Feb 17, 2012
Banks’ stringent finance criteria open way for alternative lendersBack
Construction|Engineering|SECURITY|Africa|Paragon Lending|Price|Projects|Security|Africa|South Africa|Security|Security|Services|Gary Palmer|Infrastructure|Security
© Reuse this
He explains that banks are under signifi- cant pressure to meet the more stringent liquidity and funding requirements of Basel 3, a global regulatory standard agreed by the Basel Committee on Banking Supervision members, of which South Africa is one.
“As banks become more selective in terms of financing, self-employed investors will need to seek alternative funding sources,” he says.
Further, Palmer points out that, as a result of the mounting pressure, banks are increasing their reliance on noninterest income as a source of earnings, shifting their focus from direct lending to growing trading income over the short term.
This trend is evident in an analysis of South Africa’s major banks conducted by global professional services firm Price- waterhouseCoopers and released in March last year, which revealed that noninterest income for the second quarter of 2010 was up 8.4% on that of the first quarter.
Noninterest income represented about 53.8% of total income across the four major banks, up from 53% in the first quarter of 2010.
Palmer notes that owner-managed companies, largely in the civil engineering and construction sectors, are likely to face challenges when securing funding from commercial banks.
“The engineering sector will battle to get funding from banks this year, because banks also consider the inconsistency of the sector, even if their relationship with the company has been a long one,” he adds.
However, Palmer highlights that, amid the challenging times, there are financing alternatives available to construction companies and engineers. “There are alternative lenders that are willing to provide financing for contracts and projects.
“We were recently approached by an engineering business to fund its potential growth. Given the new orders received by the business, we approved a financing facility within 36 hours,” he points out.
Palmer admits that more work needs to be put into creating awareness about nonbank lenders, so that companies have more options in securing financing for projects, as well as the sustainability of their businesses.
“Although we see the stringent criteria by banks to fund companies as a growth opportunity, we must continue to work hard to achieve the level of awareness that will help companies stay afloat and sustain our economy,” he says.
Further, he points out that there are differences between how commercial banks and alternative lenders assess financing applications.
“We look at a deal differently, [compared with] the bank. We look at future orders.”
Paragon Lending Solutions, which offers funding by securing property as collateral, says construction companies that are likely to experience greater financing challenges are those that do not have any security.
Meanwhile, Palmer stresses that keeping a company’s accounts and order book in order is key to securing funding.
“Bookkeeping is a skill that is sadly overlooked in many small businesses and entrepreneurial ventures because business owners try to minimise expenditure on extras,” he says.
However, he emphasises that accurate and up-to-date financial information provides a potential lender with information on the security of a loan and, there- fore, should not be overlooked.
Edited by: Chanel de Bruyn© Reuse this Comment Guidelines (150 word limit)
Other Civil Engineering and Construction News
Many South African private and public construction projects are experiencing severe cost overruns and delays, which inevitably lead to claims by contractors for a revised or extended completion date and for the payment of additional and associated costs, says...
The quality of construction work is one of several vital issues that should be considered before construction can start on major projects, as this eliminates the risks of facing challenges later on in the building phase, construction industry trade association Master...
The South African construction industry, which many expect to go through a high growth phase this year, owing to an increased number of construction projects, and a greater focus on housing projects and large-scale infrastructure projects, is facing severe problems...
Updated 3 minutes ago As mobile and fixed-line telecommunications collide, evolving dynamics have necessitated change, a panel of representatives of telecommunications group Telkom suggested on Thursday. The panel was speaking at public hearings facilitated by the Independent...
Updated 2 hours 17 minutes ago The Public Investment Corporation (PIC) is to sink $1-billion into African investments and equities, according to Finance Minister Nhlanhla Nene. "The PIC will, in the new financial year, also focus on developmental investments in Africa, with a minimum commitment of...
Updated 4 hours ago The lateral movement in the South African Chamber of Commerce and Industry’s (Sacci’s) Copper Theft Barometer for August could again point to the possibility that levels of copper theft were stabilising, the chamber noted on Thursday. The Copper Theft Barometer...
Recent Research Reports
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
This Week's Magazine
The latest TransUnion Vehicle Pricing Index (VPI) contains a number of small, but significant indications that the tide may at last be turning for the beleaguered used car industry. For the third successive quarter, used car inflation has increased on a year-on-year...
The South African new vehicle market is likely to reach around 630 000 units in 2014, down from the 650 000 units recorded in 2013, says Toyota South Africa Motors (TSAM) president and CEO Dr Johan van Zyl. Van Zyl is also president of the National Association of...
Efforts by the Kenya government to increase energy generation by 5 000 MW over the next three years received a major boost following the award of a $2-billion contract to build a coal power plant in Lamu. Despite allegations of irregular tendering process, the...
Using crafty wordplay on a well-known Internet meme, brilliant South African-born US entrepreneur and businessperson Elon Musk announced that Tesla Motors would not initiate patent lawsuits against anyone who, in good faith, wanted to use its technology. Instead,...
August new vehicle sales declined by 1.4%, to 55 722 units, compared with the same month last year. Assisted by the car rental market, the South African new passenger car market, at 37 953 units, contracted by 1 047 units, or 2.7%, compared with August last year.
Next ArticleCompany supplies products to NMPP