Having watched my father lose his small business under the weight of too much debt, the situation many businesses find themselves in today hits home.
I was about 12 when my father started his IT consulting shop in Brazil. The business mostly serviced medium to large businesses and employed around 15 people. For a time, it seemed to be going OK. But as the big international consulting players entered the market through the 1990s, it was increasingly forced down market, servicing the sort of clients who didn’t always pay their bills.
With inflation painfully high, the interest costs and monthly expenses started to far exceed the revenue coming in.
By the time I was in my early 20s, I’d started my career and tried to help keep the business alive and support the family. But this wasn’t sustainable and, eventually, the business failed. In his 50s by then, my father never found permanent, stable employment again.
Like most situations involving small business failures, there were several causes and it was a very hard time that went on for several years. Ultimately, though, the business was crippled by having to service too much debt and failing to acknowledge earlier on that it was no longer feasible to keep going.
A key reflection all these years later is that my father also lacked expert banking support – something banks like Westpac can play a critical role in providing.
Since the COVID-19 induced downturn took hold, our teams have worked tirelessly when working with thousands of businesses and families that have had their lives upended.
As the enormity of the situation became clear in March, it was rightly about quick support – the government stepping in to prop up incomes and the banks giving borrowers time. Since then, we’ve provided more than 32,000 small business customers with loan repayment deferral packages. Positively, we’ve recently seen a lot of customers roll off their packages and some restart repayments. We’ll have a clearer picture over the next month or so on how the situation is tracking, but the early signs are encouraging and many customers are making it through as the economy reopens and recovers.
But as we’ve seen with the recent COVID outbreak in South Australia, uncertainties remain and many businesses continue to struggle – we know there will be challenging situations to resolve with customers in the years ahead.
For some, the troubles they face may have been largely driven by external forces, such as businesses in the tourism and entertainment industries particularly impacted by COVID-19 restrictions. However, for others the pandemic has sadly just accelerated or intensified pressures that were already bubbling away.
Reflecting on what my father went through, banks can have a critical role to play here.
As entrepreneurs and innovators, business owners sometimes think emotionally about their business – it’s their creation, their passion and, in many cases, their life’s work. This is understandable. But it is also potentially detrimental when financial pressures are mounting: a weakening balance sheet, falling cashflow, declining dividends etc etc.
With teams of experienced bankers, one of a bank’s core roles is to help customers with these sorts of complex issues. Having also worked extensively in wealth management, I’ve also seen how helping business owners positively impacts their personal finances, given these are often intertwined.
This is why I’m incredibly passionate about what we do and why we are continuing to invest in upskilling our bankers to manage the extremely unusual shock that COVID presents.
Through Westpac’s Business Institute, we’ve partnered with Macquarie University to offer new banker training modules on lending which count towards formal qualifications and take more of a “look forward” view, given solely “looking back” may make the process extremely hard for a businesses in this unique, uneven environment. Also, Westpac has always prioritised a strong focus on people, relationships and providing the best customer care and empathy. But there is always more to learn and that’s why we’re providing the most up to date banker training focused on “softer skills”, given the stress and unexpected scenarios some customers are facing.
Because despite our best efforts, the reality is some customers won’t make it.
And while we are open for business, there are times when it may actually be in a business owners’ best interest to close or sell, rather than us providing more debt they can’t repay. Sometimes getting out with some equity or a smaller liability is better than the alternatives.
We need to remember there is nothing to be ashamed of here. Businesses fail all the time.
As the RBA Governor said this month, becoming overly risk averse would be a drag on the economy at a time when extraordinary change is actually creating new opportunities and Australia’s fundamentals remain strong. It’s all part of what Austrian economist Joseph Schumpeter coined “creative destruction” – the cleansing that drives innovation and weeds out inefficiencies in the economy as firms fold and new ones spring to life.
Obviously, that doesn’t make it any easier for the businesses in extreme difficulty and stress today.
Moving forward, we will continue to approach these challenging situations with professionalism and compassion.
Firstly, these often involve incredibly difficult decisions that impact people’s lives and we will treat our customers with care and respect. Second, we are moving away from a “one package offer for all” approach to a case by case one whereby customers which can repay should and for those that need more tailored help, we will work with customers to determine the most appropriate option for them. Taking control of security or calling in loans is always our least desired option. Third, focus on early intervention, where possible, to deeply understand customers’ personal, nuanced circumstances. And lastly, be transparent, fair and diligent in explaining the options and ramifications.
Times like these are when relationships and in-depth knowledge of clients comes to the fore, and we will back ourselves to deliver in the knowledge that how we treat customers in times of difficulty dictates our path for years to come.
Amid massive change and uncertainty, our role in helping businesses is more important than ever – and we know it.