The Art and Travel Industry in Australia - Essay Example

Financial Lending Name Institution Due Date Financial Lending The Art and Travel Industry in Australia Australia is a unique country that is endowed with a range of natural resources as well a number of interesting sites that may interest both local and international tourists. The location of the country as an island also gives it the remarkable feel of a holiday getaway and almost any tourist would not overcome the temptation of wanting to visit such a wonderful country. Therefore, over the last couple of decades the development in tourism industry in Australia has enhanced the growth of other related sectors in the industry. The notable sectors are the arts and travel industries in Australia. The government’s annual economic reporting normally attributes the strong performance in Australian economy to the emergence and growth of a host of many travel agents as a result to tourism and tourists attraction (Greenway, 2011). This is because the many tourists that visit Australia would require the services of travel organization to take them around the country in the course of their tour. At the same time, the art industry has benefited from these. The tourists will visit the various arts centers to purchase the artifacts that interest them. This also includes going to various arts shows available in the country. Greenway (2011, p.456) inferred that as a way of comparison, the Australian department of planning released their results regarding the total rate of increase of travel agents the industry has seen since the last four years and this is shown in the table below with relevant GDP contribution for that particular year; Year Rate of increase from the previous year GDP Contributor 2010 27% 0.52% 2009 23% 0.50% 2008 18% 0.44% 2007 13% 0.40% Data source: Greenway 2011, the world economy: Global Trade Policy 2010 This growth pattern indicate the tremendous growth the industry is experiencing although the global recession was a major impediment to the industry just as it was to other sectors of the economy. At the present, many travel agents in Australia have come up including major airlines in such as Virgin Blue and others recording robust growth in revenue and profitability margin. In order to facilitate further growth in the industry, the Australian government has established a number of agencies that develop policies and strategies for all the players in the industry. Examples of such agencies and departments include; department of tourism and resources made up of Tourism Australia, Tourism Research Australia and Tourism Research Committee (Canberra, 2010). Economic studies and forecasting have indicated positive growth and development in the arts and travel industry for the next coming years as the government and stakeholders work (Greenway, 2011) towards improving variables that influence the industry such as infrastructure, ICT growth (online bookings and correspondences) and natural resource preservation. Economic Study of Victoria Victoria is considered the highly densely peopled state in Australia. Additionally, the state boasts of a highly centralized population whereby nearly 70-75% of the populace living in Melbourne which is the capital of the Victoria. In terms of economy, Victoria is among the best and leading performers in Australia. In fact, economic reports rank it second only to New South Wales. It contributes to about a quarter of Australia’s GDP. According to Canberra (2010), the state currently records a gross state product of about 300 billion Australian dollars and a GSP per capita of about 55,000 Australian dollars. Since the last four years, the Victorian economy has been experiencing progressive growth with the latest comparative figure indicating that in the 2010 fiscal year, its economy grew by 2.0 per cent just below the overall Australian economy which grew by 2.3 per cent (Greenway 2011, p. 467). A comparative analysis of sectors of economy in Victoria reveals that the service sectors are the biggest income producing in the state. These include finance, insurance and property. On the same note, the community, social and personal services is reported to be having the most employees compared to other segments. In the face of the swing in the direction of service industries, the shaky manufacturing segment still stands as the state’s single prime employer and revenue maker (Colebatch, 2009). On the other hand, Colebatch (2009) reports that due to job losses in dilapidating segments like manufacturing, Victoria shows highest rate of joblessness in the nation. Agriculture is another sector of the economy that is worth mentioning. In the 2003/2004 fiscal year, the agricultural sector saw a tremendous growth with an increased production of 17 percent to approximately 9 billion (Greenway, 2011, p. 501). According to Greenway (2011), the same period saw close to 33,000 farms occupying several thousand of square kilometers (140,000) of Victorian Land. As regards manufacturing industry, Victorians most precious manufacturing activities include equipment manufacturing, foodstuff, petroleum and drink production and finally energy (coal) as well as chemical production. In terms of workforce, the sector accounts for 15% and above of total workforce in the state of Victorian (Colebatch, 2009). Regarding output in manufacturing, Victoria is only second to New South Wales. To reiterate the service industry, it is the rapidly progressing constituent of the Victorian economy. It comprises the extensive array of activities commonly categorized as community, social and personal services. Also in the category are transport and communication, and wholesale and retail trade. The majority of these industries are situated in bigger regional centers and also in Melbourne. As of 2004–05, this economic component generated a substantial portion of the Victoria’s GSP. This reveals the potential available in the sector and in the years to come it will be the sector to watch in terms of overall output. Economy of a region cannot be possible with absence of infrastructure. Therefore, the Victorian road system serves the populace centers, with highways by and large searing from Melbourne and other main capitals coupled with secondary roads (Colebatch, 2009). The economy of Victoria is also boosted by tourism. The state boasts of natural attractions like the Twelve Apostles, Wilsons Promontory, The Grampians, the Fairy Penguins, the Buchan Caves and the Gippsland Lakes. Victoria also is endowed with several thousand kilometers of coastline comprising of hundreds of beaches. List of questions for Ed and Jill 1. How much money do you need? 2. Of what use is the money for? That is, is the money for procure of recurrent stock or fixed assets? 3. How long do you need it for? 4. What repayment plan do you have in place and when is this to be effected? 5. What type of an individual are you, the potential borrower? That is, what is your ability to manage your business? 6. Have you done any business before? If yes what kind of business and what is the current state of the business? 7. Does the sum asked for make appropriate allowance for unforeseen developments? 8. How long have you banked with your previous banker? 9. What sort of experience do you have in the business that you want to venture in? 10. How long have been in employment? 11. What is the management plan in place for the business? 12. Where is the proposed location for the business? 13. What is the customer potential for the business location 14. What is the market competition like for the business? 15. How do you plan to handle competition? 16. What is the outlook for business in general and for your business particularly? 17. What will you do if you do not get the loan? A Prospective Loan Facility for the Dandenong Art Experience The type of loan facility will be referred as “A Swift Business Credit Facility from Dandenong bank. This loan provides a way for the Dandenong Arts Experience to raise funds its business swiftly, effortlessly and simply and to give the business the liberty to create the loan the way it prefers and then modify it if need be. At any time for the duration of the term of the loan the Dandenong Arts Experience will be able to: Pay its loan when it prefers to; the business owners in this case Ed and Jill will tell the bank how they prefer to repay their loan over the arranged term. Following the first one year of this facility, Ed and Jill as business owners may at any time amplify the repayments, use excess cash by doing lump sum cutbacks or change the business’s standard repayment frequency by planning to do weekly, monthly or quarterly or better still with one final bullet repayment; whichever will go well with the business cash flow position. Reduce its payments: If the business through Ed and Jill needs ample time to adequately put together its cash flow or wants to invest funds in another place in the business for a short period, then condensed capital loan repayments would be a real advantage. Here the business standard obligation is condensed for an approved time period, providing it with the ability, for instance, to make out the return on its expenditure prior to having to do full repayments. When the reduction time elapses the business’s payments will increase to the sum needed to clear the credit facility, in full, within its established term. Pay only the Interest: By Dandenong Arts facility paying just the interest it has a breathing space when it requires it. Following a grace period the business repayment installment will basically be increased to take in that factor of capital, which would typically have been functional during the grace period to make certain the loan is completely repaid on the established and approved date. Drawdown in stages: This offers the business effortless access to money when it needs it, with the assurance of further advances to the agreed limit, whilst maintaining its repayments down. When Dandenong takes funds this way-when required-it is able to save money as it only pays interest on the loan amount taken. In making this loan facility for Dandenong Arts Complex the bank stands a very big risk related to repayment since this is a new venture and there is no surety of business success. In cases of non repayment, the bank may not get