We are seeing one of the toughest starts to a new financial year in decades, with small-business owners bearing the brunt of the impact. By the end of September, the JobKeeper lifeline thrown to many small businesses will disappear. Adding to SME uncertainty, Core Logic is predicting a 10 per cent drop in house prices nationally.
In light of this, business owners have two non-negotiables to help them survive the second half of 2020, and one non-negotiable impacts the other.
SMEs must secure appropriate business finance and they must protect their cashflow. For business owners, having the right financing in place before you actually need it will save a lot of anxious moments. Now is the time to bed this down, rather than scrambling at the last minute and potentially selecting an option that could be more expensive or inappropriate in the long run.
Take the family home out of the business equation
I’d argue that too many business owners are led by the Australian tradition of old lenders and offer their home as security.
When ScotPac talks to business owners, many have no idea about that there are “hidden” assets already in their business that they can use to secure funding.
Asset-backed lending is secured by “hidden” assets already in business – things like invoices you’ve issued, or plant and equipment, that you might not even have thought of as security for funding.
Using these existing assets is a way for business owners, during tough economic and trading conditions, to maximise the value they’ve created in their business. They might find these hidden assets are a better option than seeking new loans or increased overdrafts. These hidden assets could be accessed, for example, by turning unpaid invoices into funding, leveraging plant and equipment as security or seeking trade finance to boost purchasing power to pay overseas and domestic suppliers.
Now is a great time to take the family home out of your business finance facilities and replace it with business assets as security instead.
For a great overview of all the main SME funding options, Scottish Pacific and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) have jointly created an independent, free downloadable Business Funding Guide for SMEs and a more detailed version for SMEs’ accountants and advisers to help small businesses understand which options might best suit their business.
The right funding creates a cashflow buffer
It’s also important to create a cashflow buffer that helps a business ride out tough times, and also allows business owners to move quickly if they see an opportunity. Having the right funding in place should assist with cashflow.
It’s possible to realise the growth potential in a business by unlocking the cash tied up in invoices or business assets, with invoice funding proving itself as a style of funding that grows in line with the business and adapts to changing needs, without risking the family home.
With funding secured against the business assets and growing in line with the sales, owners no longer need to wonder whether they can take on that extra work.
Having that level of confidence in uncertain times gives hard-working small-business owners one less thing to worry about. Remember, Australia was last in recession three decades ago, so it will be the first time that many business owners have had to deal with recession conditions.
That’s why it is crucial for business owners to understand that they may have the option of unlocking cash that is already there, in their existing business assets.
Peter Langham, CEO, Scottish Pacific