Christchurch businesses are struggling with a cash flow crisis that threatens to cripple the region’s efforts to rebuild according to Lock Finance, which has specialised in business financing since 1889 and has a significant number of Canterbury clients.
Lock Finance CEO Simon Thompson, who is also a part time consultant to the World Bank, explains: `Almost a third of our clients are based in the Canterbury region and a significant challenge for many of them is balancing the payments that need to go out with the timing of the work coming in. The time taken by the EQC to approve work, together with the policies adopted by some major contractors mean that there is sometimes a gap of six months or more between money going out on wages, materials and running costs, and the money coming in for work completed.’
Business Mentors New Zealand Canterbury Coordinator Jill Taiaroa agrees that the mentoring service is seeing cash flow related distress among SMEs in the region: `There is a delay running through the whole system that is causing the problems. There are so many people in the chain, from the EQC, the larger players and then a lot of sub contractors, that there are inevitable long delays which impact on smaller companies’ cash flow making it very difficult for them to retain staff until the work is approved.’
Simon Thompson visits the region at least once a month and reports that on his last trip he met one client with a drainage contracting business who had a lot of work being processed by EQC but was unable to use those prospects as business finance equity and consequently was losing his best workers to projects in Queensland. Another client has 4,000 driveways and 300 swimming pools to repair; work which will keep his business occupied for years, but the growing gap between commission and payment meant that the poor cashflow was threatening the viability of the company.
Simon Thompson comments: `It will get better as time goes on, but in the meantime some of these companies are on a knife edge just managing to pay their staff and keep going. Unlike some of the bankers and other financiers we do understand the order flow and the business cycle. Traditional banks find it hard to deal with a business without having property as security or cash in the bank. They haven’t got the people or the expertise to properly assess a business and so a lot of hidden value is not being recognised.
`Business owners should realise there is a more diverse range of SME assets (such as plant, inventory and account receivables) beyond traditional security such as property-based assets on which to base their borrowing. New Zealand leads the way in this area and the World Bank sees us as a ‘best practice’ country. We have a very good legal framework (based on our Personal Property Securities Act), a well-used online security registry system and active market lenders, such as Lock Finance, who do not need property security when lending to the SME sector.’
Lock Finance, which has just signed on as a National Patron of Business Mentors, sees support for mentoring as an integral part of its vision for the economic development of New Zealand.
Lock Finance is a 100% New Zealand owned finance company, providing financial services to small and medium-sized businesses throughout New Zealand. Lock Finance aims to help SMEs optimise their business growth by providing a range of fully integrated funding options including working capital, trade finance, debtor finance and factoring.
Simon Thompson, Lock Finance: 0274 895 559
Peter Boyes, BPR: 0275 540 500
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