Author: admin

It was suggested in the media today that meditation and mindfulness were a good way to relieve financial stress. I have a better way. Solve the financial problem!

A lady called Mary phones me and says she has a financial problem – the mortgage is months behind and the bank is going to repossess her home and sell it next week. Can I help?

Shall I suggest that she mediates for half an hour each day or listens to a mindfulness tape? No. What I do is I ask her to tell me about the problems that she has been having. A child died, another was sick, her husband lost his job and her Dad died, all of this happened in a short space of time and she had no money to pay the mortgage.

So I asked for the name and phone number of the lawyer who threatened her with sale of her home for the bank and I phoned him up. I explained that I would go into parliament the next day and tell all the MPs how ruthless and cruel this bank was and ask them to contact the bank directors to stop the eviction and sale. He listened patiently while I told the story and though I had not asked him to, said he would pass my comments on to his client. Next day Mary received an email saying the bank would not be selling her up as planned.

By doing a bit of research I learned she had some space vacant and asked if she would be happy to rent it out. She said yes. The rent would just about cover the loan repayments so she got working on it.

I then rang the bank officer who had emailed her and over a few phone discussions he agreed to accept her arrears over the rest of the loan term which was 12 years. It made a slight increase to monthly payments. The bank was very helpful.

I have mostly found banks very helpful. I like the phrase “Speak quietly and carry a big stick.” I have no hesitation about using a big stick on a bank that wants to screw a customer. I rarely have to do it a second time.

You can always get me via my loan consultancy greg@gbac.com.au or my advocacy for people needing help in dealing with government greg@fairgo.org .

Why is the government pushing for them?

Because the government is trying to get Australians into debt to solve Australia’s economic crises and enrich the bankers at the same time!!

How could your debt help government?

Because you will spend money to give others jobs and have to work harder to pay it off with interest and charges. That increases Australia’s productivity.

Recession threatens because people have pushed prices up high with borrowed money, by competing for what is available eg housing, groceries, power, petrol. They no longer need money to buy anything. They can borrow it on a credit card, get a loan or afterpay it. But when they have bought all they want they stop buying. When they lose jobs or profits fall and they cannot repay the debt, their assets are often “fire sold” by lenders and prices collapse.

The government is just trying to get the Australian people to rectify the problems it has caused by bad policy. There are better, safer ways to do that. I will offer my suggestions next time.

You have to laugh at Ken Henry, ex Chairman of NAB, not liking populist, (for the people), governments – nasty things like the banking & finance industry inquiry can happen when populism comes into play. He says government should listen to experts. That is true, but the fact is that it is the experts who have allowed the banks to lie, cheat, defraud and abuse their customers. The experts have been corrupted for the benefit of major companies seeking favourable laws and contracts from government to earn billions and pay executives millions.

The Australian people have been treated like dirt by the experts, whether de-regulating the banks and selling off the government owned ones to remove honest competition or depleting the Murray Darling river system.

All bank directors should be prosecuted for their breaches of Corporations law and the Crimes Act.  Banks act on the instructions of Directors. Directors set policy (to obey the code of practice or not). The bank CEO is then responsible for doing what the bank directors decide and instructing bank staff on how to do that. The bank directors are responsible for ensuring that the CEO does what he or she is told and finding out whether the bank is or is not treating customers fairly, in accordance with the law and the Code of Banking Practice. Bank directors are directly responsible for the banking debacle uncovered by the Royal Commission. They set policy rather than deal with detail. The bank policy has been to entrap borrowers in unaffordable debt in order to make extraordinary profits.

This week Westpac  refused to pay interest owed to a term deposit customer unless the customer personally travelled to the branch and gave a signature to collect it.

Yesterday we dealt with ANZ increasing a guarantee by an elderly couple by a multiple of 10 times, up to 100% of their home value on a loan to family members from  which they got not 1 cent of value.

This week we have dealt with Suncorp lending a family a loan on which they had to repay, in the first and most years of the loan, 3 times their average earnings – just impossible.

We are also dealing with nab foreclosing on a family who fell behind on a loan because of serious health and mental health problems. Following our involvement nab has been very helpful in considering a good solution. We have found nab to be one of the best banks at rectifying problems.

