Alternative funding offers some relief for companies

Gary Palmer

The recent downgrades of SA’s sovereign credit rating has created a heightened sense of uncertainty in the market.

In times like these, it’s common for investors and businesses to sit on their hands but the worst thing that can happen is for transac- tions to stall.

With the possibility of an interest rate increase and government spending cuts that will impact on liquidity in the market, lenders are battening down the hatches to wait for the storm to blow over.

Alternative funding offers some relief for companies

Fortunately, alternative financiers aren’t governed by the actions of big banks, they don’t have to follow the very stringent regulations or banks’ conservative lending requirements.

While they’re obviously very focused on risk and ensuring they aren’t overexposed, they’re still open to lending opportunities, which the banks may not be interested in.

Before 2008, if you asked what a client was looking for in a funder, it used to be the cost of funds. Now it’s about service and the speed to close a transaction. Clients want to work with an institution which can make decisions quickly, to deal directly with a decision maker able to make the call without referring back to a team which may take weeks or months to get back to them.

Secondly, what today’s clients are looking for is based on optimising their cash flow. Borrowers are looking for interest-only facilities where they don’t have to immediately start paying back the capital, and a working capital facility. Finally they’ll assess the loan to value and then only, rates.

This priority shift will naturally come at a slight premium.