Loan restructuring eases the pressure as rates rise

Still reeling from the effects of COVID-19, many businesses are navigating a perfect storm. On the expense side, costs for staff, stock, raw materials, finance and energy are escalating. And on the income side, rising interest rates and inflation are dampening consumer demand.

Dawn Murchison and Santosh Marasini, Senior Relationship Managers at ANZ, shared how businesses are dealing with these challenges. They also imparted practical tips on how they’re using innovative lending solutions to help take some of the pressure off.

“On the back of the pandemic, some customers are going through cash flow issues,” Marasini says. “Those that have Australian retail property or office space investments are experiencing lower rents.”

“Energy prices could keep rising over the next 18 months. And with increasing operating costs and shrinking profit margins, some customers are finding it difficult to pass all their costs to end users and remain competitive. We’re finding that many customers are consulting with their accountant to review their current and future cashflow to remain sustainable.”

Murchison has observed similar trends. “At the moment, we're definitely in a refinance market. As a customer rolls off a fixed-rate loan, they’re pinched,” she says. “And as other costs also go up, people are wondering if they can look at what can be done with their interest rate.”

Lowering borrowing costs and improving cash flow

The good news is there are a number of options businesses can consider to lower their current borrowing costs and improve their cash flow. That’s why ANZ is working collaboratively with brokers and borrowers to design flexible solutions.

“ANZ has a broad lending appetite which allows us to look at many transaction types.” Murchison says. “We’re keen to consider all lending applications and, where possible, find a balanced lending structure to suit both the customer and ANZ.”

“Don't be afraid to present transactions with limited or no tangible security. When we consider a customer’s ability to repay, we think about the need to not tighten cash flow too much or hinder their trading performance.”

“We look to the business operations and try to tailor the offering to what the customer tells us they actually need. Where previously there might have been the perception that we don’t look at under-secured loans or apply a cash flow lens, the reality is we absolutely do and it's just making sure we consider business performance and serviceability rather than just security.”

Solutions as varied as each customer’s need

ANZ has supported many businesses recently with loan restructuring.

“We look at the transaction and see if there's a solution, such as a shorter loan term which gives everybody the opportunity to reassess the position in two to five years’ time,” Murchison says.

“For example, we provided a short-term facility for a high loan-to-value ratio (LVR) loan on a commercial property because, when we looked at the trading business, we saw the capacity to service the loan.

“We provided a two-year repayment schedule based on the information provided by the customer and our appetite. And so, when it’s time to assess and renew that facility, so long as everything's as we expected it to be – that is, no worse than it is today – then we expect to continue that relationship onwards.”

“If the trading business is strong enough and we can forecast and see a continued need for that business and its services, and don't anticipate a change in their trading performance, then that’s what we rely on.”

Lending adapts to volatile trading conditions

There are many lending solutions available. Marasini provided an example: 

“We have a customer that imports food. They have working capital finance facilities and property-related debt provided by the bank. During COVID-19, our customer struggled to import because of shipping delays. Then they faced restaurant closures due to lockdowns. This meant there was limited cash flow to service the debt – a pretty tough situation.”

“So, we met with the customer and their accountant, drilled down into the existing performance, and were able to freeze the customer’s loan repayments for six months. Then the Sydney market started to open and the business recommenced trading.

“However, cash flow was still short so the customer restructured the entire debt onto interest-only repayments for 12 months to take the immediate pressure off. Fast forward, the business is performing really well and the customer is now keen to reduce their debt. Based on their current and future cash-flow performance, we’ve put a progressive repayment plan in place with core debt amortised over three years.”

Marasini says while some customers seek flexibility, others look for certainty.

“If we lock in a customer’s interest rate in the short to medium term, then they have a level of certainty that if they’re going to spend X on bank repayments, then they know the remaining cash flow is for other expenses,” he says. “Understanding the customer’s individual needs is about relationships and transparent communication.”

Murchison says some businesses are keen to reduce rent costs.

“People are saying ‘I’m paying rent at a certain amount’,” she says. “If I borrowed enough money to buy the property I’m in (assuming it's available for sale) or a similar one, then my repayments could end up being the same as, or less than, what I'm paying in rent. This is because, for certain transactions, ANZ can offer 30-year loan terms for commercial property purchases.”

Brokers leading conversations about restructuring

As businesses deal with financial disruption, brokers are increasingly initiating conversations with their customers about the difference that loan restructuring and refinancing could make for them.

“Because brokers act on the customer's behalf, a broker can introduce a deal with another bank to get the customer better pricing, a better structure, or maybe even a better relationship and contact point,” says Murchison. “Banks have differences in their policies and brokers are brilliant at knowing them.”

“ANZ is a very broker-friendly bank. We really value the relationships with all of our brokers, working together in a three-way relationship model to offer solutions for our customers.”

Learn more:

Talk to an ANZ business banker about the restructuring options available to help your customers with their lending.

Note: This article was originally published on the Mortgage Professional Australia website.