Using Private Lending to Accelerate Growth in Your Business

Getting funding for your small or medium-sized business is often a lot more challenging than expected, especially from the big financial institutions. Typically, banks will only lend to established businesses with a long track record and established market. For newer businesses or those who don’t fit their increasingly conservative business lending criteria you’re unlikely to be supported.

In fact, half of all SMEs in Australia have applied for funding over the last 5 years and have been unsuccessful.

There are significant barriers for SMEs looking to secure business finance, the main ones being:

• Slow assessment times - typically business funding when required is required quickly to fill a temporary cashflow gap.
• Onerous paperwork - financials will often be required well in advance of when they are due to the tax office, potentially creating higher accounting costs; and
• Restrictions on use of funds – for example banks will not provide funding to cover tax debts

For those who are successful in obtaining bank funding, the terms may be not what you require due to these factors:

• Short amortisation periods, meaning profits are going into paying down loan principle rather than being reinvested into growing your business
• Regular reviews resulting in increased accounting costs and time spent, taking you away from your day to day business
• Onerous security requirements - the bank may take security in the way of property, guarantees and General Security Agreements which may prevent future lending and hamper business growth

Of course, for established businesses with strong financials bank funding is a lot cheaper, but for growing small businesses the priority is often around cashflow and access to capital rather than simply cost of funds. For a highly profitable and growing business, having access to more capital, even at a higher cost, will often better meet the business’s needs and requirements.

In short, private lending can be used for:

• Short term cashflow requirements where funding is needed quickly
• Funding for tax debts, which is generally not an acceptable purpose for the banks
• Funding with less security requirements than banks need
• Top up funding in addition to bank funding to cover potential unforeseen costs
• Funding for business growth
• Funding for businesses in earlier stages to bridge the gap until the business is able to meet bank requirements

If you are not getting the funding you need from your bank it may be worth expanding your options and looking into what is available out there in the market.