In the news

By Benedict Kelly

27 November 2009, Mail & Guardian Online - With the downturn in the global and South African economies , the pressure on small and medium businesses to survive has been intense.

Part of the challenge that SMMEs face is not only survival -- they have also found it intensely difficult to fund the purchase of assets. As easy as credit was to access before the downturn, it has become difficult to acquire during the recession. This is changing however Keith Watson, director of strategy and business support for vehicle and asset finance at Standard Bank, comments that six months ago banks were extremely hesitant to finance assets for small companies because the risk posed by these transactions was considered too high.

“The increased risk was a result of the slowdown in the economy as a whole, cutbacks at large companies -- many of which are the customers of small companies -- and high interest rates. All of these contributed to a situation where smaller companies were seeing decreased revenues and increased costs, putting many of them at risk,” he says.

“We were seeing a lot of companies that had finance deals with us defaulting on those agreements, as well as the number of insolvencies and liquidations increasing.

At the same time it was more difficult for us to borrow money on the international market, which in turn restricts the amount of money that we have to lend to clients,” he says.

The bank also saw that the number of applications for finance was smaller than before as companies decided that the time was not right to look at acquiring new assets, Watson says.

Many of these risk factors, specifically the high interest rates, have eased and banks are now looking to ramp up the amount of asset and vehicle finance they grant.

Moving into 2010, Watson expects the scale of asset finance deals to start to recover.

Source: Mail & Guardian Online. View original here