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With a multitude of hurdles plaguing the nation’s small- to medium-sized enterprises (SMEs), brokers in the SME space have observed which issues are proving to be the most problematic for their clients.
For example, new data released by CreditorWatch has found that thousands of Australian businesses have failed over the past six months as a result of defaulting on substantial tax debts.
The data revealed that 34 per cent of private businesses have either become insolvent or closed voluntarily after defaulting on tax debts exceeding $100,000 and were overdue by more than 90 days.
What are brokers seeing in the space?
Speaking to Broker Daily, Brenden Scotter, director of Commercial Point Finance, said: “The problem I have found is – The chicken before the egg – clients are in need of cash flow finance due to a retraction in their industry, invoice payment times, cost of goods pressures, labour cost pressures, ATO debt, etc.
“There are a number of secured and unsecured cash flow loans that are available, however, the client still needs to show servicing.
“This can be difficult as their existing cash flow is not strong and a number of the unsecured lenders rely on bank statements for their assessment.
“So, they sound a perfect solution however it is not long before the broker realises that they will not fly due to this same cash flow issue which they are trying to alleviate.”
Adding to this, Will Hamer, director and principal of Hamer Asset Finance, told Broker Daily that his business is starting to “see a shift” with its SME clients.
“Traditionally, they’d have contributed upfront deposits on vehicles or equipment to lower their repayments, but now the focus has shifted towards preserving cash flow,” Hamer said.
“Instead of those upfront contributions, they’re leaning more on structured repayment options like balloons, or even going with non-conventional seasonal and/or quarterly repayments. This is new territory because traditionally, payment structures didn’t change much from the norm.
“Obviously, clients are holding on to their cash, preferring to keep it in the business better rather than committing it up front. But of course, this comes with its own challenges. There are stricter credit conditions now, and things like balloon payments are heavily scrutinised because of how much the market prices for vehicles and equipment fluctuate.”
Hamer echoed Scotter’s comments in regard to cash flow being an ongoing issue, particularly with SMEs; however, in the asset finance space, businesses are taking on a “wait-and-see” approach before committing to funds unless it’s urgent.
“They’re cautious. And compared to the last five years, we’re seeing more non-traditional cash flow management tools being utilised and offered from our brokers,” he said.
“So, it’s a shift in how they’re thinking – being more strategic about cash flow while waiting for the right moment to invest in those assets.”
What can brokers do to better help SME clients?
According to Scotter, there are always a number of ways to get deals done and good brokers “will use those levels to achieve a cash injection into a business”.
“What we don’t want to do however, is to put the clients into a loan that has extremely high interest rates that effectively will put them in a worse position,” he said.
Hamer said that the economic environment is pushing brokers to “get more creative” and not rely on the usual options available.
“There are a lot of quirky or overlooked policies and products out there that can help these SMEs get through this tough period,” Hamer said.
“Things like equity raising or alternative cash flow management tools are becoming a big part of the conversation in our office.”
He said that it’s about “doing a bit more homework” and further investigating what lenders can offer outside the “typical matrix of options”.
“We have to think outside the box and find solutions that truly fit the unique needs of our clients in this changing market – we’re loving the challenge though as we as brokers are growing as well,” Hamer said.
Scotter highlighted to Broker Daily that another topic that the business community needs to be aware of is the small business restructure process available to them if they are under a large tax debt scenario that they “don’t think they will be able to trade out of”.
“It applies to businesses that have less than $1 million in outstanding debts. Having a look into this [will enable] a business to continue to trade and stay out of administration,” Scotter said.
“The business is best to use a professional in this space to navigate this option.”
[RELATED: Aussie SMEs embrace non-bank lenders for investment]
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