We’re not talking about businesses that have reached the end of the road. We’re talking about those that may be struggling in the current conditions – and can turn around, having the potential to fully recover.
Naturally, it takes some time for these businesses to reduce staff, dispose of surplus plant and reduce other expenditure. Those that have done well recently may have expanded property portfolios and have large commitments to meet. The banks too often don’t give businesses adequate time and they take the big stick approach – pulling businesses from their owners, terminating relationships and slamming the bank doors shut. The level of business confidence, and the timing and degree of business contraction, is very sensitive to Bank actions in distressed situations.
Decisions they make can trigger a cascade of threatened businesses right up and down the value chain. As short-term lending specialists, the concern we have at Platinum is that the banks take severe action too often against companies that remain viable. They simply sell up the business and the owners’ assets – long before it is ‘too late’. They even strong-arm profitable businesses, and those within lending limits, for breaching revised LVR ratios or other covenants or for the dreaded “overtrading”.