You’ve got to spend money to make money – that’s part of being in business. It could be leasing new premises, hiring extra staff, refitting a restaurant, or building up retail stock for Christmas.
The challenge of spending money you haven’t yet made is probably as old as business itself. Certainly, it was behind the Chinese invention of paper money during the Tang Dynasty (A.D. 618-907)
Avoid the “cash trap”
The cash trap is the gap between paying for your inputs and being paid by your customers.
The cash trap can be a demanding, growth-limiting treadmill – working out how much working capital you have and what you can afford to spend. It can end up restricting your business results.
(The cash trap is about to become a bigger issue than it’s ever been in this century – thanks to COVID shutdowns.)
But the cash trap isn’t unsolvable. There are a range of specialist finance products that can help – IF you have the right advice and a business with sound fundamentals.
Two specific products we use regularly are Trade Finance and Debtor Finance – and there are a whole range of further possibilities open to those in the know.
Trade Finance explained
Trade Finance is a finance facility (a loan) that is set up to pay your creditors for goods, services and even subcontractors. That leaves your working capital free to be put to work.
You can use Trade Finance to free up cash for purchasing stock or for building your business growth.
Debtor Finance explained
Trade credit is the money you lend to your customers by providing them with payment terms – such as giving them 30 days to pay an invoice.
Debtor Finance allows you to use the money the customer owes you as security on a loan – a loan where you can access up to 90% of the invoice value on the day you issue the invoice
This brings the money forward and increases your liquidity – the cash available in your business.
Both methods of funding improve your Business Cash Flow
The “right” choice of financial products for your business is as personal as your finger-print – but these two products are ones particularly worth understanding as businesses restart after shut downs.
The looming post-COVID cash trap
All around Australia, a whole range of SMEs are facing the post-COVID recovery – but with massively reduced cash reserves and working capital.
As the recovery grows, most businesses will need to spend more money on inputs in order to meet increasing customer demand. The size and potential impact of the looming cash trap they face is unprecedented.
January, February and March 2022 could well be come a “valley of death” for COVID-hit businesses who aren’t prepared for the full impact of the cash gap.
With COVID-reduced cash reserves and working capital, HOW do you pay for more inputs in order to rebuild your business?
Expert advice, good and the right financial products can make a big difference.
There’s a short window of extra opportunity
If you have a turnover of over $750,000 and a clean credit history then you could qualify for extra assistance.
If you act quickly (before 30th June 2022) you can apply for a government-guaranteed loan through the Government SME Recovery Loan Scheme CAPPED AT 7.5%
The scheme allows access to finance for a whole range of business needs – from debt relief and re-financing to business investment – IF you know what to look for and how to apply.
Because loans are 80% Government-guaranteed, they are typically accessible without having to use real estate to guarantee the loan.
What can you do with this finance?
We’ve organised applications for the SME Recovery Loan Scheme that have:
- Financed a restaurant needing to refit
- Enabled a cable-laying earthmover to buy up the optical cable needed to grow their business.
- Financed a solar installation company to buy in stock before price rises and shortages hit.
Could you use a business jump-start that doesn’t put your home on the line?
The great thing about the SME Recovery Loan Scheme and some of the emerging financial products coming to market is that you don’t have to guarantee the loan with real estate.
So if you need funding to re-start your business post-COVID then don’t delay – talk to a skilled business finance consultant about your needs.
Other COVID-special finance products
The SME Recovery Loan Scheme isn’t for smaller businesses – but that doesn’t mean you can’t get a boost.
As well as established financial options like Trade Finance and Debtors Finance, a range of new tools are emerging to meet business finance needs post-COVID.
One example is Deferred Term payment plans. I know of one new product that has an interest rate of less than 1% per month – which could be a great help with your COVID recovery.
Get the money you need to build the business you really want
Just because the banks say “no” it doesn’t mean you’re stuck with the business you can afford and a slow and messy recovery. The right financial tools could speed your progress towards your business goals.
Your finance needs are as complex and unique as your fingerprint. So you need expert advice that fits your situation.
If you’re facing the post-COVID cash gap with a good business but limited resources, talk to me about your goals and your needs.
Martin Cattach
+61 407 477 555
Discussion on working capital and funding options:
https://calendly.com/martincattach/confidential-discussion-on-working-capital-requirements
