Owning and running a small business is an exciting and rewarding journey for many business owners, although more often than not, the challenging part of this process is finding the right funding to help the business grow and thrive. Funding falls primarily into two categories: "debt financing" (getting a loan) and "equity financing" (selling a share of your business to investors).
It’s no secret that for many businesses, we’re entering a period of great uncertainty due to the impacts of the COVID-19 pandemic. After months of some businesses receiving little or no revenue, the worst may be yet to come for Australian businesses.
Remote working has increased dramatically as a result of the coronavirus pandemic. With almost everyone who is able to do their job from home currently doing so, businesses have had to shake up their policies on working practices. It’s also looking like after the pandemic is over, these policy shifts will stick.
Are you looking to keep your business afloat during these difficult economic times? Perhaps you’re searching for ways to grow your business, or to start to take advantage of bigger contracts? Whatever your goals are, understanding working capital is paramount to the process.
In a time of uncertainty, it’s hard to know who to rely on. This time last year, 33% of Aussies reported a loss of faith in the banks as a result of the Banking Royal Commission. As of 5 May 2020, Treasurer Josh Frydenburg announced that banking reforms recommended by the royal commission would be delayed to allow banks to deal with the coronavirus outbreak.
It therefore goes without saying that many small business owners looking for assistance from the banks during the coronavirus outbreak might be fearing imminent disappointment - or have already been met by it. And while the Australian Government’s Coronavirus SME Guarantee Scheme seems like a guiding light amidst the current economic darkness, how much can we rely on the big banks to help our small businesses in this time of need?
With more customer-owner banks, non-bank and fintech lenders being approved for the scheme, is there a better option when it comes to acquiring business finance during COVID-19? In this article we discuss how the scheme works, which customer-owner or non-bank lenders are currently participating, and how you can make the best decision when applying for business finance.
The Coronavirus SME Guarantee Scheme is a part of the government’s second-wave stimulus package aimed at helping Aussies survive the impact of COVID-19, announced on 22 March 2020.
Businesses struggling as a result of the coronavirus pandemic are able to access government backed business loans via approved lenders. Loans under the scheme:
To qualify for finance for the scheme, businesses must have an annual turnover of less than $50million and be facing hardship as a direct result of the outbreak.
Lenders participating in the Coronavirus SME Guarantee Scheme consist of a combination of banks, customer-owned banks and non-bank lenders.
Banks |
Customer-owner banks |
Non-bank lenders |
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*All data was sourced from treasury.gov.au and was accurate as of 13/05/2020
Customer-owner banks, also known as credit unions or mutual banks, are banks of which the shareholders are its customers. Generally, customer-owned banks put their profits back into providing better rates and fees for their customers.
The term ‘non-bank lender’ generally refers to lenders that are not ADIs (Authorised Deposit-Taking Institutions). This means that they cannot accept deposits from members, e.g. current accounts or term deposits.
Unfortunately, there's no cut and dry response to this question. This is because your answer will likely depend on the unique financial circumstances of your business.
However, business owners should be aware that while loans under the Coronavirus SME Guarantee Scheme are designed to help businesses that are struggling as a result of pandemic, the bigger banks have stated that they are not available to businesses that may have been facing earlier financial issues.
Commonwealth Bank group executive of business and private banking Mike Vacy-Lyle stated on the subject:
“There are unfortunately going to be some businesses that we end up saying no to. For a business that was in difficulty pre-coronavirus, we cannot use a coronavirus guarantee to help that business.”
How a pre-existing difficulty will be determined by the banks is uncertain, but it may prove problematic for businesses in need of finance who naturally face factors such as seasonal cash flow fluctuation, or those who have less than perfect credit histories.
Invoice finance can be a great way to unlock capital tied up in your unpaid invoices. There are two main types of invoice finance: Invoice factoring and invoice discounting. While similar in nature, there are some notable differences. Find out more about invoice factoring below, how it differs from invoice discounting, and whether it’s right for your business.
Cash flow for Australian businesses has already taken a hit en masse as a result of the recent pandemic. And unfortunately, many businesses are predicting the situation only to worsen in the near future.
Invoice discounting is a form of invoice finance. Invoice finance, also known as debtor finance or accounts receivable finance, is a common way for growing businesses to fund increasing working capital requirements, by unlocking the capital tied up in unpaid invoices.
Winning a big new customer is exciting and has many obvious benefits for a small business. But an over-reliance on one or a few big customers also comes with risks that business owners need to be aware of and manage accordingly.
