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Is Australian Small Business Facing a Cashflow Crisis?

Small Business Is Facing A Cashflow Crisis

The recent Scottish Pacific SME Growth Index Survey suggested an increasing number of small businesses in Australia are facing a cashflow crisis.

One in five SME's have cash-flow issues
Slower customer payments are contributing yo a cashflow crisis
Tighter supplier terms are contributing to a cashflow crisis
Funding of growth from Main Banks is down contributing to a cashflow crisis

Given the importance of small business to the Australian economy, if not resolved the implications for the country could be serious!

Why Has The Cashflow Crisis Arisen?

The Survey showed the cashflow crisis has come about because of:

  • Less generous payment terms being offered by suppliers
  • Slower payments by customers
  • Increasing bad debts

Importantly; lack of access to timely funding – particularly via the traditional major Banks!

Small Business Turning Away From Major Banks!

Main Bank Funding 2014
Main Bank Funding is down contributing to a cashflow crisis
As funding has become harder to access via traditional sources and to avoid a cashflow crisis, an increasing number of owners are:

  • Using their own capital to fund growth (This is not necessarily a bad thing but may not be sustainable long-term)
  • Or increasingly, are looking at using non-Bank Lenders instead of their main Bank

Why are SME's Choosing Non-Bank Lenders?

Business owners are generally conservative, and reluctant to change their banking arrangements.

That said, from what we are seeing, the move towards non-traditional lenders is being driven by:

  • The need to access funding and avoid a cashflow crisis
  • A greater preparedness to lend against the business with less reliance on freehold security
  • Crucially, faster turnaround times

The Banking World and Business World - Clash of Cultures!

The Business owner’s world is dynamic – they need to be nimble and responsive to survive!

However, increasingly, they find the policies, timelines and requirements of the major Lenders are out of sync with the world in which they exist.

Not that we should discard the prudent lending policies of the major Banks – this would be a recipe for disaster!

However, there is no doubt some processes used & mindset, need to change to meet the needs of small business.

Traditional Bank Funding is Still Available!

What is needed to access traditional Bank funding
Despite the foregoing and the findings of the Survey, traditional Bank funding is still available!

The keys to accessing the finance you need are:

  • Planning and preparation (Understanding what the Lenders need and having it available)
  • Knowing where you stand from a Lender perspective and your negotiating power
  • Ensuring the Bankers understand your business – presenting a detailed and professional Finance Proposal
  • Understanding which Banks will lend for particular types of transactions
  • Having access to quality, experienced Bankers
  • Using the leverage of the market to drive better terms and conditions

(In our next post we will outline actions business owners can take to gain access to the funding they need and avoid a cashflow crisis).

The Major Banks Still Have a Critical Role to Play

Despite the criticism to which they have been subject, the major Banks remain the main source of funding for small business in Australia.

There are many good quality Bankers within the traditional Banks, who are customer focused and prepared to assist.

Indeed, the majority of our clients are still funded by the major Banks.

That said, the increased competition from the new entrants is healthy and will drive innovation and change.

At The 500 Group, we work with both the traditional Banks and the newer players in the market.

The choice of supplier being driven by responsiveness, and critically, the ability to satisfy the customer needs.

If you would like to learn more don’t hesitate to get in touch.

Greg Pierlort - Commercial Finance

Greg Pierlot

Greg Pierlort - Commercial Finance

With a background in banking and finance of over 30 years, Greg Pierlot has worked with many business owners and through different economic cycles.

He understands the importance of structuring Finance Proposals to not only satisfy immediate needs, but also constantly changing business conditions.

Greg Pierlot is a credit representative (441033) of BLSSA Pty Ltd ACN 117 651 760 (Australian Credit Licence 391237)

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