If ever you are in trouble with a bank and you give FairGO or GBAC a call, the first thing that will be done is to contact the bank to let them know something is being done about the issue. The second thing to be done will be to find out what caused the problem. The third will be, if possible, to come up with realistic solutions that are acceptable to both you and the bank.

A good move that we find effective is, once the problem has been identified as having been caused by some unreasonable or illegal bank action, to lodge a complaint with the new Australian Financial Complaints Authority (AFCA).

However it needs to be understood that AFCA is a body owned and operated by the banks and financial services industry for the banks and financial services industry. GBAC can help you to set out your case against the bank very carefully and with reference to the prevailing Code of Banking practice when you took out the loan. Then you should clearly decide what you want out of your complaint to AFCA and be ready to act if you do not get it. FairGO provides a direct link to all Members of every Parliament in Australia via its Votergram service, so if you are not satisfied with the AFCA outcome you can then refer the matter to parliament, which is usually extremely effective.

The idea that parliament is made up of irresponsible men and women who behave like schoolchildren is totally incorrect and the fault of TV showings of parliament question time which is a bit of theatre designed to impress the voters watching on TV, which in fact does the very opposite.

A good 20% of the Members of any parliament will go out of their way to assist voters and that gives you enormous leverage for good government if you take advantage of it.

Government can work “for the people” but for that to happen it requires feedback, ideas, support and encouragement “by the people”. FairGO has helped Australians do that for over 30 years just as GBAC has helped Australian borrowers deal effectively with their banks for a bit longer. Good banking requires the same sort of involvement by borrowers. It is no good expecting the bank officer to look after the borrower. Bank officers look after the bank’s interests. Borrowers need to look after their own interests or engage someone like GBAC to do that for them.

The combined resources of FairGO and GBAC give bank customers very effective remedies against bank abuse. Feel free to call us on 0428 417 496 from wherever you are in Australia.

 SPECIAL OFFER!

Most business owners pay their accountants and bookkeepers large sums of money to prepare financial statements. These are the annual Trading, Profit and Loss Statements and Balance Sheets. For many businesses they are primarily used to prepare tax returns. That is to justify payments out of the business to the ATO. Debt solutions come in part from lowering payments and increasing receipts.

Once the money has been spent on preparing these financial statements, they might just as well be used to provide the most acceptable debt solutions.

GBAC Advisory has been able develop a variety of debt solutions for Australian family businesses and farms by analysing financial statements to discover what they reveal. Then we use that information to examine budgets and prepare our cases to be put to the bank, other potential lenders and first of all, to the borrowers themselves.

Many business people hate figures, but for accountants the figures reveal information in the same way as a blood test does for a pathologist or doctor.

Sometimes business owners avoid professional advice because of the cost. As a business owner myself, as well as a professional accountant, I share that hesitation. Every expense has to produce a lot more money than is paid out. We call that ROI or Return On Investment. We like to think that most of our clients get a 1,000% return on the fees they pay us.

To encourage better use of financial data already prepared for tax returns, this month we are therefore offering a

FREE financial analysis of the 2019 financial statements with sample 2020 budget based on them for modification by owners.

As we are a small firm that has been consulting nationally for decades we could only manage the extra work by limiting it to the first 15 business owners to provide us with their early draft 2019 figures.

Prolonged drought is a disaster for farmers and many businesses associated with agriculture. As the song goes “You can’t grow grass without rain”. There are not many good solutions available for farmers and some have been without rain for years. At the same time the economy is knocking many city businesses around as consumers lose confidence.

But one needs to look around for something to be happy about. The coincidence of the long drought, a slowing economy and the Banking Royal Commission has created an atmosphere ripe for picking. Banks are ready to clear the decks, get rid of non-performing loans and start making serious money again. CEOs are back earning up to $40,000 a day, so big bank profits are on the way.

For those borrowers whose loans have been accumulating unpaid interest for years as they have struggled with insufficient working capital and very difficult environments, opportunity knocks. Maybe the bank has been over-zealous in lending. Maybe it has acted improperly. Perhaps the fact is that the security will never cover the loan amount. Then there is a good chance of the bank writing off some of that debt.

