Asia's economic problems are now raising concerns about a downturn in our own economy.

The threat of an economic downturn means businesses should be diversifying their funding sources to avoid having the financial rug pulled out from beneath them.

In the last recession, many businesses found their bank facilities withdrawn because there had been a fall in the value of fixed assets used as security.

As a result, otherwise viable businesses were starved of working capital and left to fail.

Because cashflow finance is not tied to fixed asset values, it offers obvious advantages during periods of economic downturn; as many of our clients discovered during the last recession.

A diversity of finance sources is also a useful insurance policy in the current economic climate because companies with all of their financial eggs in one basket are vulnerable. During the last recession, some bank-owned finance companies closed their doors after giving clients a few months notice to refinance.

Indeed, an Australian bank-owned finance company closed down its current asset finance operations after giving clients two months notice. This may be a sign of things to come from the bank finance subsidiaries.

And while it is relatively easy to negotiate refinancing at present, it would be far more difficult in a downturn.

Clients of the banks or bank subsidiaries may also be vulnerable to policy changes if their financial facility is not one of the lender's core products.

When evaluating financial facilities in the current economic climate, we would warn business to check the fine print before using the cashflow-linked facilities now on offer from some of the banks, to ensure they are not cross-linked to other exposures through securities, covenants or defaults.

To arrange a briefing on how cashflow finance could be used to diversify and recession-proof your funding sources, please phone any of our offices. The numbers are listed on the back of this newsletter.