“The biggest barrier to small business growth is access to finance,” said Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO).
To be formally unveiled at a media launch in Sydney on Monday morning (29 July), the Business Funding Guide is a collaboration between the ombudsman and alternative lender Scottish Pacific Business Finance.
In a joint statement, they said that the guide is “is primarily written for accountants, bookkeepers, brokers and other financial advisers, to help their small business clients find the right funding and increase their likelihood of having funding applications approved”.
But a companion guide, called FitSME – Essential Guide to Business Funding, has also been developed specifically for business owners and operators, in a bid to help them navigate the path to secure the funding they need to grow.
“This independent guide provides comprehensive, up-to-date information about a range of funding options available to them, along with a step-by-step pathway to becoming ‘finance fit’ to give small business operators their best chance at securing funding,” Ms Carnell said.
“We know that about a third of small business owners have had their applications for bank loans rejected. Many more have not bothered to even apply, as they’ve been told that unless they have significant equity in real estate, their application will fail.
“That’s why it is essential that small businesses understand the range of financial providers and products on the market — the big four banks are not the only game in town!”
Scottish Pacific CEO Peter Langham said that the key to success for many SMEs is simply knowing where to get assistance to finance their operations, particularly given most already work long hours with considerable responsibility, leaving little time available to research their options.
“Business operators looking to grow, employ and stimulate the economy need to consider all of the funding options, including options that are not linked to their personal property, to make the best choice for their business,” he said.
At Monday's launch event, Mr Langmah said that all businesses face ups and downs throughout their life, and the multitude of demands and responsbilities placed on business owners make it a “really tough” and “lonely” experience.
However, he said that “the constant for all these businesses is that they will always need money to grow”, and the guide is aimed at helping business leaders engage with their trusted advisors to make this funding a reality.
Also speaking at the event was bookkeeper Lielette Calleja, director of All That Counts, who said that she is deeply saddened seeing For Lease signs at her local shopping centre as firms go out of business, and questioned how many of these failures are attributable to restricted access to funding.
Ms Calleja said that as a nation, Australia has “created a nation of DIY - do-it-yourself - accounting”, which has created knowledge gaps, particularly around business finance.
“We nee to use this [guide] as advisers to help support our business clients,” she said.
“There's big talk about all of us upskilling and being strategic advisers [to SMEs] - this is where it starts.”
What is in the guide for SMEs?
The companion guide specifically for businesses, FitsME – Essential Guide to Business Funding, combines a range of simple advice on various financial matters.
Among them are key questions to ask when looking to appoint a new accountant or a new finance broker; a step-by-step checklist to complete when applying for funding; information on various debt and equity options; as well as links to relevant government and industry resources.
There are also links to support services for mental health, given the obvious strain that money concerns can have on the wellbeing of struggling business owners.
What is in the guide for advisers?
The more detailed Business Funding Guide has a range of information and example scenarios designed to support advisers guide their SME clients through the finance maze.
Sections include a “finance fit checklist”; information on how to determine whether investment or loans are the most suitable option for the business to access funds; an overview of how finance needs change over the business life cycle; and advice on breaking the “credit card trap”.
Again, there is also a page with links to mental health support services, recognising the frontline role that trusted advisers play in supporting their clients individually as well as their businesses.
Rapid change leads to uncertainty
Speaking to My Business sister title The Adviser, Ms Carnell said that the finance market has “changed really quickly”, leaving accountants, brokers and financial advisers — and the SMEs they serve — unsure of the full gamut of options now available.
“This is in no way a criticism of accountants or brokers or financial advisers, or whoever. It is just the market has changed really quickly. Fintechs and the range of fintech products didn’t exist five years ago, and it was not that long ago that the banks were ringing up small businesses asking whether they wanted more money,” she explained.
“But that is not the case anymore. So, it is not surprising that many accountants and brokers and others in the financial services space are not aware of the products that are available and the pros and cons of various products. So, we tried to make it simple in the Business Funding Guide.”
Ms Carnell continued: “We hear so many stories about small businesses that go to their bank that they have dealt with for 30 years, or something, and talk to them about the possibility of a line of credit, overdraft, a new loan or whatever. And they are told: ‘Look, unless you have significant equity in bricks and mortar, the chances are really small’. So, they don’t even apply.
“So, they go away and tell us: ‘Look, if a bank who knows us, that we have dealt with for 30 years, is telling us it is not happening unless we have significant equity either in our own home or other bricks and mortar, then no one else is going to lend to us, are they?’.”
She added that fintechs can be “really useful” for certain types of loans, but can also be “really dangerous” in certain instances, where the costs if the amount is not repaid “can often be significant” — making understanding of what is available and what to look for before committing to a particular option crucial from the outset.
Property market adding to finance constraints
The ombudsman also said that “there is no doubt” the property market downturn has further constrained the ability of SMEs to access finance, by eating into the equity they have in property.
“If the value of your home has come off 10–15 per cent, it is straight off your equity and so that has changed the views of the bank,” Ms Carnell said.
“Further, a lot of the valuations that are coming through — if you seek to increase your loan or get a new loan from a new bank, they will value your property before they do it, at which stage that valuation is likely to be significantly lower, and we are seeing banks bring down the amount they are willing to lend.
“So, you end up with a double whammy: the value of your property has come down and also the bank has changed their risk appetite.”
The guides — released as an initial version, with the final versions to be made available later this year pending user feedback — will be accessible through the ASBFEO website.