Bankers hate debt write-offs or discounting, like poison, but it happens when it is the most profitable option available.

GBAC Advisory has spent decades bring bankers and clients together to arrange mutually advantageous outcomes when debts get out of hand. “Everybody wins a bit and loses a bit” the firm says. “Banks make billions while farms and family businesses struggle to survive, so we like to see the bank give a bit extra and the customer gain a bit extra. Many GBAC clients make more out of a debt write off than they have made in years of trading.”

Aussies are smart enough to grab the opportunity when it presents, because this is a country that can be pretty challenging when it comes to earning a crust. The current situation will not last forever!

The notice on the board is clear – wages stagnating – jobs reducing – the economy stalling – efforts to restart it failing. All is not well in the Kingdom of OZ, or many other countries either

There are those with large debts but even larger profits and assets. For them, if borrowing is profitable, then extending it is probably a good move. First they need to very carefully check their net profit stream to see how it might be affected by an economic set-back. At the same time they need to check out any likely reduction in the value of their assets. Provided that they do their financial analysis correctly and are fleet-footed enough to move ahead of any trend, they may be able to make good use of the crumbling interest rates.

The situation is different for those with falling turnover and profits, needing to borrow more long-term to keep the show afloat. They may be looking to expansion of their income base or new technology to cut costs based on new loans. If I were them I would be negotiating very hard with a number of banks for the best deal possible and the best terms to take account of any slump in the economy. Banks are charging less because borrowers will not borrow at higher rates, so borrowers are in the box seat.

Watch out for nasty little covenants in the loan contract that give the bank the right to sell assets up at the drop of a hat. For these borrowers good regular financial analysis is vital. Monthly financial statements including balance sheets should show comparisons with last year and budget. Negative variations need to be looked at closely and rectified unless they are producing greater revenue than what it costs. Profit is the only factor of interest because that is what the borrowings are for and that is the greatest protection against unfavourable bank action. Figures without balance sheets are not worth looking at because of their potential for error.

For those with modest incomes and modest assets, this may not be the time to acquire additional assets on borrowed money. A careful risk analysis needs to be undertaken to test the various scenarios to see what evasive action could be taken if a crash eventuates. There needs to be a good escape route. That usually means assets that can be quickly turned into cash or alternative sources of funding should the debt be called in. The risk of asset prices falling is considerable and the risk of business going flat might also be considerable.

External advice sometimes helps because the business owner tends to justify what they want to do. An external adviser who is not afraid to offend will tell it like it is.

For those already in trouble with the bank and whose business profits are holding up well, they would in my view be well advised to clear debt fast while interest rates are low. Reducing debt is the best risk management strategy that I know of for those already dealing with unaffordable debt.

However, before they do that, if they feel that they have been in some way cheated or misled by the banker, they should seriously consider a challenge to the debt level. By that I mean they should consider whether to atone for past behaviour the bankers would be “willing” to write off a significant portion of the debt. There are many ways of encouraging that.

I could be mistaken but I would not be going down the “free” pathway of the Financial Complaints Authority. It is really just a re-make of the old Financial Services Ombudsman which in my opinion was completely biased towards the banks. No surprise there. Like FOS, the Financial Complaints Authority is not the government body you might suppose from the word “Authority” but is in fact owned by the banks themselves and their fellow or subsidiary financial services providers. Others may disagree but I would be staggered if the Complaints Authority would assist borrowers in any significant way when dealing with rogue bankers.

Banks are under pressure with a crumbling economy and the Royal Commission aftermath. That would seem to me to put them in a most vulnerable position. Since many of them having been screwing their customers for years, this may be the right time for indebted customers to do a bit of screwing themselves.

For home buyers this is probably a time for quietly hunting around looking at various locations to see what can be bought for a lot less than it could have been a year or two ago. Those with sense of adventure could check out some of the inland cities where prices are unbelievably low.

Last week I looked at a new subdivision on a hill on the edge of Braidwood with breath-taking views. The blocks were selling at around $200,000 and a new home and land was available for $560,000. The trip to Batemans Bay on the coast is about an hour or so and to Canberra in the opposite direction about the same. An hour to Goulburn and a couple of hours to the snowfields. There is a lot going for that proposition. With NBN it is possible to do business with the world. Australia is easy. I have dealt with borrowers from loan applications through profitability  to debt mediations in every state and territory of Australia, from further out than that, for decades.

