Since back in 2015, smart Fintech companies have been providing Australian SMEs with a broad set of business financing tools. The best of today’s Responsive Finance products are high quality, productivity-building business tools.
HOWEVER there are also some big traps for unwary players – including a whole range of short-term loans that are about as useful as putting a Bandaid on a compound fracture.
Selected carefully and used correctly, a short-term loan can help your business IF you have an isolated short-term (truthfully) cash shortage.
IF you have chronic and ongoing series of cash flow crises then they are the wrong solution. If you’re not strategic and selective, they COULD put your business on an accelerating treadmill of repayments that make your cash flow issues WORSE.
The wrong business financing tool creates an ongoing drain on your SME’s cashflow. It can turn a short-term cash availability problem into a chronic, ongoing cash shortage – because you have have to pay ongoing interest on the full amount of the loan AND repay the principal at the end of the term..
Many SMEs who take on such a loan without having a sound Working Capital Strategy in place end up being forced to borrow again – to service the payments of the first loan from the same lender. (Who is in most cases more than ready to refinance the loan as you have demonstrated your ability to pay it down.)
Your business ends up on a short-term borrowing treadmill that takes it nowhere – and over time that short term fix could end up threatening the long term viability of your business!
Do you actually have a short term cash shortage – or is the real issue a structural cash flow challenge?
If you have a genuine, once-off cash shortage (and a sound Working Capital Strategy) then a short term loan could be a good answer.
However, if your business model – possibly imposed by the structure of your industry – requires you to:
- Spend money in advance on people or goods; and then
- Wait significant times (30/60/90 days) for customer payments.
If that’s your industry reality, then what you actually have is a structural liquidity challenge. That structural challenge cannot be solved by short term borrowing.
I’m a Working Capital Strategist, and I love the challenge of finding the right solutions for today’s structural business financing issues. Over the years, I’ve worked with hundreds of businesses to build the optimal Working Capital Strategy to resolve their cash flow problems.
Having a smart Working Capital Strategy is particularly important for growing businesses who have a lot of their cash tied up in their supply chain and receivables ledger. (Few businesses understand that the price of fast growth and sales success is often bigger cash flow headaches and more working capital challenges!)
Solve your Cash Flow Challenges strategically – not with a Bandaid and a dose of “she’ll be right”
There are a whole range of sound, business building financing tools that can build your business productivity instead of knee-capping it.
There are three key tools that – combined with the right Financing Strategy – could get you off the short term treadmill and back to growing your business.
Debtor Finance
Many clients would be better off establishing a credit line against their accounts receivable. This solution provides the working capital needed for growth, without constant monthly instalments to be found – because it is an interest-only facility. So you pay interest on the amount you actually use – not the full loan amount.
Receivables Management Finance
RMF is an extended form of Debtor Finance (also called Invoice Finance). It has the extra value of outsourcing your payments management to professional administration staff – so you can get off the phones and work on your business.
Trade Finance
If you spend a lot on materials and equipment well before you get paid by your customers, the right Trade Finance could give you the Working Capital you need to de-stress your days and grow your business. The right Trade Finance tool can add weeks of extra time to supplier payment due dates, bringing your supplier payment obligations much closer to your customer invoice payments.
Are you tired of the short term borrowing treadmill?
If you’re trapped on a treadmill of short term loans that drain your resources, then Book a Call today to review your Working Capital Strategy .
Don’t just “get a quick short-term loan” – build a sound Working Capital Strategy that will help you develop and grow your business.