all its lent funds as the property provided by the business owners as security will have depreciated in value from the time of valuation. In this case therefore the bank will critically evaluate the business and do a serious consideration prior to making its decision whether or not to grant this loan. Fees Fees will be fully discussed and agreed with the business at the commencement of the credit facility agreement. This will form part of the business contract with Dandenong Bank. The cost of the Swift Business Credit facility will be reliant upon the bank’s evaluation of Dandenong Art Experience and its needs, but in general arrangement fees will be 1.5 – 2.5% of amount of money that is borrowed. Interest will be charged between 4.5 – 7% over base rate. As usual this will be computed on daily basis but will be charged on monthly basis in arrears. Interest roll up will not be allowed at any time throughout the period of the credit facility. Contract The Dandenong Bank’s contract with its borrowers is usually for a minimum period of 12 months and up to a maximum of 60 months. Security The Swift Business Credit Facility is a facility that is secured over property, and an appropriate charge will be taken over any such asset prior to making an advance. This security section is where Dandenong bank is guaranteed that the risk of non-repayments will negatively affect its loan book and portfolio at risk. Recommendation concerning the loan Request My recommendations concerning this loan request will be based on a number of factors; Regarding the suitability and viability of the business venture, the proprietors seem to be knowledgeable in the business. They are aware of the customer base in the projected business location having grown there in most of their active lives. This is also backed up with a bit of research of the region to discover the needs of the clientele to access arts products. However they need to do more research regarding other established centers so that they know how to handle the challenges resulting from such competitions. Secondly one of the proprietors (Ed) is experienced in the field of art and the other is savvy in marketing and general management. Therefore, the operations of their new business venture won’t be a very big challenge as both expertise and management skills are present. Thirdly the potential business is diversified in the sense that it will be both a retailer and a wholesaler. This means that it will be serving other business as well as the end consumers and so daily weekly and monthly revenue will be solid thereby augmenting profitability. However, there is no substantial security the business owners are offering. The only security in place is the premise that they plan to purchase for the business operation which the bank fears it may depreciate with time. The other security is in form of stock- a small portfolio of valuable art works with estimated market value of $ 85,000. Adding this with value of the premise appears a solid security for the bank but the depreciation factor is still depriving factor. Based on these factors, I would ask the owners of the business to provide more solid security for the credit facility or asks for a small portion of the capital which the bank won’t have a problem cashing for money in case of lack of repayment by the business. Alternative Funding for Dandenong Arts Experience Owing to the possibility of the Dandenong bank not being able to fund the proposed business by the Davies, the Davies have other options of making funds available for their business. As has been mentioned above, they could look for more solid security for the bank to comprehensively guarantee the bank of money back in case of non repayments. The other way is to look for a smaller premise whose cost way below the cost of their current premise. In this way, they will have enough money to buy a new premise at a low cost and still be left with some funds for other business activities. Ed and Jill could still consider looking for more partners who are interested in the venture and decide how much each of the partners is supposed to come up with to meet the financial requirements of the business so that they can get their business going. In fact this is the best option as profits and losses will be shared equally among the partners. Secondly they will not have the trouble of approaching a financial institution to grant them a credit facility to start their business. In the current economic situation, financial institutions find it easy to finance existing businesses and not the yet to be started business because the high risks involved. References Canberra, ACT, "Closer Economic Relations": Department of Foreign Affairs and Trade. http://replay.web.archive.org/20091008192957/http://www.dfat.gov.au/geo/new_zealand/anz_cer/anz_cer.html. Retrieved 30 March 2010. Colebatch, Tim (24 April 2009). "Pressure grows as Melbourne rockets to 4 million". The Age (Australia). http://www.theage.com.au/national/pressure-grows-as-melbourne-rockets-to-4-million-20090423-agt5.html. Greenaway David 2011, The World Economy: Global Trade Policy 2010, Blackwell Publishing Ltd: Malden MA Read More