Tips for lining up working capital

Interim Finance BDM says too often SME clients get stuck in high-rate, short term facilities

Tips for lining up working capital

Now that JobKeeper is over, the number of SMEs seeking working capital solutions is set to rise as many businesses face a lag period of limited cashflow. But too often within the second mortgage space, SME clients are placed in high rate, short term facilities and find themselves out of equity and unable to exit. Those were the words of Natalie Hockings (pictured), national business manager at Interim Finance. She said it was important for brokers and lenders alike to be “solution providers” for their SME clients.

“We should be asking, does this truly suit the client’s needs, are the terms and features of the facility suitable and will they serve the client to the maximum benefit for the life of that product?” she told MPA. “Or are we just shopping for rate and placing where we believe we will get a quick result and a commission paid.

“We should be, as professionals, looking at placing them with only responsible and competitive lenders that will always leave them in a position whereby they are able to exit the facility. These facilities should have terms and features that have been adequately considered and be suitable for the lifecycle of that loan product.”

When it came to finding appropriate working capital solutions, Hockings said it was crucial to first refer to the client’s statement of financial position to assess what assets they had and how leveraged they were, as well as which assets were best to leverage against in order to unlock capital.

Read more: What are the best finance options for SMEs following the end of JobKeeper?

She cautioned against the high cost of unsecured cashflow products, that could, in some cases, be twice or three times the price of other lending solutions.

“Unsecured lending isn’t always to the client’s overall benefit, even though it may sound risk adverse,” she explained. “What we see as a growing trend in both the secured and unsecured space, is a deliberate opacity around the true cost of finance. Brokers are well placed to guide their SME borrowers on which options are the most viable and suitable for their clients’ funding requirements. Access to finance for an SME is often the lifeblood of their business and it is paramount that it can be delivered in a deliberately simple fashion.

“Using residential property to unlock working capital is a viable and cost-effective solution, especially in a very confidently positioned property market. Many clients have equity reserves in investment property and even in their owner-occupied property from which they can release much needed capital for their businesses.

“With a property market that is robust and buoyant, and with values being reflective of Australia’s unwavering confidence in property, it provides business owners with that added uplift in equity at a critical time, whereby they may need to tap into it to ensure the solvency of their businesses at a very unique juncture in our economic history.”

Kate McIntyreKate McIntyre is an online writer for Mortgage Professional Australia. She has a wealth of experience as a storyteller and journalist for a range of leading media outlets, particularly in real estate, property investing and finance. She loves uncovering the heart behind every story and aims to inspire others through the artful simplicity of well-written words.
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