Starting in 2015, fintech companies have provided Australian SMEs with a set of simple easy access short term loans. In just five short years, they have created a multi-billion dollar industry.
These loans have helped many businesses with short-term cash shortages. However, these loans are in most cases offered on particularly short terms – typically only twelve to eighteen months.
This creates an additional problem – because it becomes an ongoing impost on the SME’s cashflow. A short-term cash problem has now become an ongoing cash shortage because they 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 are 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 the client has demonstrated their ability to pay it down.
The business is now on the short-term borrowing treadmill – and over time that short term fix ends up threatening the long term viability of the business!
Do you actually have a short term cash shortage – or is it really a structural liquidity challenge?
If you have a genuine, once-off cash shortage then a short term loan could be a good answer.
However, if your business model requires you to spend money in advance on people or goods and then wait significant times for customer recompense, then what you actually have is a structural liquidity challenge. That liquidity challenge cannot be solved by short term borrowing.
As a working capital strategist, the challenge is to find the right solutions for the specific structural finance issue – and find the optimal solutions to your cash flow problem. This is very important in growing businesses who have a lot of their cash tied up in their supply chain and receivables ledger.
Many clients would be better off establishing a credit line against their receivables. 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 for what you actually use.
The SME Recovery Loan Scheme
At the end of 2021, the Australian Government extended the SME Recovery Loan Scheme until June 2022. This scheme provides guaranteed, low-cost loans to Australian businesses to help them through their COVID recovery.
You could use it to obtain a capped rate line of credit if your business qualifies – and it’s as easy to apply for as a credit card if you do.
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 talk to us today.
We’re working capital specialists who specialise in supporting small and medium Australian businesses. We can help you find the liquidity you need to grow your business – even if you don’t qualify for the SME Recovery Loan Scheme.
Martin Cattach
+61 407 477 555
Discussion on working capital and funding options:
https://calendly.com/martincattach/confidential-discussion-on-working-capital-requirements
