Banks knock back struggling practices

Weak financial planning practices suffering cash flow problems are turning to the banks for loans to survive, but are being turned away because of their unsustainable business models.

National Australia Bank (NAB) national manager, financial planner banking, Malcolm Arnold said the perception that the banks had changed their lending criteria to approve loans was inaccurate.

"The actual quality of the [applications the banks are being approached with] in this environment has deteriorated because some of the guys who are coming to us for lending these days are probably desperate for cash," he said.

"Their businesses are struggling from a cash flow perspective, so no doubt the quality of the applications that the banks are seeing are from the low end of the spectrum, and banks may be having to reject more [applications] than they have in the past.

"Arnold said NAB had not changed its lending criteria in the current market. He argued that the businesses that were finding it hard to get credit at the moment were those which weren't well run and did not perform as well as other companies in the bull market.

Chris Wrightson, director of Centurion Market Makers, which organises acquisitions and sales between financial planning companies, said he suspected the financial companies going to the banks for loans and getting turned away were in bad shape.

"I think what you're finding is there are a lot of businesses which are going for finance now that have taken a 30 per cent hit on revenue, and they don't have the free cash flow to justify the loan," he said.Wrightson said he did not believe the banks had tightened their lending criteria in the current market, and in fact become better at assessing risk.

Stewart Creighton, head of market specialists at the Commonwealth Bank, said the bank was still lending funds to financial companies for growth, and its lending criteria had not changed for approving loans to financial planning businesses.