Business growth funding for small to medium enterprises in Australia

Business growth funding for small to medium enterprises in Australia

Small to medium businesses require capital

Small to medium businesses require capital for growth to be able to invest in things like new production equipment and new market development. To assist the SME sector, the Business Securitisation Fund was passed by Parliament in April this year and the Federal Government is also proposing to set up a Business Growth Fund.

The Business Securitisation Fund is designed to improve access by SMEs to loans, at a lower interest rate than has been recent experience. It plans to provide funding to innovative Australian businesses across the economy and would be similar to the United Kingdom’s Growth Fund, which has invested over $2.7 billion in a range of sectors.

Such funding would support innovative Australian businesses helping to diversify the Australian economy.

Major banks constrained by the regulations

“The major banks are dominant in the SME market, yet they are constrained by the regulations to insist on some form of asset backing, whether that is a property or a bank deposit by a third party.
That is just not viable in an economy where younger business owners cannot afford to own homes, or have limited equity, especially when the value of their homes is falling. In some cases, I have seen viable businesses needing funding to grow where the owner will not provide a private residence as equity for a loan.

There is a need for banks to start looking again at the value of the business as an alternative to the amount of solid asset backing.

The Business Securitisation Fund will also bring the smaller banks and non-bank lenders more into the market, which will reduce interest rates charged to SMEs. These rates have been up to four percentage points higher than the rates charged to larger businesses.

The improved availability of funding has the potential to have a substantial benefit to many areas of the Australian economy.

Businesses which are battling to survive will find it more comfortable with lower interest rates on their loans. Innovative companies will find it easier to get credit, which is necessary to fund product development. Businesses moving into new markets, or adding new product items, will be provided with the funding required to increase their stock levels.”
Robin Snelling, VCFO

Encouraging the SME sector to be ‘investment ready’

“This initiative is a very big positive for SME businesses. The prudential regulations make it difficult for banks to adequately address this sector so the Business Securitisation Fund will provide a productive impetus for the economy.

We also need to encourage the SME sector to be “investment ready” so that they can qualify for this funding.

The fund will place a high value on how well the applicants manage their businesses. This will include the quality of their planning and performance reporting. The members of the Association of Virtual CFOs are well placed to support these businesses and ensure they have high-quality planning and reporting practices in place.”
Colin Wright, VCFO

funding for sme's

photo: andrew-neel-308138 on

Accessing capital for younger business owners

“Funding is challenging to get unless you have security (bricks and mortar behind you) and trading history. Both of which are difficult or impossible when you are young and have a great new idea or product.

So, you either need to have some wealthy investor or parent to support you during the startup phase. Not everyone has this, but this does not preclude you from having a good idea.

So there has to be a way to support new business ideas to give our entrepreneurial people a chance to have a go.

This type of funding is much needed. I recently met a young business owner with a new non-sugar based food and drink alternative, a great idea with the obesity issues that our society faces. He needs to get finance to fund and expand his operation but can’t get bank funding, so is hoping family and friends can support his venture.

This new type of funding would allow him to go forward with his business and tackle one of the more significant health issues/challenges our kids face. Without it, he may not get the chance.”
Peter Mclean, VCFO

Private capital allows companies to grow

Private capital allows companies to grow, according to a 2018 Deloitte Study. They found that Companies, with private equity investment, grew annual revenue by 20% and their workforce by 24%. Equity funding may help SME’s avoid debt without giving up control of their business.

“All finance comes with a cost: not just the fees and interest but the responsibility to report back to lenders on the business performance.

To do the reporting, it will create a need for small business to engage suitably skilled accountants, most likely a virtual CFO to do this.

A Virtual CFO will ensure that the business has the right financial structures, disciplines and reporting to not only meet the financier’s needs but to grow and expand the company into the future successfully. A handy person to have around to help in the success of an up and coming business.”
Peter Mclean, VCFO

SMEs will have to be able to demonstrate their achievements

“The Small Business Ombudsman stated in November 2018 that the Securitisation Fund would not mean that riskier small businesses will get access to more bank funding. SMEs will have to be able to demonstrate their achievements to date and that they have sound plans for the future. The best way to do this is to provide detailed financial reporting and strategic plans.

SME owners must demonstrate to potential lenders that they make decisions which are supported by facts, which in turn will give confidence to the lender that their investment is not unduly risky.

Financial reporting may demonstrate the profitability of products and services, and give a breakdown of customers by market segment.

Financial reporting will also be based on sound accounting principles and clearly show trends in revenue, cost of sales, overheads and profit.

All too often, businesses which lack a finance manager will have profit reports which show high profits one month and a loss the next month, because they fail to match revenues with the associated costs.

