Ask An Expert – Australian Banking Association

Research by the Australian Banking Association shows 60% of small business owners have said that access to small business loans has stifled their business ownership plans. With traditional loans getting harder to access by the day, we talk to Vijay Reddy –Director and Senior Partner at Winquote SME Finance.

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“Based on the enquiries we have received -and feedback from clients -they are finding it difficult to secure finance directly from the major lenders, or they have found the process too long and have to abandon the opportunity,” said Vijay.

“Lenders , including alternative funders, are taking greater care on assessing the risk and hence the credit assessment process is far more comprehensive.

“The client’s ability to manage the business that they are purchasing -and o maintain its profitability and meet the loan repayments -is a key consideration.

”However, over recent years, private lenders have emerged as Australia’s ‘fifth bank’.

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Bridging the Gap

These alternative lenders are bridging the gap between traditional lenders and innovative Australian small business owners.

“For certain clients,” said Vijay, “the major banks will still be their best option. Clients should consider engaging commercial finance brokers that work well in this space-one that can consult and assist with the preparation of a credit submission to the lender of choice, on behalf of the client and manage the process.

“A business buyer’s personal financial circumstance and business experience -as well as the type of business they are purchasing -will determine where they should seek finance. Generally, the borrowing cost is cheapest with the major banks, with private lenders being the most expensive. However, some may consider equity funding to be the most expensive funding in the long run.

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Non-Traditional Funding

Vijay believes there are several Fintech companies that do the non-traditional funding very well, including cash flow, trade finance, invoice discounting and asset finance, justto mention a few.

“Any potential business purchaser is more likely faced with raising the capital that is needed to finalise the purchase form a number of sources,” he said.

So, why should a business buyer consider these alternatives?

“Alternative funding may cost more in comparison to what’s on offer by traditional funders but, when it’s assessed against the opportunity cost and reasons for acquiring the business and potential returns, then it’s an investment cost.

“The discipline of reviewing founding cost over time and seeking cheaper funding cost as the circumstances change is the best way to minimise overall borrowing cost.

“What alternative funding helps with is quicker access to funds for short to medium term, with less red tape and it might be necessary to complete the purchase.”

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Strong Market

Whilst no-one can deny the impact of the COVID pandemic, the business buying and selling market is flourishing.

“From the inquiry levels we have seen, it’s been the strongest for a long time. Definitely a strong buyer base,” said Vijay.

With that in mind, what does he see changing in the loan market over the coming months?

“Based on our conversations with some Fintech lender representatives, they are reviewing the products and assessment process to carve out a bigger share market,” he said.

“What this means to potential business purchasers is that access to funding through certain products will be quicker and easier.

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Good advice

So, what advice would he give to someone seeking a business loan?

“We are definitely biased but use a good commercial finance broker -one that preferably has a wealth of knowledge and experience in assisting funding for business purchases. Give them the mandate to seek out the lowest borrowing cost to secure funding to complete the purchase in a timely manner.

“They should have a good understanding of the business they are purchasing and, if they approach their existing bankers directly, have a well prepared proposal.”

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Vijay Reddy

Director& Senior Partner-Winquote SME Finance

Phone:?1300 971308

Website:?winquote.com.au

Email:?[email protected]