Why SMEs Have To Look Outside The Box For Funding

 In Daily Column, Invoice Factoring, Purchase Order Finance

It's time for business owners to venture outside the banks...

It’s time for business owners to venture outside the banks…

Pre-election time in Australia. A sit and wait time for business. Both sides talking a big game. But what will come of it?

Probably not much. Things will almost certainly settle-down a bit. There may be an increase in projects related to infrastructure, but the outlook, particularly for SMEs, is not rosy.

Banks worldwide owe nearly $5 trillion to bond holders and central banking bodies. Chips will be called-in. The flow-on effect must inevitably include further restrictions on lending.

And the banks aren’t on their Pat Malone.

Wholesale Investor executive director Rueben Buchanan says private investors are now taking an approach similar to that of private equity firms and investing in mature companies that are producing strong profits and revenues.

Not surprisingly he claims this is putting increasing pressure on the ability for start ups and early stage businesses to get funding, particularly as banks and other lenders are pulling back from this sector of the market.

Looks like the global financial crisis has morphed into a global lending crisis. SMEs are now being asked even tougher questions – literally!

But, there is hope. Start-ups which may be asset poor and have a thin, immature book of receivables can fund growth by securing strong purchase orders from established commercial customers. This is called Purchase Order (PO) Finance.

SMEs that have been around for a while can leverage funding of their debtors book. This is called invoice or accounts receivables financing. Bear in mind, that you probably won’t get funding if most of your customers are mums and dads.

Yet another avenue for the cash poor SME is inventory financing. This is where you can borrow against a portion of the value of the stock you are holding (retail/wholesale) to purchase new stock.

The nature of your business will determine which of these funding models is most appropriate.

Keep in mind also that most lenders that supply these products usually require a fixed asset (i.e. your beloved family home) as collateral.

I did say most, not all. AR will provide financing without fixed assets as collateral. It’s tough, but we can do it.

Furthermore, this type of funding does not have to be long term or inclusive of all your receivables. Short term, partial funding is again tough, but doable.

As usual, SMEs have to look out for number one. So, get on the net, make some calls and check out your options.

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