60 per cent of SMEs say a lack of credit is a major barrier to growth
Alternative finance provider Capify is bridging the gap
There are over two million actively trading SMEs in Australia, employing more than seven million Australians, contributing over 55 per cent to Australian businesses economic output however, 60 per cent of Australian SMEs attribute a lack of credit as their major barrier to growth1.
An Australian Government report states that 50 per cent of all start-ups use personal finance as a source to fund their business venture and that there is usually no radical change in the funding pattern from inception through early life2.
The report also found that only a minority (25 per cent) seek external funding, confirming that access to credit continues to obstruct ongoing expansion and development for Australian SMEs who employ over 70 per cent of the Australian workforce3.
Leading alternative finance provider Capify has been assisting SME owners with credit for over seven years and has seen a dramatic increase in the number of business owners turning to alternative finance.
In just the past two years Capify has grown 400 per cent, and this growth is largely a result of its apply online engine which gives business owners a response in under 60 seconds. Capify has also found that SME owners are becoming more aware and educated about the alternative finance options available to them and realise that they’re not limited to traditional finance options.
“43 per cent of SME owners apply for loans outside of normal trading hours, so having an apply online system with a response in under a minute works really well for our customers,” said John de Bree, Managing Director, Capify Australia.
“Our customers seek out alternative finance for a variety of reasons, but the main ones are cash flow (paying bills, BAS statements and paying suppliers), purchasing bulk stock and growth opportunities which may include buying a new premise, hiring extra or specialist staff, or for expansion plans.
“We have customers who also take out an alternative finance loan for renovations or refurbishment, or if they want to upgrade their e-commerce platform or undertake a marketing campaign. The reasons may be varied, but we enjoy a significant level of repeat business as we’re able to lend up to $400,000 unsecured and we can provide funds within a couple of days,” explains de Bree.
However, despite the rapid increase in SME owners turning to alternative finance, there are still 44 per cent of SME applicants who have been declined traditional finance in the previous 12 months4, and 30 per cent of SMES felt they had missed an opportunity due to a lack of credit5.
Knowing the common mistakes made by business owners when applying for a loan will help to overcome any barriers to finance.
Capify’s tips on some ways to avoid the pitfalls include:
Opt for a loan that works with your cash flow – Determining the exact amount needed to fund an operation or venture is essential prior to securing any sort of business lending deal, more so if you can pinpoint exactly where you will allocate the money. The last thing you would want is to get a deficient sum, which comes with a successive stream of premiums. A company might wind up focusing on hurdling premium payments as opposed to growing the business. For example choose smaller, daily repayments so there is less pressure on overall cash flow.
Over commitment – Do not take out more than one loan at a time with alternative lenders just because they are easier to get finance from - this can be a trap. Ensure the sustainability of your business comes first, as well as accurate financials and correct information.
Serviceability – Cash flow management is key. It is not enough that the business makes money. It must be shown that the business will retain enough cash to pay its obligations regularly and maintain operations, not neglecting the interest premium payments in the calculations. Make sure you have the ability to repay your loan on time and allow a contingency for unexpected events.
Have a plan for your finances – An accurate assessment of a business begins with a review of business performance. Determining the exact amount needed to fund an operation or venture is essential prior to securing any sort of business lending deal, more so if you can pinpoint exactly where you will allocate the money. As this is working capital, SMEs need to think about the best way they can use the finance to benefit their business. Also make sure you allow for down turn periods.
Select a creditable/reputable provider who has a long established history. There are different types of organisations that offer small business loans, including the government, banks and alternative lenders – each offering a corresponding set of financial packages and premiums. Alternative lenders feature a quick and relatively easy application process, allowing business owners to secure funds in a matter of days. It’s vital for business owners to do their due diligence in selecting a reputable alternative lender to finance. One that is looking out for best interests of the business owner and lends to businesses responsibly.
Choose a provider with a variety of products and solutions that can tailor a solution to your finance needs. There are even alternatives to unsecured business loans. One such option is a merchant cash advance, which typically is easier to obtain than a traditional business loans and works even more favourably towards your cashflow. While there are marked differences between the options, the principle in getting the approval in either is the same: it begins with due diligence and a true assessment of your financial needs.
While SME owners turned down for traditional finance is on the rise, Capify is excited to continue bridging the gap to SME growth.
Capify (formerly AUSvance, AmeriMerchant, United Kapital, Capiota and True North Capital) is a leading financial technology provider of working capital solutions that leverages a proprietary underwriting platform to provide working capital solutions to small and medium-sized businesses in the Australia, USA, UK, and Canada, including business loans and merchant cash advances.
1 NSW Chamber of Commerce 2013 Thinking Business Report
2 2012 Department of Industry, Innovation, Science, Research and Tertiary Education report titled ‘Australian Small Business – Key Statistics and Analysis’
3 2012 Department of Industry, Innovation, Science, Research and Tertiary Education report Australian Small Business – Key Statistics and Analysis
4 2013 East & Partners survey
5 NSW Chamber of Commerce 2013 Thinking Business Report
MV - Another article published in collaboration with MultiViw