Access to finance for business

by Kate on January 9, 2011

At some stage, most businesses use debt to grow. However, the GFC has caused changes in the lending environment that businesses operate in. We are dealing with a ‘new normal’ characterised by tighter lending conditions, reduced bank appetite for unsecured loans and increased compliance and reporting requirements.

In 2010 CPA Australia conducted round tables on the availability debt finance for business. The insights are summarised in podcasts available on the CPA Australia website.

Here are some of the aspects of doing business in this changed environment that were highlighted in the podcasts:

Focus on working capital management

With debt finance harder to come by, the capital tied up in receivables and inventory is a valuable source of funds to support operations and growth. There’s a significant payoff from understanding where cash gets stuck in a business and then finding ways to release it.

The value of developing good banking relationships

A key insight was that banks are lending, but with tighter conditions, and some businesses that would previously have obtained finance may no longer meet their bank’s lending criteria. It’s important for owners and managers to do what they can to encourage banks to lend to their business and to maintain good relationships with their bankers once finance is in place.

The importance of good basic financial management

SMEs reported an increase in the amount of financial management to support compliance and reporting requirements.

This is not a bad thing! Results can be improved when owners and managers have the skills and confidence to use financial information to inform decisions about things like pricing, business strategy, investment and financing. Having the information is an important step on this path.

Although the requests of banks can sometimes feel frustrating, short term pain can lead to long term gain in terms of profit, cash flow and sustainability.

Tips for businesses seeking finance

Here are some tips from the roundtables for businesses that are seeking new loans or renewing existing facilities:

  • Maintain appropriate financial records and monitor financial position regularly. Following best practice can provide assurance for lenders who are looking for well informed, proactive management.
  • Understand what security is available to offer the bank. In many cases security will be required, so know what the position is regarding assets and what debt is already secured  by them.
  • Talk to your bank early – well before the funds are needed. This is important because gaining approval takes time. It also provides a window to explore other funding options, if needed.
  • Be prepared. Contact the bank in advance to find out their requirements for information and take what’s needed to the meeting with the manager or business banker. Present financial and business information to showcase your business and help make it easy it is for the banker to assess the application.
  • Keep a good relationship with bank. Once finance is in place, meet regularly and keep the bank well informed about the state of affairs in the industry and your business including key developments with staff, customers and suppliers as well as the numbers.

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