Cashflow is the lifeblood of any small business. Ask any small business owner what keeps them awake at night and cashflow is almost certain to be in their top three concerns, and for most the number one concern.
Not only does a lack of cashflow endanger a business, it can also restrict growth. A recent survey by Scottish Pacific Data shows that:
72% of SME’s believe their revenue would be 5% or higher if they had the cashflow to sustain it, with the average increase estimated to be 18%.
Given the impact of SMEs on the economy this could potentially generate an additional $222B in additional revenue per annum across the economy, or over $1.8M average additional sales per business (an SME is defined as a business with sales revenue between $1M and $20M in the report).
For those businesses experiencing a growth phrase, over 90% believed they could generate more than 5% additional revenue if they had better cashflow for their business.
For many businesses cashflow is directly related to funding. With many SMEs having a seasonal element, there is a strong need to have credit available throughout the tighter months of the year Getting funding can be the difficult part.
Credit availability is now seen as an issue by 61% of SME’s up from 51% in 2014.
Between September 2016 and March 2017 SMEs saw a decline in the areas of availability, conditions and cost of credit. In an effort to better secure their funding and cashflow, more businesses are looking outside the normal credit channels.
Across the board all SMEs surveyed, whether in a growth or mature stage, had increased their willingness to seeking funding from non-bank lenders compared to just six months earlier.
Between September 2014 and March 2017, the number of SMEs tha planned to secure non-bank funding had increased from 10.8% to 22%. Those planning to use banks declined from 38.4% to 28.8%.
The Australian Prudential Regulatory Authority (APRA) has recently had banks in their sights, with a requirement for all banks to increase their levels of capital. This investigation is by no means over and there is expected to be a tightening of regulatory requirements around lending. Although the primary focus will be the mortgage market, banks will be more nervous about the strength of their loan portfolios and this may impact SME lending from the big four trading banks in the foreseeable future as they attempt to meet new levels of risk exposure.
Fortunately for SMEs, there are a number of financing alternatives available that help overcome these restrictions. The growing peer to peer lending market, predicted by Morgan Stanley to reach $22B by 2020, provides several options that can circumvent the slower approval rate, higher costs and lack of flexibility of traditional lenders.