Low credit ratings drive up lending rates

T he lower ratings issued for South Africa by global credit agencies late last year have forced smaller businesses to look at alternatives to trade finance which “would perhaps take some creative thinking and entrepreneurial enterprise as negotiation”, according to Sean King, financial manager at AMFI Freight International. Owner of the company, Dean Lailvaux, agreed, pointing out that the overall impact on trade could be “quite significant” as capital investment was a large contributor to the growth of the SA economy. “If there is less access to trade finance, companies in the private sector will simply not be able to realise growth which ultimately will have a very negative effect on employment, the fiscus and indeed our economic growth overall,” he told FTW. Lailveaux added that lower credit ratings also meant an increase in lending rates by financers, elevated structural lending criteria in terms of qualifying for finance, and possibly fewer players in the trade finance arena. “Foreign-backed lenders may well be discouraged from lending SA companies money as their underwriters will probably be obliged to withdraw any cover granted to lenders,” he said. King suggested that companies would need to adjust strategy and carefully review short- and medium-term planning and projects. “An aggressive approach to opportunities and negotiation will need to be adopted with banks, finance houses and suppliers,” he pointed out. Lailvaux said there were some alternatives to traditional trade finance options and while these might be somewhat limiting, they could allow businesses to survive. According to him, this could include looking to organisations or even individuals in the ‘local’ and ‘international’ arena that have an appetite for risk. “Or it could include things like the sale of share to foreign partners in raising finance or allowing them to continue to finance trade and growth on an ongoing basis.” Amfi continued to raise finance through traditional methods, he added. King highlighted that Amfi was currently taking part in a beta-test of ‘PeakPoint’ (an online multi user cashflow application). “It is being developed with our specific industry in mind. This application is really proving to be a game changer for Amfí’s cashflow management,” he said.