QLD private consumption is relatively strong, particularly in the South East and Cairns. Leisure and entertainment expenditure is growing, tourism is up and retail figures are doing okay. Most importantly, poker machine gaming is up by over 6% in December and 4.9% for the year. From this we can see that market growth is definitely out there and we may have the perfect storm of strong demand and cheap money.
Banks have acted to keep lending margins low too. It’s now not unheard of for the wash-up rate to be below 4.5% and every below 4.0% in some cases where a pub or club is an attractive transactional customer too.
Here’s an interesting comparison. Around 15 years ago, it wasn’t uncommon for loans to be written at fixed rates in the range of 7.0%. If you borrowed $5M back then at 7% over seven years, the total repayments would have been $6.34M over the term. At 4.0%, the same loan payments would total $5.74M; a saving of over $7,000 every month or over 9% across the term of the loan.
The rule of thumb is that if you can borrow money at 4% and apply it to increase business earnings by twice the cost of capital or higher, then go ahead, borrow money and take the risk.
Even if you aren’t looking at extending your debt for a project, now’s the right time to tender out your finances. Here are some tips:
1. Prepare a funding memorandum that can be sent to three or four banks. It should contain as much meaningful information on the business that you can provide, including:
a. Prior profit and loss statements
b. Budgets
c. Long term forecasts
d. Company structure
e. Director CVs
f. Market area information – population, demographics, gaming demand
g. Research on your customers – what they want, how they rate your venue
h. Plans of future developments
i. Copies of strategic and business plans
2. Present the funding proposition to the banks in a professional setting
3. Outline your needs and where you want to take the business
4. Analyse the offers – if you are an attractive business you’ll get at least two competitive offers.
DWS offers a complete funding tender package for your business, from the production of the professional Information Memorandum to the presentation of the proposition and the assessment and on-going negotiations with finance providers. Call to speak with the team at DWS on 07 3878 9355 or email us at info@dws.net.au.
