SMEs need to think now about their funding plans, ahead of the phasing out of JobKeeper, or risk being part of the anticipated October spike in insolvencies.
Australia’s largest non-bank SME lender, Scottish Pacific, says there are three key questions business owners must ask themselves.
With ASBFEO and many economists concerned about an approaching “insolvency tsunami”, it’s crucial not to delay asking these questions, according to ScotPac Group Executive Wayne Smith.
“Whether your government support ends in September, next March or beyond, it’s important to assess your ability to make loan repayments, pay staff without JobKeeper support and take care of ATO debts,” Mr Smith said.
“From what we’ve seen, many small businesses will need to reassess their funding because they’ve been living on the edge even with JobKeeper support.
“It’s understandable, given these are unique business conditions – but let’s not lose sight of the fact that SMEs’ deferred expenses are accumulating.”
What’s your plan to get money back into the business? Ask these 3 questions:
- What support will I lose, and has my business got the cash available to replace it?
- What payments will I have to make from October or March that I’m not making now?
- Do I have any pressing creditors ready and able to take action against me once they are able to?
Mr Smith said many businesses will have a funding gap, and how they bridge this gap and bring working capital into the business will be crucial.
“Your answers to these questions will guide whether you seek extra funding or make a tough call on your business. You don’t want the business to accumulate debt if it’s not going to be viable.”
“Insolvencies are at a third of the usual level because banks have remained supportive, the ATO is not winding up businesses, landlords have deferred rent and creditors have been limited in the actions they can take to enforce unpaid debts.
“The real world post-JobKeeper will hit hard. We’re here to help in this uncertain climate with funding options that don’t rely on using the family home as security, and with quicker approvals and increased flexibility,” Mr Smith said.
ScotPac set up a COVID-19 information hub and encouraged their clients to take the ATO deferments, rent reductions, JobKeeper and government grants on offer.
“These initiatives have helped many businesses hibernate or trade through the tough times. However it’s important to consider how this will pan out when commercial evictions for non-payment of rent return, and creditors are able to present winding up petitions,” Mr Smith said.
“The government’s SME loan scheme has been extended but in such an uncertain environment who can blame business owners for not wanting to go further into debt.”
He said Invoice Finance, which makes use of assets already in the business rather than using the family home for security, is one SME funding option worth investigating.
“Put simply, using Invoice Finance brings forward payment of your invoices so you have cash in hand. You get 80% paid earlier, and the remainder later.
“Now is a good time to think whether your business could benefit from a self-liquidating revolving line of credit facility, rather than further exposing yourself by taking on more loan repayments.”
ScotPac recently launched Cash Connector, which provides SMEs funds secured by the invoices they have issued to clients.
Finance is available with 24-hour approvals and access to funds within 48 hours, along with no lock in contracts and the ability to connect to the client’s accounting package for quick and easy access to funds.
Business owners and their accountants and brokers can also access the handy free resource developed by ASBFEO and ScotPac – the Business Funding Guide outlines all the major SME funding options and what scenarios they suit.