These reports are not helpful to lenders assessing a business. Reliable financial reporting like that above will provide an excellent foundation to construct plans for the future. The profitability of planned sales growth, or an investment in plant and equipment, will be based on known revenue trends, or properly calculated costs. This will give lenders security that repayment of their loan can be achieved.”
Robin Snelling, VCFO

CFO’s can assist the SME sector

CFO’s can assist the SME sector by analysing the financial health of a business and provide the owner with a range of advice and options for managing growth. They can also help the owner apply for equity funding if the opportunity arises, and demonstrate their client’s capability to repay the equity.

When your company needs to finance growth through the purchase of productive assets or workers, then your first step is to engage the help of a CFO.

Virtual CFO’s

The virtual CFO or outsourced CFO is a contracted service provider who can provide critical financial management skills for SME businesses at a cost that enables significant benefits to be delivered to the business. Especially if you are seeking business growth funding.

Typically, your virtual CFO has a number of strengths and focuses on:

• Analysis through financial reports and interpretation
• Oversight of the business’ finance function
• Offers insights into business operations which allow well-informed decisions to be made
• Behaves with a broader view of the client’s ethical and social responsibilities
• Heavy focus on budgeting and forecasting
• Provides performance management support
• Reviews risk exposures

Use our VCFO site to find a Virtual CFO to assist you with your business.

Further reading

How to handle growing pains in business

How to handle growing pains in business

As businesses grow, hiring people to deal with waves of increasingly complex work is a dilemma like “which came first, the chicken or the egg?”

The external environment and industry dynamics are constantly changing and evolving.

Nobody can gaze into a crystal ball with any certainty, deciding exact trigger points for additional resourcing.

Managing a growing company is a dark art.

People such as Richard Branson advocate:

“’If somebody offers you an amazing opportunity but you are not sure you can do it, say yes – then learn how to do it later!”

Nobody can afford to have the resources sitting idle whilst they wait for potential work to materialise.

The first thing to expect is that inevitably cracks will open up and things will probably fall between them.

The key is to expect it. It’s how you deal with it that’s important though.



These cracks fall into 2 categories:
either capacity or capability limitations with your current resourcing structure.

In terms of capacity, tell-tale signs of problems would include staff having to work late or come in on weekends to cope with the additional volume. If it’s only a short-term spike, the staff might be happy enough to dig in and ride it out, but this needs to be acknowledged and rewarded somehow.

Time in-lieu, a bonus, movie vouchers and public praise are good ways.

If you expect the spike to continue into the future, then you should look at fixing the under-resourcing problem.

A rule of thumb in delegating is to” keep delegating until you see it start to come out of their ears” and another is to keep saying yes to accepting new work, but speak up when you need help.

It’s vital to foster a culture where staff won’t watch something fall into a crack then say “that’s not my job”.

Employees should be aware that cracks opening up represent opportunities to progress.

It’s the organisation’s job not to take advantage of the willingness of the employees to go the extra mile and deal with things that have fallen into a crack.

Eventually hiring someone on a higher level than the employee who has covered the gap above them for some time is demoralising and is likely to result in the employee becoming disillusioned and leaving.

Also be aware of the lead-time in finding resources and the learning curve that ensues.

Rarely can you just pluck ready-to-go help off a shelf.

In terms of capability, generally what happens when smaller businesses grow is that they reach a point where they find a gap, between their current financial management skills and the amount they actually need to support the business.

They require access to ‘high-level’ expertise to:

  • actively manage their business,
  • plan the future,
  • improve processes and
  • implement controls,

but they haven’t yet reached the critical mass to justify the investment in a full-time CFO of their own.

Adding more capacity at the same level isn’t the answer either – skills don’t stack upwards.

2 x $50K people can do twice what 1 x $50K person can,
but not necessarily what 1 x $100K person can.

There are also sensitivities around existing loyal staff, who have done nothing wrong but are now ‘in-over-their-heads’ in terms of the balance between their capability and the complexity of the much larger business and they need supplementary help and guidance.

Perhaps this person was the best available candidate and fit-for-purpose when the business was turning over $2M-$5M, but at $10-$20M they probably wouldn’t have made the interview short-list.

Often the best solution is to engage a Virtual CFO to augment your current team, on an as-needs basis.

VCFO consulting is a specialised area – not merely an ‘add-on’ service offered by a generalist public practitioner.

Instincts are gained from
• years of C-Level reporting in big businesses,
• relentless scrutiny by big 4 auditors,
• and the accountability plus exposure to the wisdom of various boards of directors over many years.

The on-demand basis of the relationship with a VCFO, means you don’t have an underutilised and expensive resource chewing away at your bottom line, you only pay for what you need.

David Dillon is a member of the Virtual CFO Association.

The Virtual CFO Association is an elite peer network, advocating the emerging VCFO sector within the accounting profession.