Prices can rise
“When the tide goes out, we all see who is swimming naked”, a simple analogy from Warren Buffet. One with profound insight. A robust business model will survive market conditions and even flourish.
In finance, this applies to lenders and borrowers.
Pre-Covid the market was awash with cheap money as a plethora of lenders competed on asset risk. In their haste to lend they often ignored the business structure of the borrowers. And the inherent risks of those structures. They overlooked whom they were lending to.
“Low Doc” lending was the high point of this profligate lending. It neglected the precarious, illiquid position of many borrowers. With everyone throwing money at them, it became too tempting for those businesses and risk fell on frail balance sheets.
Something that many borrowers and lenders are finding, to their cost in a Covid world.
The money supply is constricting.
With the business contraction caused by Covid-19, the supply of money has adjusted. Many asset and business finance lenders have rising delinquency rates on their books. They have a growing number of borrowers that cannot repay.
Those self-same lenders are greatly challenged to access further funds to support their lending business.
For borrowers and lenders with unsustainable business models, they could be exposed. Naked for all to see.
Inevitably the contraction will see a re-pricing of money. Assuming you can access it. For those of us that can, we will likely pay the price of restoring the losses of the less prudent.
“What should a business look for in a financier?”
When we posed this question, we suggested borrowing from a financier that will strengthen, and add skills to the business. Reliability and consistency are also important attributes.
IA is still operating on the same business principles that have seen us through the dot-com crash, the 9-11 crisis, the GFC, and now Covid-19 contraction.
We focus on relationships. The alignment between lender and borrower. The business case at hand, and the long-term interest of our customers.
Principles that have seen us flourish for the past 20 years.
We are open for business, as always. We price for risk, not opportunistic gain. We work to reduce the risk for both borrower and lender. It creates sustainability and transparency.
When the business principles are correct, the market conditions have less impact.
To find out how we can work together, please feel free to call us on 1300 729 995 or visit www.theiagroup.com.au.