But even in the expensive big cities there are always bargains to be had for those prepared to wait. The benefits in lower repayments and capital gains are enticing. It is a case of rarely paying the asking price and making sure that that is well below the expectations of other sellers.

For young people seeking their first homes, the market is much better now and may get even better in future. If you can negotiate a good price for your house and borrow at the current very low interest rates you have a great asset for the future. My advice would be to buy a nice basic house, not too fancy, in a nice street, in a nice area, for not too much money. Then you can pay it off reasonably quickly with some social sacrifices and look to building some wealth for mid life. Your house just has to suit you and any family. It does not have to impress others or make the lenders rich.

Two matters should concern those owning and operating businesses and farms.

1. The reserve bank question of whether to lower the interest rate below 1.5%.
2. Reports of cashflow problems so acute that business owners are having to pay wages late. Small Business Commissioner Kate Carnell, herself a former successful small business owner, has today spoken out on this issue.

This indicates two serious financial problems that should be dealt with quickly.

1. The business is operating as a bank or financier for its customers.
2. Net Profit as a percentage of turnover is too low.

Consider the response of saddle and clothing maker, R.M. Williams decades ago when offered a job making a saddle for pastoralist Sir Sidney Kidman, who offered to pay 30 days. R.M. Williams responded with something like “I could not afford to wait 30 minutes .”

In my Chartered Accountancy practice years ago I realised that many tax clients had us do their accounting , financial statements and tax returns but did not much worry about paying until next year’s work was about to commence.

My first move was to increase my fees and offer a 10% discount to everyone who paid within 14 days. That cut my debtors’ ledger balance by about 65%. The other 35% still paid late.

My second move and current practice was to ask for a substantial amount in advance with regular top ups as we completed work, so we always had funds in advance. This completely eliminated our debtors ledger and made it a lot easier to pay staff and draw money to live on. I helped people make money or cope with banks, instead of financing them myself.

People who this did not suit simply went elsewhere for the financial guidance on business and farming matters and to get their problems with the bank resolved.

I recommend these sound financial strategies to all operators. I understand that they will not suit every situation. Farmers for instance will not be paid in advance for their stock or crops, but stock sale proceeds flow through very fast these days with a good agent.

Cashflow shortages result from the difference between money coming in and money going out of a business. Many owners opt for a bank loan to solve their cashflow problems. What they often do not factor in is that there will be interest and charges on their loan that will reduce profitability and cashflow further and maybe some extra loan compliance costs. That can make the situation worse rather than better. In addition, before those interest and fee charges can be removed, the loan must be repaid and that can only be done out of profit and excess cashflow. Borrowing to cover a cashflow problem is sometimes a good temporary solution, but it can be the worst of all possible solutions if the debt is not quickly eliminated.

Three other solutions present themselves.

1. The easiest is to get on the phone, or let us do so for you, and ask your creditors for time to pay with a definite monthly plan to slow down payments for a few months and get back to payment on time within six months or so. Most of your suppliers will help you in this way if you are a good customer, because they want to keep your business.
2. Get on the phone to those who owe you money, or have us do it for you, explain your cashflow problem and ask if they could possibly pay current outstanding money now so that you can continue to operate. If they value your service, most will do this to help you. You may do the same for them or someone else one day.
3. Phone us at Gbac and arrange for us to look over your figures and business and advise you on how to improve your profitability and cashflow on a long term basis. Where we have been engaged to do that for businesses and farms they have dramatically improved both profitability and cashflow and also eliminated costly and time consuming debt.

Never be afraid to ask for assistance and call in someone who knows what it is like to run a business or farm as we have done – art rental, equipment rental, real estate, sheep, cattle. Consultants who have never done the job themselves talk from a fairly theoretical viewpoint. It is a lot different when the consultant has had to manage and solve their own business and farming issues to make money and enjoy life.

