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4 great funding options that are often overlooked by small businesses in Australia


It’s fair to say not too many Australian SMEs keep their bank manager high on their Christmas card list.

Whether it’s a reasonable perception or not, banks are often seen as not giving a fair go to the average Aussie start-up or small business.

For many entrepreneurs, getting the funding they need to grow their business is often consigned to the “too hard” or “I don’t know where to start” basket.

But they need the cash, so they may run up a tax debt, increase their mortgage or max out their private credit cards to make sure they can pay the bills.

There are smarter options – here are four great alternatives SMEs often overlook when they are seeking to grow.

1. Debtor Finance – use what your customers owe you to fund the business

This is, quite simply, a line of credit linked to and secured by outstanding accounts receivable.

While it’s most popular in industries including transport, recruitment, wholesale and manufacturing, debtor finance (also known as invoice finance) can help any business that supplies products or services to other businesses on standard trade credit terms.

It can be used in high growth, turnaround and normal growth situations, as well as management buy-outs, acquisitions and buying out partners or shareholders.

The beauty is that it is a very flexible form of funding that grows with business revenues, and it’s impossible to over-borrow.

It is also cost-effective, when you factor in the opportunity cost of having to turn away new orders or customers because the cashflow is not there.

It’s certainly cheaper than credit card interest or ATO penalties and unlike a typical overdraft, it does not rely on real estate security, which means that the entrepreneur’s family home is not at risk.

It is a facility that grows with the business. Smart operators reduce their own business costs by using the cash boost provided by debtor finance to gain discounts from suppliers for early payment of invoices or bigger purchases.

Some banks offer debtor finance, as do specialist providers – look for a provider who will seek to really partner with your business so it can grow.

2 . Trade Finance – opening import/export opportunities up to the little guy

China has become a popular destination for many Australian business owners, who have grasped the opportunity to import product from the manufacturing powerhouse.

In April this year, more than 5200 Australian small businesses attended the world’s biggest trade fair in Canton, looking for products to import.

This level of interest will continue to grow on the back of the free trade agreements recently finalised with Japan and China.

For an importer, trade finance is a way of paying for goods before they arrive.

For exporters, it stumps up working capital until the overseas customer pays for the goods or services that have been delivered.

Cash cycles for import/export can be very different from domestic trade – international trade really chews up working capital as it can be months before payment for goods supplied is received.

Similar to debtor finance, the beauty of trade finance (particularly from specialist providers) is that the family home is not on the line.

Non-bank trade finance solutions can be provided from when an order is placed with the overseas supplier, all the way through the importation process and up until the importer is paid by their local or international customer.

3. Selective Invoice Finance – for businesses that need a quick and easy cash boost

For those business owners with seasonal highs and lows or who may have landed one big order, Selective Invoice Finance (also known as Single Invoice Finance) offers a great solution.

In these situations, Selective Invoice Finance can provide enough cash to see them through, without committing to a longer term arrangement.

The business can get a quick and easy cash boost on a “come and go” basis.

4. Efic – government assistance for small businesses with big export plans

Australian businesses are increasingly creating opportunities to sell their products and services into overseas markets.

The Federal Government’s export agency, Efic, announced this year it will partner with Scottish Pacific so that Australian companies who are helping Australian exports can get the finance they need to achieve their goals.

This is Efic’s first partnership with a non-bank lender, with Scottish Pacific providing the pre-shipment finance supported by Efic’s Working Capital Guarantee.

Efic supports Australia’s export industry by guaranteeing commercial finance facilities taken out by Australian companies exporting or operating in the export supply chains, helping them to expand their businesses overseas and to source opportunities in emerging and frontier markets.

This is great news as it hasn’t always been easy for smaller would-be exporters to access working capital.

Keep an open mind about trying different funding options

Trade finance helps SMEs procure goods, Efic helps fund small business exporters, selective invoice finance offers short-term funding solutions and debtor finance lets small businesses meet their long-term working capital requirements.

They are all options SME and start-up owners might not have considered, but which could boost their business right through the working capital cycle, for businesses with borrowing requirements from $10,000 to $30 million.

Peter Langham is CEO of Scottish Pacific Business Finance, which provides working capital solutions to SMEs, offering the broadest range of trade and debtor finance solutions in Australasia. Established in 1988, Scottish Pacific has full operations centres in Sydney, Melbourne, Perth, Brisbane, Auckland and China. Scottish Pacific was awarded the 2014 and 2015 Best Cash Flow Lender by broker publication The Adviser, as voted by brokers, in their inaugural Non-Bank Lending Awards.