Bank Guarantees are a regular part of a newsagency business, indeed any small business. In our channel, landlords and some suppliers require them to reduce their financial risk in the event of an insolvency event. For example, every newsagent would have a bank guarantee lodged with Network Services.
Prior to the Global Financial Crisis, a Bank Guarantee was fairly straightforward to obtain. Your bank would usually write the guarantee based on your overall position with them. That all changed last year as the impact of the GFC reverberated through Australian banks.
Today, most major banks require Bank Guarantees to be backed by cash on deposit or 100% securitisation with property where only up to 60% (or thereabouts) of the bank valuation of the property can be used.
In addition to tougher rules, the fees associated with Bank Guarantees have increased. One major bank dealing with newsagents has increased annual Bank Guarantees by 400%.
These one relatively cheap instruments of protection for creditors are now quite expensive. Which brings me to my core point…
The cost to the newsagency channel of the Network Services required Bank Guarantees has increased dramatically over the last two years. This is an additional cost we need to factor into our assessment of the profitability of the magazine department.
I would like to see the use of Bank Guarantees reduced for products over which we do not have reasonable control over our level of indebtedness – such as magazines. Such a move could free tens of millions of dollars for the newsagency channel.
