Worried about debt? Do not wait for government Covid-19 rescue before you act

27 March 2020

Do not wait for government Covid-19 rescue before you act, advises lending specialist. Property owners and businesses should not rely too heavily on government Covid-19 relief measures, advises lending specialists, Paragon Lending Solutions.

Proactive discussions with banks and other lenders as well as detailed and realistic scenario planning done now could save many businesses and property owners in the coming months.

The South African government has taken bold and swift action in declaring a State of Disaster and instituting a lockdown for 21 days to stem the spread of this deadly Pandemic.

The Reserve Banks 100 basis point rate cut to 5.25% is certainly welcomed. And, while there is much talk about what relief could still be delivered from SARS, business owners must take immediate action to see them through the worst of the Covid-19 fallout.
SEE: SA lockdown | Covid-19 funding measures put in place to buffer battered economy

Based on what other governments have done, and given that our own government is already in advanced discussions with labour and business, we have every confidence that there will be relief for business. But good business management always depends on being pre-emptive. There are some vital actions that need to be taken by business owners and property owners right now, warns Gary Palmer, CEO at Paragon Lending Solutions.

Relief measures are already in place in the US, UK and Australia including some tax breaks and even mortgage holidays which showcase what is possible at a national level, says Palmer.

"As people move into full quarantine mode many businesses will take a significant knock, but it is important to understand that this will last longer than just a few weeks. If you see trouble in making your payments, take action immediately. Many lenders will consider payment holidays or, in other instances may look at extending the term of your loan.

SEE: Property24 waivers fees for agents as SA braces for impact of Covid-19 lockdown

Palmer says that banks will assess each business or property loan on a case by case basis.

As with any crisis, whether it be the Day Zero water crisis or this pandemic, each deal will be assessed based on its merits. Some may qualify for a capital moratorium; others could benefit from an interest roll-up, it really depends on the individual and their circumstances.

He goes on to remind business owners that they will need to have their documents in order before they make any approach to the banks or other lenders.

Before you ask for a payment holiday, capital moratorium or any other type of relief, make sure you have all your documentation in order. Send updated financial statements as well as your forecasts, updated with the various scenarios. If you do not do this your request will get held up in the credit departments and you are more likely to have a negative outcome.

Palmer also says that it is incumbent on the business owner to ensure that whatever relief measures they secure now do not end up costing them in the future.

Be very careful that you do not inadvertently incur interest penalties when your deal is restructured. This will hurt you in the long-term. Now is the time to look past short-term gains and set your business up for a healthy future.

SEE: What lockdown means for tenants and landlords

With this in mind, Palmer believes property owners should also take a longer-term view when it comes to how they handle their tenants.

Tenants will also be taking a hit during this time and they will not benefit from mortgage holidays. One way landlords can help is to pass on savings from the latest rate cut to their tenant. This act of good faith will serve you well in the future and help ensure you do not end up losing a tenant in these uncertain times.

Finally, Palmer also advises that just as the virus may mutate over time, scenario planning, forecasting and business modeling will have to be revisited from time to time. Staying up to date with local infection data can easily be done by checking reputable local resources.

Riding out any disaster requires long-term thinking. Pragmatic and timeous planning as well as good lines of communication with your business partners and your lenders will ensure you can weather these storms.

Article published courtesy of Property24

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