How COVID-19 has reframed lender assessments

IF tax time wasn’t already complex enough, COVID-19 has thrown businesses and lender assessments of business performance into chaos.

And unfortunately, in some cases, what flows out of this year’s financials (net of government payments) has an impact on access to funding for the next two to three years.

Generally speaking, a lender will look at the last two years’ financials and tax returns as their measure of income sustainability.

In the current environment, that is often an unfair assessment, and limits borrowing capacity in a rising property market. Sitting tight isn’t always an option.

Most lenders do recognise this. But how to then measure the income comes down to individual industries, individual businesses, and the various policies lenders have put in place.

For example, there are lenders who will not lend to any business who accessed JobKeeper.

This is a harsh view to take, but it reflects a view that lockdowns could keep happening and government support will dry up.

Others are actively applying rules around how to demonstrate full recovery using “Year to Date BAS” and trading statements.

As we tick over to the new financial year, and the need to provide recent financials and tax returns, attention will turn to whether lenders will use their traditional methods of assessment at all.

Whether lending will become easier for SMEs will be less about the funding governments and banks announce as available, and more about the impact that future smaller lockdowns have on businesses, and how long it takes us to truly hit a new business normal.

For now, matching the situation to the individual lender appetites is key.

For more tips and advice, contact Lanie Conquest or Nicola Tucker at Surf Coast Finance

With more than 40 years’ combined banking and financial services experience, they help local families and businesses make smart financing decisions.

Phone 5264 7702, email [email protected] or visit the website surfcoastfinance.com.au.