We are pleased to see the findings of the landmark report released by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) published in June this year. Since her 2016 appointment, Kate Carnell has been targeting the lack of funding options for Australia’s 2.2 million Small Business owners, many of whom rely on credit to support and grow their enterprises. We applaud the hard work of Kate and her team.
Apricity was pleased to have been part of the consultation process for the ASBFEO report and able to pass on our view – that no small business should take on extra debt without really considering the future impact. In many cases a short-term debt solution can become a long-term problem.
According to the ASBFEO report, since the lending market has opened up post GFC, a raft of online lenders have emerged specialising in quick, unsecured finance offering short term loans of up to $250,000 (with the average generally less than $100,00). The market is seeing SME’s taking on large debts and greater risk to gain access to immediate funds however “servicing a high-cost, short term loan is, in many cases counterproductive and simply not possible” and can lead to problems down the track.
Traditional lenders generally see SME’s as high risk and “offer capital with restrictive terms and conditions, at high interest rates and demand bricks and mortar as security – which is usually the family home,”. In addition, the Banking Royal Commission currently underway will likely see more regulation and further restrictions, making it even harder for small business to gain access to finance.
According to media reports, Ms Carnell is concerned that the big banks are still not lending to non-property owning SMEs and remains unconvinced that online lenders offering quick fixes are a viable replacement.
Invoice financing, as supplied by Apricity Finance, is another option for small businesses. Rather than being a loan, it simply allows businesses to access finance from their own approved invoices sooner. We are great supporters of the ABSFEO’s work and champion the increased knowledge being made available for SMEs to make the right decisions and grow their businesses long term.
Among eight recommendations in the ABSFEO report is a plan to raise small business awareness of alternative sources of finance outside traditional banking, ensuring small businesses have fair access to seed capital and growth finance.
“SMEs will benefit from a clear understanding of the different forms of capital and their intended application, SMEs and their advisers need to determine not only how much capital they require but the type of product that best fits their needs,” said the report.
At Apricity, we believe businesses need access to affordable finance solutions. We also believe that flexibility is critical, so finance can be accessed as needed and does not hamper long term growth. Transparency and openness, as is encouraged by the ABSFEO, can only lead to better outcomes for all.