If your small to medium enterprise (SME) is doing it tough, you’re certainly not alone. According to the latest data from the Australian Bureau of Statistics, almost half of Australian businesses reported a decrease in revenue for the month of July and nearly a third expect the trend to continue throughout August. While it’s a difficult time for almost all of us, it’s also more important than ever to keep a positive attitude and remember the various opportunities and options available.
Maintaining access to sufficient working capital is a critical component to keeping your SME operating and having the best shot at emerging from tough times in a place of strength. When it comes to business finance, the prospect of taking on new debt can be particularly overwhelming. There are so many products available, and it’s hard to know what’s right for your situation. Below we take a look at some of the most common financing options – their advantages and potential pitfalls to avoid. Be sure to consider each in the context of your unique business and financial circumstances.
Business Credit Cards
If you absolutely need cash fast, a credit card is a simple solution. Banks, and other financial institutions, are usually willing to issue credit cards with very straightforward approval processes. This means your business is able to access funding within a matter of days, without needing to provide many of the usual documents that are a prerequisite for alternative financing options.
While credit cards may help you get out of a short-term rut, they’re not a sustainable option to grow your business into the future. They come with relatively low credit limits and high interest rates that will cripple your finances if you are unable to repay your used funds on time each month. Tread very carefully!
Equipment finance a financing solution that allows your business to purchase and make use of a commercial asset immediately while paying it off over time. The main advantage here is that businesses can access funding to purchase additional equipment, without an otherwise prohibitively large upfront capital outlay.
“Investing in new equipment may be a great way to turn your business’s fortunes around.”
The loan is secured against the asset, meaning that the lender can recoup funds by selling the equipment should you be unable to make the repayments. Often, this leads to a lower interest rate than unsecured financing options, such as a credit card or an unsecured business loan. Investing in new equipment to improve your processes and the value of the output you deliver to your customers is a great way to turn your business’s fortunes around.
The idea of approaching a lender for a loan when your business is not doing so well can be a daunting task. However, lenders and brokers understand that tough times don’t last. Prepare a clear plan for how the funds will be used and come ready with all the supporting documents you’ll need, such as bank statements, trading history and an up-to-date balance sheet.
“The SME Loan Guarantee Scheme is making it easier for struggling businesses to access the funding they need.”
Unsecured business loans are accessible to more types of businesses as they don’t require assets as security. They often carry a higher cost; however, they’re a great way to access working capital fast. As part of the COVID-19 stimulus package, the Government has implemented the SME Loan Guarantee Scheme. Under the Scheme, which has been extended until the 30th of June 2021, the Government is guaranteeing 50 per cent of all new loans issued by eligible lenders to small to medium enterprises (SMEs), making it easier for struggling businesses to access the funding they need.
Debtor finance allows your business to access cash sooner from unpaid invoices. Debtor finance providers will pay you up to 90% of your verified outstanding invoice value upfront. When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10% minus a small fee to compensate for early funding. Your business can use this cash instantly to pay your bills, secure new suppliers or invest in growth opportunities.
A debtor finance or sometimes known as invoice finance facilities act as a revolving credit line backed by the invoices you issue to your customers. You can choose to draw down funds as often or as little as you like, only paying for what you use. Instead of waiting up to 90 days for a customer to pay you your invoice, your business can access the cash almost immediately. This is an excellent solution if your SME is suffering from late-paying customers or for those growing businesses that require ongoing cash flows for working capital.
Don’t let financing uncertainty hold your business back. There are many options available for SMEs going through difficult times. Debtor finance allows your business to use your unpaid invoices to access funds within as little as 24 hours – taking pressure off your cash flow. Unlock tomorrow’s cash today with OptiPay.