𝗧𝗵𝗲 𝗼𝘃𝗲𝗿𝗱𝗿𝗮𝗳𝘁 𝗶𝘀 𝗮 𝟮𝟬𝘁𝗵-𝗰𝗲𝗻𝘁𝘂𝗿𝘆 𝗮𝗻𝘀𝘄𝗲𝗿 𝘁𝗼 𝗮 𝟮𝟭𝘀𝘁-𝗰𝗲𝗻𝘁𝘂𝗿𝘆 𝗽𝗿𝗼𝗯𝗹𝗲𝗺

The 21st century has delivered a wide range of business financing and cash flow challenges to Australian SMEs. A few of them include:

• The growth in long-turnaround credit terms demanded by big customers – for 30, 60 and even 90 day credit terms.
• Increasing input costs and supply chain disruption caused by global pandemics and a range of overseas conflicts.
• COVID-induced Tax Debt.
• Ongoing compliance changes – from Payday Super to OHS.

Yet what’s the default – and often primary – source of cash flow finance for SME businesses? A term loan from a big bank that’s secured against their personal assets – and most commonly their family home.

This is a concept that dates back decades – it just doesn’t reflect today’s reality.

It’s just SO 20th century!!!

The banks have virtually become building societies, as far as small business is concerned.

They’re not interested in how good your business is. They’re not interested in how well you run it, or what your growth prospects are.

What the banks offer is a “business” loan that’s secured against your house (not your business). The size of that loan is fixed – capped at a number someone in the bank set at the start of the loan; and limited by the value of your personal property rather than the value of your business.

In the time since the loan was issued, your business could have changed shape entirely.

Not only does the average bank loan ignore your business growth – so It doesn’t offer more when you make more sales – it can be reviewed and reduced at exactly the moment you need it most.

So this supposedly “safe” financing option can be pulled at the whim of a conservative bank bureaucrat – regardless of whether you’ve just won the biggest contract in your business’s history.

Your largest assets aren’t bricks

The largest assets in most Australian B2B businesses are their receivables ledger and their stock – that’s the realisable core of the business value.

But that’s not what the bank lends on – they just want to know how valuable the property and equipment you own are.

(Where do they think this will take us in the long term? An economy where only the rich can afford to run a business?)

A bank loan is no longer the only (or safest) business financing option

The world of business finance is changing – there’s a shift going on that most SME owners haven’t been told about (yet).

In the same way that technology has given business better business accounting tools and smarter marketing options, it has ALSO delivered a range of modern funding tools that are secured against what your business actually owns and earns, not against where your family sleeps.

The most useful of these tools – to any business with slow-paying big customers – is a product called Debtor Finance. (There are a number of others on offer, but this is a good example.)

A practical tool which scales with your business

Imagine a business financing tool where – when you win a large new customer – the funding available grows as quickly as the invoices you raise. That’s what 21st century Debtor Finance tools offer SMEs.

Forget 20th century bank overdrafts that do the opposite — overdrafts where the available funding stays flat while your working capital requirement climbs, and the gap between the two fills you days (and nights) with stress.

Funding that’s not at risk of housing market fluctuations

Tying business funding to residential property means your ability to trade is exposed to the housing market. If the value of your home temporarily softens, your borrowing capacity softens with it.

Nothing about your business has changed – you could be having your best year ever – but the bank has the power to revalue your home and reduce your available funds.

You’d never run your whole business through one customer. (That’s a hobby – not a business.) So it’s worth asking why the bank thinks that the entire funding structure for your business finance should be based on one asset? AND why is that asset your home?

Is your business growing – but your available finance is static?

Are you forced to turn down good business and great contracts because you don’t have the funding available to pay for the inputs?

Would your business be put at risk by a drop in the housing market?

These are indicators that you’re trying to run a 21st century business with 20th century funding.

It’s an indicator that it’s time to review your business financing strategy and the tools you use for funding.

If you’re worried about your home, or sick of saying “NO” to jobs you can’t afford to start then you need to upgrade your business financing strategy. So book a free Virtual Coffee today to find out how 21st century business financing can free your business to thrive.