In finance a good customer outcome is not necessarily always borrowing more or indeed reducing amortisation.
Often a good customer outcome and the right thing is to reduce debt through amortisation.
Good Customer Outcome – Poor Structure not a Lack of Intent!
In our experience many business owners would like to reduce their debt! However, often it is the way their facilities have been structured, that makes amortisation difficult to achieve.
This occurs for a number of reasons, often simply because borrowings are added over time to meet specific needs, without a holistic view being taken as to the client’s overall position.
Through the evolution of the borrowings, they can find themselves in “cashflow handcuffs” – wanting to reduce debt but no obvious way it can be achieved!
The Challenge Presented!
For example, we recently worked with a client who ran a long established trading business.
The client had become frustrated with the ongoing reliance on his family home as part of the Bank’s security arrangements.
He also felt what he was being charged was not reflective of his business as it was today and his overall risk.
He was a long-term customer of his Bank, and over 12 months sought assistance of his banker to no avail.
Frustrated, he was introduced to The 500 Group.
The Client Request
The client engaged The 500 Group and requested we:
- Review his facilities
- Reduce reliance on the family home as part of the security arrangements
- Keep monthly commitments at the current level
- Seek improved pricing to better reflect the market, his experience in the industry, and risk profile
The Road to a Good Customer Outcome
Finance Proposal
- Prepared a detailed Finance Proposal outlining the historic and forecast business performance and strategy regarding amortisation
Key Changes Requested
- Reduce interest rates on all facilities to better reflect the risk and business performance
- Fully leverage investment properties and reduce reliance on family home with the intent this will be released as debt amortises
- Commence amortisation on significant portion of the investment property debt over 30 years
Action
- Engaged the client’s accountant to ensure proposed loan structures would not negatively impact client and/or businesses and align with future plans and tax strategies
Negotiating the Solution!
Reviewed our panel of Lenders in the context of the client requirements and engaged an experienced Senior Banker with approval discretion capability.
A Good Customer Outcome Achieved
As a result working closely with the senior Banker we were able to achieve:
- Significant ongoing interest rate savings
- Through restructuring of facilities, improved cashflow allowed amortisation of debt at the rate of $100,000 in the first 2 years
- Reduced reliance on the family home – which will be released in future as debt decreases
In addition, as is our usual practice, we provided the client with a copy of the Finance Proposal before submitting it to the Bank to confirm our understanding and strategies were correct.
Summary
This is a great example of the power of the market and how a client’s objectives can be achieved, whilst at the same time the Banks risk position is improved.
Ultimately a good customer outcome was achieved, not only for the client, but also the Bank!
It demonstrates what can be achieved by when Brokers and Bankers work together for the benefit of the client.
If you would like to learn more about how The 500 Group may be able to assist, don’t hesitate to give me a call!
