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Combat cash flow hurdles with these small business financing options

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Ian Boyd

Oct 17, 2021

Australia is home to many resilient and adaptable small businesses – just look at all they’ve weathered in the past 18 months. From shifting lockdowns to capacity limits and border closures, thousands of small businesses have been forced to close their doors for indefinite periods of time. And after many months of uncertainty, this is having a significant impact on cash flow. 

Although federal and state funding has relieved some financial pressures, it was announced earlier this month that federal support will end once COVID-impacted states reach an 80 percent vaccination rate. What’s more, an increasing number of small businesses are finding it difficult to access bank loans. According to new research, more than one in four (27.7 percent) who’ve applied for funding in the past six months were turned away. So as we wait to see roadmaps to reopening take full effect, how can small businesses access capital to pull through the final months of 2021 and build the foundations for growth next year? Here’s a breakdown of some options, and best practice tips to consider before borrowing. 

What are my options when it comes to accessing capital? 

As a small business owner, there are several financing options you can consider. These depend on the amount of money you want to borrow, what you’ll use it for, how quickly you need the funds, and whether it will be a short or long term solution. Here are four to be aware of: 

Business loans

A business loan is where you borrow a lump sum of money that’s repaid in instalments over an agreed period of time. Most loan types incur interest charges and some are higher than others. So make sure you calculate the total cost of your loan repayment (interest included) before committing to it. 

You’ll also want to look for unsecured loans. This means that whatever sum you borrow is not guaranteed against a personal asset, like your house. Nowadays, many sophisticated lenders can access data from small business platforms to determine whether your business is eligible for credit. For example, Xero has partnered with a number of financial institutions, including ANZ, NAB and Moula, which connect to your Xero account to get conditional loan approval in less than 24 hours.

Business overdraft

A business overdraft offers access to an unsecured line of credit that can be drawn on whenever your bank balance dips below zero. This is typically a short-term financing solution offered by banks like Westpac to eligible customers. If you connect your Xero account, it can make the application process quick and hassle-free.

Business credit card

There are a number of benefits to using business credit cards over personal cards, such as separating personal and company expenses to make tax time easier, or building credit history for your business that can later help you apply for other lending needs. That’s why banks like NAB have specialised business credit cards available, so you can keep your personal and professional expenses separate. 

Xero integrates with a bunch of leading lenders that offer loan and finance options. To see a full list of the choices on offer, visit this page

What can you tell us about the government’s SME Recovery Loan Scheme? 

As of 1 October, the Federal government announced that it would expand its SME Recovery Loan Scheme. This is designed to empower lenders to grant more small business owners access to finance, with the government guaranteeing 80 percent of loans through the scheme. 

Those eligible can borrow up to $5 million with capped or flexible interest rates over a maximum 10 year term. To qualify, you must: 

  • Have an annual turnover of less than $250 million
  • Have received JobKeeper payments between 4 January and 28 March 2021 or 
  • Have been financially impacted by COVID-19
  • Apply before 31 December 2021

For more information, including how to apply, visit the Australian Government’s website

How can I maximise my chances of being approved for a loan? 

To give yourself the best possible chance of a successful loan application, start by ensuring your books are in order. This means getting bank reconciliations up to date, establishing your asset value, and noting any liabilities. It also means looking at those customers that have not paid in time, setting up automated invoice reminders or providing better payment options. Some lenders will make decisions based on your customers’ behaviour as well as your own. 

If you use a platform like Xero, you’ll want to capture as much information as possible in your account, as some loan applications automatically draw on this data to determine eligibility. Then, book an appointment with an accountant. They can help you understand your options and if a loan is the best choice, as well as help determine which type of loan is right for you. 

Are there any alternatives to borrowing? 

Absolutely – borrowing doesn’t have to be your first choice. Before you consider a loan, speak to your advisor about ways to boost cash flow. For example, according to our latest  Xero’s Small Business Index data, small business owners are waiting an average of 23.7 days to be paid. So if it’s overdue invoices that are hurting your cash position, consider attaching a payment service, like GoCardless or Stripe, to your invoices. Xero data shows Australian invoices with a ‘pay now’ button get paid up to 13 days faster. 

It won’t be long until Australia’s small business economy has a chance to rebuild and recover. So as we eagerly await a safe reopening, talk to your business advisor or accountant about all the options. If a loan or alternative finance option could be your bridge to that brighter future, know that using your data can make that process quicker, less effort and more secure than ever before.

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