Do you think your business is facing a credit risk? How can you prevent it? More importantly what is a credit risk and how does it affect your business? Credit risk refers to the risk of losing the potential financial rewards from a borrower if they fail to make the repayments under the agreed upon conditions. It involves the potential loss of principal and interest, disrupted cash flow, and additional costs.
So how does it affect your business? In a nutshell the higher the credit risk, the higher will be the interest rate that the debtor will be asked to pay on the debt. In fact in order to protect their interest, companies will take measures that include a credit check, they may require you to take out an appropriate insurance or seek security or guarantees of third parties. So instead of gaining profit on your business, it has now become a liability for you to pay off.
A new report by the Reserve Bank of Australia has warned that there is an increase in unemployment and many Australians in debt may have severe consequences on Australian lenders. The rise of unemployment could also give rise to household credit losses given the large rise in household indebtedness over the intervening period of the two infamous credit loss crises in Australia; the early 1990’s recession and the late 2000’s global financial crisis. This macroeconomic scale experienced by Australians in the last two decades may have a larger impact on Australian households; impact that is felt on their businesses. In fact the report suggests that business lending has been the primary factor of the elevated credit losses by Australian banks.
“The data indicates that the worst credit loss outcomes – including those that led to the failure of several state government-owned banks in the early 1990s – were driven by poor lending standards,” the report said.
How we can help
This is when we at ALC commercial come in. At ALC Commercial, we’re committed to helping small and medium businesses achieve their best and reduce their chances of becoming a credit risk. We strive to establish long-term professional relationships with our customers. We have a history of helping Australian entrepreneurs achieve financial success through tailored loan solutions. We recognise that you are an individual who is in need of help and that is why we seek to help you despite your bad credit, no credit, or lack of documentation. At ALC Commercial, your organisation’s bottom line is our bottom line.