Banking a tradition
Australia has historically had a lending culture of never thinking beyond the big banks.
The first question asked by many business owners is: Who do I go to if I need finance for my growing business?
The answer most often being: My bank, or more specifically, one of the ‘Big Four’.
But that then leads to part two of the equation, which is one of, or a combination of the following barriers:
- They won’t lend to me (due to not having property or sufficient equity)
- They won’t give me enough money (the sum is too small to achieve my business goals)
- They don’t understand my business (they have not worked with my sector before)
- They make it too hard to do anything (the amount of paperwork and hoops to jump through can be near impossible.)
Whilst it is easy to bash the banks, we must remember they have an important role to play, and every business; small, medium and large, will need to work with them in some capacity.
In Australia we are very fortunate that our major banks are very safe, profitable and global success stories.
So why do the big banks make it so difficult?
Many banks seem to make it very hard for the SME (small to medium enterprise) sector to access their facilities. At Key Factors, we think the reason is simply that they don’t need to. They are already large and successful, meaning they can be more selective in who their customers are, who they lend to, and as such don’t need to lend to low equity SMEs.
Bank alternatives to the rescue!
Alternatives to large banks are needed and many small businesses are now waking up to the fact that there may be more than one way to finance their growth. More and more small businesses are turning to non-bank/non-traditional lenders who offer something broader than an overdraft or term loan.
Compounding the problem
This is where we see a potential compounding of the problem. As these dynamic non-bank lenders grow, they, in many cases also need to fund their own growth, and so where do they turn? The banks, who provide funding lines at wholesale rates. Noting that for the bank it is easier to lend $100M to one customer than $1M to 100 customers, and these lending intermediaries are a good earn option for the majors.
However, for these non-bank lenders to remain complaint with their own lender, they by default and design increase their own compliance protocols and now we see these same four frustrations as detailed earlier appearing with customers of many non-bank lenders. Most specifically, three and four, which feeds two.
For over twenty-six years Key Factors has been helping Australian businesses, from a wide range of industries improve their cash flow and support growth. But unlike most, Key Factors remains privately owned and independent.
We are free from the outside influence of any other financial institutions that can cloud ones judgement. We make considered, objective and independent decisions that preserve and develop our client’s experience and relationship with Key Factors. And importantly we are consistent with our customers – which gives them confidence and comfort.
As a result the four ‘statements of frustration’ are removed. Let us explain how:
Case Study 1:
An all-Australian company with over 70 years combined experience in the building industry, designing and manufacturing of high-end products.
Directors are both homeowners and both have mortgages with their bank. All their bank was willing to provide the business with as a financing option was a corporate credit card facility limited at $50K. As explained to the client, for them [the Bank] it was an easier approval process than an overdraft but operating in the same way. With a business continuing to grow and an average receivables ledger in excess of $200K, the ability to fund this growth was clearly being constrained.
Key Factors provided a flexible invoice finance facility with no long-term contracts, no minimum volume, no ongoing monthly charges, and no quarterly audits. By having a constant and more predictable cash flow, it allowed the company to pay out the credit card facility and pay suppliers on or ahead of time, thus giving them the ability to take up discount options for early payments and grow their business.
- Industry: Design and Manufacturer of building products
- Annual Turnover: $2,000,000
- Facility Limit approved: $500,000
Case Study 2:
An Australian owned and operated company with distribution capabilities in all Australian States as well as New Zealand. This business offers innovative and advanced stormwater solutions backed by state-of-the-art research and technical support that comply with Australian and International standards.
The business currently has a debtor finance facility with a major lender, however compliance and ongoing reporting requirements are constantly dragging resources away from the day to day tasks of servicing customers and sales growth. The business owner feels that he is now working for the lender rather than running a business. He is looking for an alternative that provides the product benefits but without the time wasting.
Key Factors is looking to provide a flexible disclosed finance facility with no long-term contracts, no minimum volume, no ongoing monthly charges, no quarterly audits, no quarterly balance sheets and profit and loss reports, no monthly receivable ledger reconciliations and no quarterly budgets and cash flow forecasts.
- Industry: Importer & Wholesaler of stormwater solutions
- Annual Turnover: $6,000,000
- Proposed Limit: $1M
Choosing a finance solution that matches your requirements
All business owners know that the life of their company goes though stages such as growth, stability and maturity – within these stages there are cycles of growth and contraction which can be internally and externally driven. As a business moves through these stages, business owners must ensure that they have financing in place that is able to match the business needs.
An overdraft, credit card and/or term loan do not move with you. They are fixed amounts that won’t account for your business growth and the need to put on more sales and staff, which can quickly be outgrown.
Are you a growing business?
For growing businesses, there can also be delays when dealing with these heavily compliance laden lenders. Approvals that can take months to be finalised with no guarantee the application in the end being approved. If they are approved then there is a need to take into account the ongoing compliance issues. This is going to be time better spent focusing on growing and ensuring the business is succeeding.
Don’t run the risk
We see the situation so often repeated, where long-term facilities secured by long-term assets [i.e., bricks and mortar] to fund the short-term issues of consistent cash flow and stock purchases. Short-term in the sense of these are liquid items moving through the business on a daily basis. It would make sense to accommodate these liquidity issues with the short-term asset and often ignored, your trade debtors.
What’s my alternative?
Options like debtor finance, on the other hand, follow your business cycles and as your business grows it grows with you.
To discover more about none traditional finance options, which could help your business grow, visit keyfactors.com.au
With over 30 years of experience and offices in Sydney, Melbourne, and Perth, your business is in safe hands.
Call 1300 884 100 today to find out more.