It was a bit quiet in Business Loans today, until....

New customer

I got a call from a builder bloke wanting a $5 million business loan. Says he's a bit short of cash at the moment. They have been ploughing profits back into business including new machinery and IT systems. Writing them  off to get the tax deductions. It all makes the financial statements look horrific, but there’s a good cashflow projection showing excellent profits from now on. The demand for new houses will never cease.

Opportunity Knocking

Business Loans Banker thinks, “Improvements are an integral part of small business life. They never end. Businesses can absorb everything the owners plough into them. The cash shortage is possibly because the business is losing money and chances are it will go on losing money. How much do they want? What’s the security worth? Premises plus nice home.  Probably worth two to three times what they want to borrow. We'll get a valuation.  There's plenty of room for increased lending before we’d have to sell them up."

The customer is always right

To the new customer“ So are you thinking about maybe a $4.5m 15 year term loan and $500k overdraft?" Customer's predictable response, "That would be fine. " 'Well, we could possibly lend you that if your cashflow projection and security stand up and you reckon you can manage the repayments on time." "Our cash flow says we could do that comfortably.

Long-term lending

If they keep on spending money, they’ll be back and we can extend the overdraft from which to pay the interest. This will show the bank a good result .” “Done well today! Nice guy.”