• Skyward Financial

Finance Market Update – 18 June 21


Confidence is high, just like debt levels. In this fortnights update we talk about the booming investment businesses are making in themselves and how that is and other factors are leading to long waiting times.





Business investment is booming


According to the Australian Bureau of Statistics business investment in Australia jumped by the most in a decade as SMEs took advantage of tax incentives and bought new asset, equipment, cars, and machinery.


We have talked recently about how businesses are busier than ever and this is certainly true.


Comparing March 2020 - which was literally the end of the world as we knew it before the virus crisis took over and locked everyone down - to March 2021 we saw a 6.3% rise in capital expenditure to just over $31 billion.


Further, since those ABS datapoints have been released new GDP figure were published and show that Australia’s economy is now bigger (and better?) than before the virus crisis since growing 1.8% in the first three months of this year.

That is absolutely astonishing.


To think that the economy (as measured by the crude GDP measurement) is bigger than before the worst recession in a century, which was caused by a global pandemic that has killed millions and gave us the fastest recovery from a downturn since the last world war is astonishing.


This shows that businesses and in particular small businesses are investing heavily in themselves. They are confident and see opportunity which is extremely positive.

Much of the investment is going into cars, equipment, and other business assets.

This has a few consequences.


One of them is an increase in prices of second-hand assets given there is more demand and less supply due to disrupted supply chains. And second it is pushing banks and other lenders to capacity as they try to get deals done before end of financial year.


All this growth does come with growing pains, such as a slowdown in the flow of credit in the economy.


Waiting games


If you have applied for a home loan or business loan this year it is likely you have waiting quite a while to get approval.


One of the most noticeable consequences from the virus crisis is the longer times it is taking banks and lenders to process and approve loans.


This is most notable at banks and for home loans.


While this is not surprising, as we should have expected record high property prices from 5 forces of high demand, low supply, government incentives, low rates, and FOMO, it is surprising that you could literally be waiting three or more months until settlement your transaction is finalised.


Again, this is most notable for home loan refinances at major banks, but waiting games are being played out across the broader finance industry.


There are a few leading causes why getting loans approved, and settled, is taking so long.


One of them is that some banks and lenders offshored their ‘back office’ staff.


These outsourced staff who processed loans to places like India, Philippines and elsewhere. Unfortunately, those same places have and were hit hard by covid and this meant those outsourced staff and offices came to a grinding halt. This severely reduced the capacity of the bank to process loans.


Encouragingly, it appears to be back in favour for banks to employee Australians and people based domestically.


The big banks in particular have been hiring like crazy to fill gaps in their processes across back and middle office and hopefully in over the next few years this trend will continue. While it is more profitable to hire cheaper labour overseas it makes more sense that the largest financial institutions in the country hire more people based in the country.

Another reason why things are taking ages is because everyone is busy.


We have talked before about how most businesses are busier than ever this also applies to banks and lenders as they are basically as busy as eve as well. And when banks and lenders are busy it means people and businesses on the ground in the real world are busy. This is all really good stuff to see as the historic economic recovery plays out.


There is however a noticeable difference between certain types of lenders for business loans.


We have talked before about fast money vs slow money and how generally speaking that comparison is between (slow but cheap) banks and (fast but more pricey) non-bank and fintech lenders.


The delays from banks are particularly noticeable at this time of year with less than two weeks until end of financial year and people rush to settle their loans to get the tax benefits and write offs on various assets and equipment. In some cases the banks just will not physically be able to process all the loans and miss the deadline.


This slowness and risk of missing the 30 June deadline to settle will see some business get loans from non-bank and fintech lenders who can process, approve, and settle loans within a few business days. Some business owners will take the hit of the higher rate to get the tax benefit and just get the deal done, and in many cases that is a smart move.


If you need to get finance done before end of financial year Let’s Talk.