Cheap Business Money !

 The move to force banks to ease lending restrictions must make some sections of the money market fear a debt catastrophe.  People starting a new business need to be very careful that their idea has the potential to be profitable and getting a loan needs the plan to be run by the discerning eye of a banker skilled in commercial practice.

The banks are in the business of lending money and making a profit from the interest they charge you, but that depends on you paying back the loan. It is inevitable that some of the business they finance fails and the promotion prospects of individual bank managers rests on keeping those failures to a minimum.

Unfortunately, Australia heads the world in the amount owing on family debt and we seem entranced by the " buy now - pay later " culture that applies to many big ticket items.   Some deals offering bring a five year debt holiday, but at the end of that period high interest rates kick in.  Nobody expected this coronavirus to appear out of nowhere and disrupt the flow of pay packets.

We were a " pay as you buy " society until " Bankcard " arrived several decades ago.  That was an initiative of the Australian banks and they simply mailed out cards with reasonable credit limits to their customers.  Bankcard only operated in Australia and was soon replaced by the international Mastercard and Visa logos and this opened the door to world travel.

The need for " money to tide you over between pay packets " has spawned a new industry offering personal loans at high interest rates.  It seems these quickly advanced in value on the stock market as the interest gained by way of term deposits drops close to zero. Many people are caught in a debt trap and find themselves owing money they will never fully be able to repay.

This move to force the banks to ease credit is all bout jobs.  Many of the marginal businesses forced to close because of the lockdown will not reopen and the government is hoping that easy credit will generate a rush of new businesses to replace them.  There is a danger that this could produce many impractical startups that quickly fail the profitability test - and close.

Shoppers are seeing a disincentive in the many empty shops standing vacant in what used to be busy shopping centres.   The shopping culture has changed and internet shopping is on the increase. What used to be profitable in the past may not extend into the future.  This is an ideal time to try new ideas, but that comes with risk.

Any person considering starting a new business needs to understand that the present low interest rates are an anomaly.  It is inevitable that in the future the natural balance will resume and that rates will rise, and  that needs to be taken into account when planning business accountability.

This present situation offers an exciting and potentially rewarding opportunity to break new business ground, but the practical elements still apply.  It still requires a sound business plan that ticks all the boxes and runs at an attainable profit level.