business or privately, the economy might move ahead, or it might go backwards. If you spend up you might help Australia. If the economy goes back, then you might go broke yourself.
Many business people and consumers may decide to protect themselves first. Some have already done so. As consumers they may cut spending to bare essentials; buy only what is on special; take on extra paid work; make rather than buy. Businesses might cut spending to the bone, cutting staff, rent, marketing and that will impact the incomes and profit of other businesses, putting pressure on them to cut spending.
Debtors and creditors
Every situation is very different. For those businesses contacting GBAC we will assess the situation of each business’s debtors and creditors, then talk to them to calm them down. We ask debtors to pay as much as possible off their debts. Cool calm discussion is required to deal with a difficult situation as well as possible for all concerned. Panic is not going to help anyone. Nor is drowning your debtor customers when trying to keep yourself afloat. That can drown everyone. Treating debtors and creditors as you would like to be treated yourself is a good guide. Businesses in cash trouble need to recognise their issues and look for the best solutions.
We will talk to creditors promptly and work out repayment plans that the business can afford and which also help the creditors. They don’t want to send their customers broke. They just want to survive too. Recessions don’t last for ever. Everyone must get through if they can with feasible repayment plans.
Can they afford to help their customers? Of course they can?
Will they? GBAC has persuaded banks to help loan customers all over Australia for 36 years. It takes research, assessment, leverage, persuasion, experience, skill, strategy and technique, dedication to outcomes. Our aim is Good Banking for Australian Customers. Without customers banks can’t survive. Customers can easily move banks to get a better deal. That is what our Borrow Better service is about.
We start by reviewing the bank loan and overdraft accounts and their documentation to see whether the fault lies with the business or the bankers. Often it is the bankers’ fault. They are the financial experts. They know best when to borrow and when not to; which companies can handle what debt and which cannot. Once the situation is clear then GBAC opens discussions with the bank to see how best to resolve the situation with as little as possible damage to the business or the bank.
There are almost always reasonable solutions to any cash or loan repayment crisis. But the sooner they are tackled the more likely is a good solution. Borrowers sometimes get introduced to banks for loans like lambs led to slaughter, by highly paid bank mortgage brokers. The loans often do not match the customer’s needs, cater to economic recessions or ensure ability to service and repay.
GBAC never works for the bank. It always works for the customers alone.
The faster you contact GBAC for assistance the sooner your stress levels will settle and sensible solutions will be identified. As well as helping bank customers solve debt problems, we have run our own businesses and farms, so we know just what it is like to battle bank debt, creditor payments, debt collections, recessions and falling profits. We are now here to help you because we do care about your future.
It will cost you nothing to call GBAC today on 0428 417 496 or 02 9988 3312 for a chat about what is stressing you about your mortgage-secured business or farm loan. We also offer the first hour of actual work on your issues completely free as our small contribution to helping the Australian business and farming community out of a very dangerous situation with their biggest assets on the line.