Since the Global Financial Crisis there is strong evidence to suggest the relationship between small to medium sized enterprises and banks has changed. Banks are now tougher to deal with – they are managing their risk profile more stringently. There is an increased use of covenants. Covenants set performance criteria for a business and can relate to earnings, interest ratios, liquidity ratios and the like.
To help manage this, banks now seek a higher level of reporting such as interim accounts, debtor analysis, creditor analysis and a strong focus on ATO compliance obligations – particularly in relation to Business Activity Statement lodgements and payments. Banks are also looking for debt amortisation while the concept of long-term interest only loans appears to be coming to an end.
If you are experiencing pressure from your bank, or you are proposing to enter into a re-financing or new financial arrangement consult with your Chartered Accountant to ensure that you can meet the obligations that are placed in the borrowing documentation.