Since the 2008 fiscal crisis, SMEs in Australia have had a tough time of it. Even up to today, there is an ongoing difficulty in accessing finance—a handicap left over from the years of slow consumer credit growth, low overall confidence, and a volatile capital market. In the 2011 Asia-Pacific Small Business Survey by CPA Australia,only 30 percent of the respondents reported having been approved for business loans. And of this number, more than a third found the process especially challenging.
CPA Australia attributes SME’s funding troubles to a lack of communication between lenders and potential borrowers and believes that better dialogue on the latter’s credit worthiness is one key to success. This particular client’s story is an excellent case in point. Abhishek Maharaj, General Manager of Winquote, shares the story with us.
Our clients owned a restaurant business in the SME space and were hoping to try and grow their portfolio of assets. To do this, they needed secured, lower-interest funding to refinance their property loans.
While they were sufficiently asset-backed and able to fund their cash flow requirements, they were having difficulty establishing their capacity to service the debt—evidently a no-no for the bank. Their inability to secure bank financing boiled down to two things: first, they did not have a relationship manager to oversee their financial dealings, and second, they had only recently restructured their business.
In the interim, they had to resort to expensive private lenders. By expensive, think high application fees and interest rates well above 10 percent. The expense led them to consider offloading their business or investment property—a measure which would have eliminated their debt, but not without hurting their cash flow.
The problem with their temporary solution was that it didn’t really solve anything. It was just a Band-Aid, a means of adjusting to the new normal (i.e., having to go without bank financing). And it was no longer effective.
When the clients approached Winquote, one of the first things we did was urge them to find a relationship manager, someone who can understand the ins and outs of their business finances and represent them properly to the bank. We also stressed the importance of mapping out their short-, medium-, and long-term objectives so that they could start preparing financially for future projects.
Below is a summary of the strategies we implemented.
1. Sourcing the right bank. Once their objectives were made clear, we were able to find the right bank for their current situation and future needs.
2. Utilising our Debt Tendering Service. This is designed to help clients get in touch with multiple lenders with the aim of arranging a new and improved setup that will add value to their business.
3. Organising approval and settlement. We worked closely with the bank and the clients’ chosen relationship manager to achieve the desired results.
4. Managing the ongoing relationship. We continue to be their personal Finance relationship managers and to maintain the relationship between themselves and the lender.
5. Providing ongoing support. Clients’ needs don’t end once a bank loan is secured. We continue to work with them and their relationship manager to make sure the house stays in order. It’s an ongoing beneficial relationship.
The end result was that we were able to secure financing at an interest rate of under 5.5 percent through one of the Big Four banks. We helped our clients by putting their best-foot-forward to the bank allowing them to save $52,000 a year on interest costs alone—an immediate boost to their cash flow. And (perhaps best of all), we were able to help them hold on to their business and investment property.
At Winquote, we work hard to be our clients’ advocate throughout the process. We push to best position your credit application for improved pricing and ultimately reduce barriers for approval. Our specialist knowledge and years of working in the banking industry place us in a prime position to meet with top lenders and ensure that all your financial affairs continue to run like clockwork.
The takeaway for this case study is simple: find sound financial partners who can help you maintain a healthy cash flow and keep you on your toes. Relationships are important in all aspects of business, but most especially when securing funding and when growing your portfolio of assets.
If you need help with SME Cash Flow Funding, Self-Managed Super Fund Lending, Property Finance, and more, talk to Winquote SME Finance. We’d be delighted to hear from you.
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