As the majors continue to take a black and white approach towards SME lending, alternative financiers like Limba navigate their way through the ‘grey area’.
Over the last two years, banks have altered and tightened their policies and procedures to deal with the ongoing unpredictability that is COVID. However, 2022 is proving to truly be the year of the unknown. Banks continue to take a very black and white approach and so lenders such as Limba are excited about the opportunities that present themselves in the ‘grey area’.
As the first quarter of the calendar year draws to a close, conversations amongst our network are dominated by speculation around recent global events will affect Australia’s finance markets. We have shared some of these factors in this piece that may stimulate conversations amongst fellow lenders, brokers and clients who are trying to traverse the unknown landscape that lays ahead.
The first factor to be considered is the change in availability of pandemic relief offered by the government. Over the last two years, the market was awash with government cash to support SMEs and ensure their survival. This relief has tapered off as we begin to “live with COVID”, creating an interesting outlook for recovery of our multi-speed economy. SME’s will be returning to the finance sector looking for working capital and, in most cases, due to the impacts of the pandemic they will be looking for alternative finance solutions to support that need. This will require some assistance from trusted advisors around what is available in the market, considerations for credit appetite and realistic expectations of pricing. It is important to engage with your customers to understand their strategic plan, the purpose of the required funding and what they believe is causing the cash flow pressure.
In order to secure finance, a Low Doc option may not be the “magic bullet” to resolve the SMEs’ working capital woes. Collaborating with their accountant to uncover where the business’ cash flow pressure stems is a smarter approach. Often a longer term solution will save the pain of an expensive unsecured short term fix.
The second factor that looms is the country’s ATO debt that currently sits at a staggering $55 billion. Speculators have mixed views as to when this recovery action may begin, but general consensus is that it will happen this year. Questions are being raised around how Australian SMEs will negotiate the repayment of ATO debts and how first tier lenders will react to these businesses as we all know that ATO debt is a brick wall for the majors. Brokers must consider a structured alternative finance solution with a private lender, like Limba, who can assist given their common sense approach and access to funding. Relying on your accountant to negotiate an ATO repayment plan alongside a strategic plan will allow the SME to determine the level of payment which can avert recovery action by the ATO. This allows the SME some “breathing room” whilst they get the business back on track with a private lender so they can become bank ready in the future.
Finally, the volatility of the market has impacted lenders within the alternative finance space. Recently we’ve seen a number of large players in the construction space collapse with reverberations felt across the board. Some lenders have pulled construction from their preferred industries and credit appetite has tightened with the general outlook of market risk. Therefore, we expect a domino effect onto the industries that provide services to the commercial and residential construction sector such sub-contractors, wholesalers, labour hire, etc. Unfortunately, this also means that strong performing business es will also be lumped into the ‘high risk’ category, even though they may be growing profitably, requiring a common sense approach to find a solution.
When all of these external factors are considered, Limba has still been out in the market utilising a common sense approach to assist Australian SMEs with bespoke lending solutions for their business finance needs. We utilise a case-by-case approach, looking at the strengths and opportunities of each business and finding the best finance solution. This can be done by thinking outside the box to formulate a solution or working collaboratively with other alternative financiers. The most important component of being able to work towards a solution with the Australian SME, is the ability to understand the business, the reason for the funding and the current financial position of the business (“warts and all”). There will never be a cookie cutter approach to finding the best finance solution.
It always important to have a discussion with your client and the manage their expectations around the reality of the market and the options available to them to achieve their goals. Asking questions and working together on a strategic plan can uncover a solution to help SMEs recover from the volatility of the current market and in turn the Australian economy.
Did you know that Limba has the most flexible finance offer in the market? Connect with us here to find out more here.