Small businesses face many challenges, but one of the biggest obstacles can be obtaining external finance (The Availability of Business Finance, RBA). Many small businesses have typically relied on bank facilities, such as overdrafts, to manage cash-flow shortages, however the RBA states that lenders appetite for this is decreasing.
In a speech just before Christmas, Christopher Kent (Reserve Bank of Australia, Assistant Governor, Financial Markets) highlighted the importance of access to cashflow finance finance for small businesses, since they generate significant employment growth, drive innovation and boost competition in markets. Small businesses in Australia employ almost five million people, which is nearly half of employment in the (non-financial) business sector.
However, according to the RBA, lenders typically charge higher interest rates for smaller, newer businesses (in comparison to larger, more established firms), reject a larger number of small business credit applications than bigger businesses, or they might provide credit on a restricted basis.
Why is it so hard?
Since the GFC, lenders have reduced their appetite for risk substantially and this means access to unsecured lending has decreased. The RBA reports that at least three-quarters of their small business lending is collateralised; that is, backed by other assets, such as the family home. If small business borrowers can provide housing as collateral, it significantly reduces the cost and increases the availability of debt finance, the RBA’s liaison has highlighted.
However, there are several reasons why this can be a problem for small business owners:
- they may not own a house, or have much equity in it if they do;
- they may not have much available equity if they’ve already borrowed against it to build their business;
- and even if they have plenty of equity, using their homes as security significantly raises the stakes if they are faced with liquidity problems in their business.
What’s the alternative?
There are other ways. At Apricity, we are working with many business owners and advisors, who are seeking alternative, flexible and debt-free funding solutions, rather than using bank overdrafts.
We provide short-term finance; usually the only security we need are the invoices themselves. In fact what we are really doing is just giving business owners their money faster.
We can process applications quickly, whilst reducing the need for businesses to provide personal guarantees and collateral.
Money Smart has released a very simple and clear fact sheet that outlines some of the critical issues relating to overdraft facilities. For example, just as with a loan, credit providers can demand you repay the full amount at any time.
You can read here some of the features of our invoice finance facility, that help set us apart from the offerings of banks and other providers. We think one of the crucial differences also will always be people. At Apricity, you will be dealing with one of our team who will work closely with you to ensure our solution is right for your business.
If your business requires better cash-flow management, we may be the solution to your problem. Our invoice finance solution provides businesses with high credit quality customers a flexible finance facility that grows with your business. Talk to our team today about how we can help – Australia 1300 277 424 or New Zealand 0800 959 595.