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After an extended period of elevated interest rates, Australia’s small- to medium-sized enterprise (SME) owners have been doing it tough when it comes to keeping their business operating.
Although the Reserve Bank of Australia (RBA) cut interest rates this week by 0.25 per cent, leaving the cash rate at 4.1 per cent, recent research has highlighted the mounting pressure on small-business owners.
The research, released by SME lender Prospa, revealed that 18 per cent of SMEs are operating without any cash reserves, while 77 per cent of business leaders cited personal impacts due to rising costs.
Even with the rate cut, Prospa’s general manager of sales and partnerships, Roberto Sanz, told Broker Daily that the effects will not be immediate, although it will boost optimism among SME owners and give them the confidence to explore how “accessing cash flow can help them realise opportunities”.
In light of these struggles, there have been measures or products from the government and lenders to help SME owners secure capital and keep their businesses afloat.
One such product, which was launched by integrated residential property business, LongView, provides business owners with access to funds in exchange for a share of the future capital growth of their home, titled the HomeFlex platform.
According to LongView, approximately 30 per cent of HomeFlex customers use the proceeds to support their business, indicating a preference for this source of financing over the constraints of traditional financing methods, which require regular interest payments.
Evan Thornley, co-founder and executive chair of LongView, said HomeFlex has been a vital resource for many SME owners who need financial flexibility to grow their businesses in the current economic climate.
“Many Australians find themselves asset-rich but cash poor, with a significant proportion of their net worth tied up in their homes,” Thornley said.
“HomeFlex is a game-changer for Australians who want to unlock the value in their homes without the constraints of traditional financing options.”
Thornley described the shared equity platform as a low-risk alternative to conventional bank loans, allowing home owners to access a portion of their home’s equity, which they can use at their discretion, without taking on additional debt.
“Ongoing high interest rates are hurting SMEs, who are realising that investing in their business is going to return more than working to pay off the mortgage,” he said.
“They like the idea of getting money from co-investors who make money with you rather than from you.”
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