Does Your Business need to consider financing?
A lot of Australian SMEs are visiting the Bank to access finance for the year ahead.
Research by RFi Group found that “One in every three Australian small business is looking to get funds in the next six to twelve months to cover asset & equipment purchases and to fund digital transformation or additional inventory as they emerge from lockdown.”
What has happened recently to trigger the need for finance?
During the last 2 years there has been a transformation in the economy across the board. People changed careers often dropping out certain sectors (such as hospitality & medical) into industry sectors that were more stable, less demanding or more profitable.
The Australian Bureau of Statistics reported that the number of businesses in Australia increased by 3.8% in 2020-21, which is the biggest increase seen in three years. People are starting up their own businesses in this transformation but as part of this change there is inevitable a need for capital.
While the last few years the need for finance was often based on survival, this year it seems to be more about transformation or expansion.
Changes to the SME lending industry
The good news is that there are now many more options for businesses who are looking to borrow than years ago. Lending options have expanded particularly in the SME market & they are seeking finance themselves just to keep up with demand from businesses. Lumi, for example, just raised $30m to take advantage of the faster than expected growth in lending demand.
Others such as Prospa are finding a surge in business resilience & recovery has led to big plans in the coming year. Like other lenders of this type, they look to assist businesses with their cashflow.
These (not so) new lenders are often more flexible, require less security & can make decisions quite quickly.
How do these newer lending institutions operate?
The reason that these operators can provide businesses with a quick decision is fast & up-to-date financial information. To gain the financial information that they need, these operators have it fed into their systems via Xero or other cloud-based technologies. If you would like to have a broader range of borrowing options than we recommend that you get your accounts onto Xero or the cloud if you haven’t already.
Invoice financing is the most common form of SME financing
Its simple. You have invoices outstanding. The lender lends you (say) 80% of the value of the invoices now. You pay the Lender when the invoice payments are made. In some cases, they will take responsibility for collecting payments.
It is not uncommon for SMEs to have over $20,000 in outstanding invoices (according to East & Partners). Alternatively, if you do not want to engage with a lender & are having some issues with your customers paying you than we recommend a financial incentive to pay early.
When you need to look at finance options
If you are having thoughts of reconfiguring or growing your business and will be seeking finance than talk to us first. At some stage of the lending process, they will need for your finances to be up-to-date & in order. We can assist you with that & move your accounts onto Xero or another cloud-based solution so it’s easier for everyone.
Does your business need to visit the Bank? Talk to us today about how we can help you understand your finance requirements & be ready when you start knocking on lenders’ doors...
Give us a call today on (02) 6942 4932.