With traditional access to credit drying up for small and medium Austrailian businesses, retailers are having to think differently when it comes to getting a business loan. The current climate of increased credit regulations is creating a mood of unrest amongst these businesses. According to Ernst & Young “Companies are exploring their options and alternative forms of finance beyond bank lending.” One such option is merchant financing also known as a merchant cash advance (MCA) – a welcomed alternative to the traditional bank loan, which is becoming increasingly harder to acquire with ever-tightening credit terms.

Lending crack-down threatens business growth

According to Ernst & Young’s annual Growth Barometer which surveyed over 2766 businesses worldwide, Austrailian businesses are among the hardest hit when it comes to getting a business loan. Almost a quarter of Austrailian businesses report that reduced access to credit is the greatest external threat to growth. “This data demonstrates that there’s a real perception among our medium-sized businesses that banks have started a pre-emptive lending crackdown that is increasing the cost and reducing the accessibility of direct financing,” EY Oceania growth markets leader Rob Dalton said.

Further to this, 48% of Australian business owners reported that the lack of working capital is the greatest internal risk. And the banks aren’t helping. A recent report, released by the Productivity Commission, found that Australia’s four largest banks control more than 75% of the country’s lending, deposit and credit card businesses. Leading the country’s biggest financial players into habits of abuse and complacency, the report said. Larry Prosser, CEO of leading merchant lender Beyond Merchant Capital says,  “Austrailian businesses feel let down by the bank credit system. The big concern is that by alienating such a crucial financial sector, our economy is really going to suffer! Luckily, there are alternatives.”

cash from beyond merchant capital

Companies are exploring their options and alternative forms of finance beyond bank lending.

 

Thinking differently about getting a business loan

This credit crunch may be a sign of the times. The economy is changing – industries are converging and spending habits are adapting. Australians are seeing a new type of customer who shops online and has higher expectations when it comes to service, offering and speed. All these factors will require retailers to have cash-on-hand to acclimatize and provide for these adjusting needs. But it now seems that many Australian businesses owners are taking their cue from their customers and are also changing their mindsets: In the past, banks and private equity were the only options for acquiring working capital. But now, they are recognizing that lending needn’t be that complicated.

With this in mind, forward-thinking entrepreneurs are opting for a merchant cash advance (MCA). This is not a bank loan at all, but is rather a buy and sell agreement between two parties. Here, cash is ‘advanced’ in return for future credit/debit card turnover. The retailer makes repayments automatically via their EFTPOS terminal, and a small agreed percentage is held back with every purchase. The payments work in line with turnover and put very little pressure on cash flow. Making this a flexible product with a huge upside for the retailer.

Flexible terms and qualification criteria

Because a merchant cash advance isn’t a loan, it isn’t governed by the same qualification criteria of bank loans. So while directors will need to sign surety, there are no collateral requirements. Businesses are also eligible even if they have an inconsistent credit history. They only need to have been in business for 6 months and must have a credit card terminal history to apply. Retailers can qualify for between 80 – 100% of their monthly credit and debit card turnover. And because turn-around times are lightning-quick,  finance can be granted in as little as 24 hours. This is due to an efficient online application process and limited paperwork requirements. Rendering the whole process seamless and refreshing. This is a far cry from the lengthy process of bank loan applications.

The decision power rests with the retailer

A small business owner typically has deep and intuitive knowledge of the business itself. Understanding its potential, its opportunities, its growth prospects and its risk profile. A lender to such a business, however, likely has very little knowledge of its specifics and its prospects around risk and return. Banks have traditionally been very prescriptive to small businesses providing very little flexibility when it comes to funding allocation. They need to know exactly what the funds will be used for and then there is little or no deviation from this plan. Alternative lenders of an MCA, however, allow business owners to invest in whatever they want. They do prefer that funds are used for business-enhancing opportunities, but ultimately the power rests with the retailer. This is because the MCA lender understands that no one knows that business, as well as the owner.

Hard times can bring new solutions

At the end of the day, regulations are being put in place for good reason. So that financial institutions adhere to industry standards and only execute responsible lending. The hope is that provisions will be put in place to promote small business growth. Says E&Y analyst, “While it’s important the sector is well regulated, we need to make sure we’re providing a framework that encourages growth for our middle market companies, the engine of our economy.” In the meantime though, Australian business owners do have options. Ultimately this tough economic climate is an opportunity to switch up thinking and evolve. Sometimes difficult times bring about possibilities. Merchant Financing is one of them.

Speak with a lending specialist today about funding the growth of your business.

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