Date posted: 20/01/2021 5 min read

Credit restructuring in times of crisis

Far from being a last resort, credit restructuring can help small businesses survive and thrive. Brought to you by Westpac NZ

It’s safe to say that even the most stable and forward-thinking business has been tested by unforeseen challenges in the face of coronavirus restrictions. Spending has dwindled, employment has suffered and business models have been permanently changed, if not rendered entirely obsolete.

For New Zealand’s 500,000 small businesses, the difficulties have been particularly acute. Often operating on razor-thin margins, the lockdown and accompanying financial uncertainty has pushed many to the brink.

Yet times of crisis can also offer businesses opportunities to rethink the way they do things and position themselves to succeed in a changed marketplace, says John Chapman, Head of Credit Restructuring at Westpac NZ.

“Credit restructuring is one of those phrases that sounds ominous, but in reality it’s simply a collaborative process between you and your bank to try and help your business pull through,” he says.

Turning a business around

In fact, credit restructuring is less about asset liquidation and paying debts than it is about taking active steps to turn a business’s fortunes around.

“People need to remember that it’s not in anyone’s interests to let a business fail,” says Chapman. “We’re going to do whatever we can to keep things afloat.”

“People need to remember that it’s not in anyone’s interests to let a business fail.”
John Chapman, Westpac NZ

This can include everything from straight-up principal payment relief to help with business restructuring, to supplier management and improving efficiencies.

Chapman knows better than most how these things play out. He is a Westpac veteran of 45 years who witnessed both the 1987 crash and the global financial crisis (GFC). (He was also in charge of credit restructuring during the GFC.)

“What we often see for small businesses is a delayed impact, where it can take a year or two for the full brunt of the crisis to be felt,” he says.

This can be due to a domino effect, where businesses that rely on a small handful of suppliers and customers face a credit crunch when one of those businesses fail.

Not that Chapman intends this to be unduly pessimistic. Rather, it’s a rallying cry for small businesses to be proactive in reaching out to trusted advisers and their financial institutions to see how they can not only protect themselves, but also futureproof their operations.

Futureproofing operations

“If you start having conversations with the key players and stakeholders now, if you create plans for the worst outcomes and talk to your bank about how you might be able to position yourself for these difficulties, you have a much greater chance of making it through,” says Chapman.

Key to this process is surrounding yourself with good advice. Chapman suggests speaking to banks and advisers early about making the best use of low interest rates, keeping debtors and suppliers close, examining management and governance structure, and looking at short and long-term possibilities.

“I’ve found throughout my career that the cost of quality advice is paid back quickly,” says Chapman.

“In tough times, you need trusted, independent financial advisers you can rely on to tell you what needs to be done. Perhaps that will cost you a little more right now – and it’s not always easy to hear – but it could literally save your business going forward.”

The content of this article is intended for information purposes only. It does not take your particular financial situation or goals into account and you should use your own judgment regarding how such information should be applied in your own business. Westpac make no warranty or representation, express or implied, regarding the accuracy of any information, statement or advice contained in this article. We recommend you seek independent legal, financial and/or tax advice before acting or relying on any of the information in this article. All opinions, statements and analysis expressed are based on information current at the time of writing from sources which Westpac believes to be authentic and reliable.

Find out more

Westpac are here to help customers financially affected by COVID-19. Talk to your business manager today or call them on 0800 694 229.