There is every indication that Australia is heading towards a monumental financial disaster along with many other countries world-wide. There comes a time when debt is so high that the interest on it and prospective repayment require more than is available from revenue. That is a debt trap from which there is no escape. Australian Governments have survived so far mainly by selling off assets to foreigners which means the people end up paying more for services. Even some of our hospitals, power and phone services have been sold off to foreigners with no interest in anything other than profits.

It is time to tighten our belts. The economy is now like a game of “pass the parcel”. The government is encouraging people to borrow and spend with low interest rates to stimulate the economy, but when the stuff hits the fan it will be those with cash in the bank or under the floor who will survive best and those with the highest debt who lose everything they have ever worked for. This is a time for caution, not panic. If the economy survives unscathed then those who have improved their farm and business profits and cashflow will go well. If the economy tanks they will be the best able to withstand it until it recovers.

Gbac is devoted to assisting Australian businesses and farm owners to come out well and it has excellent systems to improve their profits and cashflow and to protect them from abuse by predatory lenders or impatient creditors.

Sometimes a debt problem is indicative of a profit problem. We want to help borrowers clear out debt problems by using the most appropriate debt solutions. Almost all problems have solutions. It is a case of finding the solution that works best in each particular case for each particular borrower

If the problem is that profits are poor or non-existent, that is, the operation is making losses then it is important to tackle the profit problem. The debt problem is unlikely to be solved permanently without the profit problem being solved.

A good move is to separate out expenses that are relatively fixed from those that are fairly variable. Put the fixed expenses like council rates  aside for a while and focus on variable expense like power, wages, rent, materials.

Look to see how much would have to be cut off the total of those variable expenses to turn the loss into a profit. Look at it as a percentage . What percentage of variable expenses must be removed to make the business or farm profitable. Once you have determined what percentage of variable costs needs to be cut for an appropriate profit, then apply the same percentage off each variable expense.; then examine fixed costs to see how you can cut the same percentage off them to achieve enough profit to start paying down the debt.

It is easy to do on paper but quite different to do in practice but if you have worked out what you need to reduce in order to make a reasonable profit, you can make some very hard decisions and bring your expenditure down. If you find that too difficult then contact me via my website at GBAC and I will help you if you wish.

Once the business becomes even a little bit profitable, draw out a small but ever increasing sum & deposit into a savings account. Don’t worry about the interest differential. What you want is to save enough cash to clear your debt in a substantial way. Match withdrawals to the way money comes in (weekly, monthly, livestock sale time, crop sale time). This stops you spending and helps saving. For one company I started saving $10  week as we tackled their $20,000 annual loss. Eventually I was putting away $1,000 a week and they were making money hand over fist.

When borrowing always ensure the contract allows you to repay parts or all of your debt at any time. This is important. The lender makes money by keeping you in debt. You make money by clearing debt so the interest money comes to you instead. Repayment asap is a very good debt solution.

Another precaution to take is to draw up Loan Impact Statement or have one drawn up before signing the loan documents – LOO or contract – have your banking consultant prepare a loan impact statement for you to show you how the loan servicing and repayments will affect your business over the next 5-10 years at historical profit levels. Do not fall into the trap of budgeting for a profit increase after you borrow. That is the most common cause of debt problems “This year and last I made a loss, but next year and the year after I will make a profit” – dreamtime idle speculation. Always work on actual results rather that wishful thinking. If you don’t have a loan consultant, don’t contemplate using a broker paid by the bank or worse a bank officer. Their job is to make the most out of you. Contact me through my website and I will help you get a good idea beforehand of what borrowing is likely to do to your enterprise.

This week I spoke to a couple who had borrowed $2 million for 3 investment properties site unseen on interest only loans. Those are loans for people who can’t afford to repay a loan. The figures the broker told them they would earn were lies. They now stand to lose those investment properties and their home unless they stand up to the bank and we make the bank write off a lot of debt.

I think they will decide not to come to me for assistance and will therefore lose all four properties and all the money they have sunk into them. They will probably end up bankrupt and homeless with 4 children. It is just so sad to see it happen when a simple Loan Impact statement would have shown them the risks.

A bit of money spent with us would probably have saved their home, possibly debt-free. It is amazing the amount people will spend on taking risks and how little they will spend on finding solutions to remove those risks.

