The imminent wind-back of Jobkeeper and other government initiatives has Jane Starkins concerned about the health of Australian small businesses. MPA spoke with the Scottish Pacific general manager for Victoria about what brokers can do to help SME clients repay their deferred debt now that September is here.
The data shows one-third of small businesses are struggling
According to ABS figures published on 27 August, more than a third of Australian small businesses (35%) expect to find it difficult to meet financial commitments over the next three months, with 28% expecting a decrease in revenue over the coming four weeks.
According to Starkins, the winding down of government initiatives such as Jobkeeper, in combination with accrued deferred expenses, could mean the perfect storm for many small businesses as they struggle to keep afloat.
“I believe that the overwhelming majority are going to need some additional funding.”
She explains that most businesses rightly took the opportunity to defer expenses when COVID-19 first hit.
“These expenses, whilst deferred, have all still continued to accrue and therefore they still need to be paid.”
Now that September is here, she believes the payment date for these deferred debts is soon approaching.
“The challenge is that many businesses have seen a material reduction in their revenue over this same period. So, with less money coming in that expense is still being incurred.”
The ABS data reflects this, with 41% of businesses reporting decreased revenue over the past month and 22% noting an increase in operating expenses.
Almost a quarter of small businesses reported decreasing or cancelling capital expenditure compared to three months earlier.
An alternative funding solution
A flexible debt partner is key to bridging this gap, says Starkins.
“It doesn’t seem intuitive to take on debt at this point, but the old saying I always go back to is, ‘How do you eat an elephant? One bite at a time.’”
“The elephant seems really overwhelming as a whole, but when it’s broken down into bite sized pieces the task seems achievable. I think that’s a great analogy for unpaid bills at the moment.”
She says it’s important for businesses to start making inroads into their unpaid bills now so that when deferrals are lifted and normal payment cycles return, the amount of debt is manageable.
“The other important tip is that it’s really important for business owners to secure debt loans now because they are available – and, in some cases, available with government support.”
“The current environment is one in which lenders really want to help businesses get back on their feet.”
How brokers can help
Brokers can play a pivotal role in this by asking the right questions to understand the present and future needs of their SME clients, she says.
“It’s also a great time for brokers to be helping business owners for themselves and their business.”
“One way of doing this is to get the right funding package that protects a business owner’s family home – because in these times, having access to working capital that protects the family home for the family is really paramount.”
The non-bank lender has a suite of solutions that can assist small businesses with their funding needs.
FactorONE is a lending option that is based on the debtors rather than the value of the property or profits of the business.
“It lends on the value of the invoice, whilst also assisting business owners with the practical support of converting their sales into cash.”
“We send statements, we send reminders, we allocate cash against invoices received and we can also make collection calls on a business’s top client.”
This provides business owners with more time to focus on running and growing their business.
Another option is Cash Connector; a facility that allows flexibility when it comes to getting finance. Clients can either access or not access working capital as required, depending on the weekly cashflow needs of the business. The client only pays for the facility when they use it.
“Being prepared doesn’t mean the client has to spend money. There are lots of funding options available where you only pay when you use the facility.”
The importance of a great relationship should never be underestimated, says Starkins. She likens the relationship between a broker, their SME client and a funder to a marriage – something that needs to stay strong through both good and difficult times.
“This is where brokers are fantastic, because they care as much about their clients’ businesses as what their clients do – and you want a funder who also does that.”