Business growth funding for small to medium enterprises in Australia

Business growth funding for small to medium enterprises in Australia

The Business Securitisation Fund

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 the 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.

“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

 

“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 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, 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

 

“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

How CFOs can help your business

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. 

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. 

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 the VCFO site to find a Virtual CFO to assist you with your business

Further reading:

https://treasury.gov.au/small-business/absf

https://www.smartcompany.com.au/finance/funding/uk-growth-fund-government-sme-finance/

https://www.smartcompany.com.au/finance/game-changing-government-plan-pledges-2-billion-for-capital-starved-smes/

 

How to get funding for your startup

How to get funding for your startup

So you want to start your own business but are weighing up your financing options?

Taso Tounis, Association member and Principal of BudgetOne, says the good news is there are many different funding options available for start-up business owners who are seeking to raise capital.

Whether you’re looking to attract venture capitalists, angel investors or crowdfunding, you’ll need to pitch a compelling reason to convince others to invest in your start-up company.

In this post, we’ll outline a proven game plan to do just that.

The Essence of Private Equity or Funding

There are 3 key components that distinguish private equity from traditional financing:
1. Funds are dispersed directly from private investors and not through a financial institution.
2. Capital is usually exchanged for a percentage of ownership in the company (as opposed to an interest-based loan).
3. Criteria for “qualification” are not regulated and vary from investor to investor.


The type of investor you choose to target will vary depending on the scope of your project (i.e. the more money you require the more complex the vetting process)

Angel Investors
An angel investor is an affluent individual who invests mostly in local business start-ups in exchange for convertible debt or ownership equity. While many angels belong to “angel groups” or “angel networks” many do not openly advertise the capital they have on offer.

Angels tend to fund smaller enterprises but investments can reach up into the low millions.

Venture Capitalists
|Obtaining VC investment generally involves pitching to a firm that represents a number of private investors who fund a wide portfolio of start-ups under the firm’s umbrella.

Venture capitalist firms fund larger deals but tend to focus mostly on small companies with proven financials in search of massive growth.

Crowd-funding
This has become ever so popular thanks to the hit TV show, Shark Tank. Eliciting support/interest in your project from friends and family has never been easier.

Crowd-funding platforms such as GoFundMeIndiegogo and Kickstarter allow your personal network to effortlessly invest in your start-up by lowering the minimum investment and allowing participation at all income levels.

Crowd-funded businesses often benefit from the fact that contributions are commonly paid back with products or services as opposed to equity, making it possible to raise capital without giving up ownership in your idea. Such a technique also has the potential of going viral.

If you’re dissatisfied with your current position, tired of working for somebody else and worried that traditional superannuation won’t suffice to cover the retirement of your dreams, call Taso on 0429 142 413 or email taso@budgetone.com.au to learn more about securing funding for your business venture or dream.