The Sydney Morning Herald quoted the small business Commissioner Kate Carnell as saying that if borrowers sprayed around loan applications willy-nilly, they could damage their credit reputation even if the applications were not declined.

Applying to multiple lenders for a loan
I have certainly seen many clients who have made rash loan applications to banks that would almost certainly encourage the banks to refuse them. In such cases it is true that the potential borrowers may have damaged their credit reputations. However if they had taken the trouble to prepare good loan applications designed to sell their virtues as borrowers who would service and repay their loans on time, their reputations would have remained intact and they would most likely have obtained the best loans available. GBAC fees are worth every dollar in the benefits they bring and the time they save.

Good application
Step one in the process of applying for a loan is to prepare an impressive loan document that tells the bank who the borrower is, what their cash management history has been and the reason they want to borrow. There are many factors that can be combined into such a loan application. The idea that such a loan application can somehow be replicated by filling out a standard bank form is simply nonsense and many of the borrowers who have filled out those bank forms have not in any way understood the figures that they were giving the bank, or the reasons why those figures should be taken to have been correct. At GBAC and FairGO we take great care to ensure that loan terms can be met by borrowers. We don’t take half as much notice of fanciful budgets as banks do. Better to tailor the loan to what the borrower can afford, even if we have to persuade the bank to modify standard terms and conditions.

Don’t hunt loans without proper preparation
But I would take issue with Ms Carnell for whom I have the greatest respect, on the question of whether a borrower should approach a number of financial institutions in order to obtain a loan. In the days before bank deregulation in the mid-1980s people usually stayed with one bank and borrowed from that bank that they had used for decades. The reason was that if they had a loyalty to the bank, the bank had a loyalty to them and knew them, so that they did not have to convince the bank manager of their ability to handle the loan.

Competition brings concessions
After bank deregulation banks dismissed loyalty as an old-fashioned concept but borrowers retained until we introduced the Moneygram service in 1987 allowing them to shop around all the banks likely to lend to them. This simple process put some competition into the borrowing business and made the banks sharpen their pencils and offer the best deals possible. Banks will not offer a good deal to a customer regardless of how long that customer has been with them unless there is competition for that customer’s business. That is why borrowers should always approach a number of banks for their loans and play one of against the other until they get the best terms possible. If they don’t have the time to do, that they are welcome to engage GBAC to help them.

Defence against debt disasters
The time for borrowers to prevent disasters with their loans is not when the disaster arrives and they cannot meet payments. It is at the time they are applying for the loan when they are in a good position to negotiate a contract that will be affordable and that will have provisions in it for how unexpected emergencies will be catered for. In my Chartered Accountancy practice long before I decided to specialise in all aspects of small business and farm borrowings, I took care to see that there were safeguards in loan contracts my client signed to cope with the unexpected. In business and farming one can be absolutely certain that bad times will come at the most inconvenient moments. For the business or farm owner who does as we suggest and approaches a number of banks then takes a loan from the one who offered the best deal, there will always be another bank who competed for the loan but did not get it. If some years later relationships deteriorate with the bank whose loan was accepted, the unsuccessful bank will often be a prime candidate for re-finance.

Credit rating is performance based
Borrowers often think they have been “black-listed” by banks for past failures, but that is generally not the case. Banks simply want to be paid interest and loan repayments at the time agreed, nothing more. That is what they consider when looking at a good loan application, not whether the borrower has offended one of their competitors in the past.

Broken legs
I have only spoken of banks and I know the Small Business Commissioner was speaking about the raft of new lenders who have come into the market. The reason I have only dealt with bank lenders is that, dishonest and ruthless as I have seen many banks to be over the years, what you can be assured of if you borrow from a bank is that it is unlikely to send someone out to break your legs or threaten your children if the loan is not paid on time. It always seems to me to be important to work out just who it is that a person owes money to. The reason many banks behave badly is because many borrowers take money on the basis of signing an agreement to repay it at a certain time but failed to do so. Some people who lend money without checking too much on the ability of the borrower to repay, have very unpleasant ways of collecting the debts. The term “borrower beware” is worth keeping in mind.