Small businesses are likely to turn to personal credit, family, or friends to fund business expenses after being rejected for bank finance, an issue exacerbated by the holiday period, new research has suggested.
Research conducted by SME lender OnDeck has found that many small business owners seeking finance will turn to family and friends, as well as personal credit cards, to fund business expenses after being rejected by traditional banks.
The research found that almost one in four small businesses have been rejected for finance through the traditional banks.
Moreover, 58 per cent of SMEs faced disruption to their cash flow during the Christmas and New Year holiday period, according to the lender.
Of those who struggled to access business finance, one in three turned to family and friends for additional funding, while half resorted to using their personal credit cards to fund business needs.
Following on from the holiday period, personal finances can be stretched, leading to what OnDeck has called a “debt hangover”. This could particularly impact small-business owners who may have run down their personal finances to support both their family and their business during the holiday period.
As such, OnDeck is encouraging brokers to take the opportunity to assist SME clients in finding appropriate options for business finance rather than relying on personal debt.
OnDeck Australia CEO Cameron Poolman stated: “We know that typically, one in four of a broker’s home loan clients are SME owners. This gives brokers an excellent launch pad to support SME owners, who often rely on their own credit cards, or the generosity of friends and family, to navigate the cash squeeze that January often brings.
“Many Australians struggle to manage their own money – let alone have spare cash to support a small business at the start of the year. This can see a broker’s SME clients struggle to support a healthy cashflow within their business, and many may not realise there are other funding options available."
He added: “We know that access to capital is the single biggest factor holding small business back in Australia.”
As such, the non-bank CEO highlighted that specialist SME lenders can help businesses “source the funds they need to take advantage of timely opportunities for business growth,” which in turn “preserve[s] the important line between business assets and liabilities, and personal financial resources.”
“This also enables brokers to deliver value-added services as it preserves the important line between business assets and liabilities, and personal financial resources,” concluded Mr Poolman.
Catered support for bushfire-affected SMEs
The call for brokers to help SME clients comes as the industry rallies to support small business impacted by the ongoing bushfire crisis.
In addition to seasonal cash flow woes and limited access to business finance through the banks, many small businesses have been further disadvantaged by the bushfires still ravaging through regional townships across Australia.
Both the managing director of the Finance Brokers Association of Australia, Peter White, and the head of partnerships at SME lender Prospa, Alex Brgudac, have urged brokers to support their business clients during this difficult time.
Mr Brgudac told The Adviser: “The small-business community in rural and regional Australia will need our support. Access to funding is more important than ever, and it’s vital brokers have strong communication with all their small-business customers and work closely with their aggregator and lender BDMs if they’re unsure of the different options available to them”.
Mr Brgudac added: “The response from the broker community already has been incredible, but this is only the beginning.
“I also encourage everyone to buy regional where they can through #buyfromthebush or #spendwiththem to help keep these businesses trading.”
In order to assist small businesses struggling to achieve enough cash flow to run their operations during the bushfire crisis, Prime Minister Scott Morrison this week announced a new suite of measures to offer immediate support for small businesses that have been impacted by the ongoing bushfire crisis.
The government is offering affected SMEs 10-year loans of up to $500,000 with an interest-free period of two years and has also promised disaster recovery grants of up to $50,000 (tax-free) to eligible small businesses and non-profit organisations that have sustained damage as a result of the fires.
It is hoped these measures will assist small businesses with much-needed cash flow support during this difficult time.
Hannah Dowling is a journalist for The Adviser and Mortgage Business.
Prior to joining Momentum Media, Hannah worked as a content producer for a podcast catering to property investors. She also spent six years working in the real estate sector at a local agency.
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