Feb 17, 2012
Banks’ stringent finance criteria open way for alternative lendersBack
Paragon Lending|Price|South Africa|Gary Palmer
© 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
Other Civil Engineering and Construction News
The slowdown in the availability of major infrastructure projects in the past three years has caused civils and construction company Esorfranki Construction to focus on securing housing projects in both the public and private sector.
The combined effort by South Africa’s government, construction specialists and building materials companies to develop skills in the construction industry by investing in educational initiatives can facilitate economic growth in the country, states building...
Two of engineering and construction company Murray & Roberts Construction companies has received accolades at the 2013 Construction World’s Best Projects awards ceremony, held in June in New York, the US, that recognises projects across the entire construction...
Recent Research Reports
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 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...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
Projects in Progress - Second Edition (PDF Report)
Creamer Media’s second Projects in Progress supplement considers some of the major project developments under way, including high-profile energy and transport projects, as well as a few of the lower-profile public and private developments. What remains apparent is...
Water 2013: A review of South Africa’s water sector (PDF Report)
Creamer Media’s Water 2013 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Canadian Mining Roundup for June 2013 (PDF Report)
The June 2013 roundup includes details of the development of TSX-V-listed Aldridge Minerals’ flagship Yenipazar polymetallic project, in Turkey; the Canadian Nuclear Safety Commission’s renewal of Cameco’s uranium mining licence pertaining to the Cigar Lake...
This Week's Magazine
Johannesburg-based locomotive solutions provider DCD Rolling Stock officially launched Phase 1 of its R240-million recapitalisation programme at its Boksburg manufacturing facility, last month.
Sales of electric cars should pick up once more such vehicles become available on the South African market, says Nissan South Africa (SA) chief marketing manager Ross Garvie. The local arm of the Japanese car company launched the country’s first fully electric...
Denel Land Systems’ (DLS) Mechem division is successfully marketing the latest version of its highly regarded Casspir mine-protected vehicle, the Casspir NG2000 series wide body ambulance. As its description says, this has a notably wider body than standard...
The infrastructure boom in Africa has seen investment in 322 megaprojects reach $222.7-billion, says professional services firm Deloitte in its ‘African Construction Trends’ report. Deloitte Southern Africa infrastructure and capital projects leader André Pottas...
ASME, the international engineering profession’s cooperative, educational and training, research, outreach and codes and standards development organisation (originally the American Society for Mechanical Engineers, founded in 1880), is seeking to improve the...
Next ArticleCompany supplies products to NMPP