THE Greater Tuanpuna Chamber of Industry and Commerce, in agreeing with the Arima Business Association’s view that the banking and financial sectors should work together with the business community to provide additional relief and ensure businesses can keep running, is proffering its own suggestions to mitigate the fallout from the covid19 pandemic.
Loans & Interest:
The chamber suggests that for a period of three to six months, principal and interest payments be deferred, however the associated interest to be capitalised, should be be calculated at 50 per cent of the current interest charged.
The chamber said this accruing interest to be capitalised, especially on relatively new loans (where the principal outstanding is relatively high) results in little loss to the bank, but high costs to businesses, long term.
As such, businesses that do not have high cash reserves or continued business activity are being forced to capitalise high interest values thus increasing their debt.
Further, it advises that variable rate mortgages/loans be adjusted in line with reductions in the repo rate and/or prime lending rates. Bankers, the chamber said, have advised that variable rate mortgages have not been adjusted downward. The chamber is also suggesting reduction in interest rate for all corporate credit cards, regardless of the limit, for the three to six month period.
New Loan Initiative
A covid19-specific demand loan be made available up to a predetermined amount, 250,000 – 500,000, with an attractive interest rate to be used specifically for the purchase of inventory and payment of salaries to be granted. Some accommodations from the bank could be no additional security (unsecured loan), easier approval process and no payment for the first month or two.
Providing overdraft facilities for customers in good standing, up to $50,000, with reduced interest rates and removal of “activation” charges for a period of thee to six months, should also be considered.
Purchase of Accounts Receivables
The chamber said there are companies with Accounts Receivables to collect, but due to restrictive anti-pandemic measures, they are unable to collect. Banks, it suggests, could purchase these Accounts Receivables from the SME with an appropriate discount rate depending on the customer (Factoring of Accounts Receivables):
i. Government factor rate: 3 per cent
ii. Customers considered Prime Customers (as in customers of the banks that are
considered prime customers of those banks) 4 per cent
iii. Other Customers 5 per cent (if the customers of the banks are not Prime)
All of the local businesses deal with local banks, therefore there is no money leaving the system. The banks can trade/transfer the receivables among themselves.
Ease of Doing Business
The chamber said online forms should be editable ie remove the need to print, complete, scan and email. It said banks should allow cheques to be deposited via picture/scan, removing the need to physically present the cheque at the branch. This would help to reduce traffic in the branch.
Also, forms to open a business account could be online/ an editable version emailed to the client. This has the potential to reduce time spent at the bank and with the bank’s representative, as directors would only be required to visit the bank to sign.