Capitalising on capital bridging finance
Founder and CEO of DJ Partners and Capital Bridging Finance Damien Simonfi explains the importance of SME financing.
Why is it important that SMEs are able to access finance?
Small and medium-sized businesses are the engine room of the economy, employment and innovation. Many SMEs rely on access to finance to manage day-to-day expenses, as well as medium-term development and investment. Not only is access critical, but the price at which that finance or credit is provided is also important.
In general, SMEs find it difficult to access finance, whether for cash flow management or longer-term investment, and this will have a significant impact on economic growth and employment.
Small businesses are significant purchasers of goods and services and contribute around a third of all value add to the national economy. They are also a significant provider of goods and services to larger businesses in a more cost-effective manner.
SMEs are also a vital cog to the competitive structure of the economy, particularly as a competitive option to larger businesses, which helps bring down prices across the broader economy.
Because of the significant competition they face, SMEs tend to be more innovative, productive and efficient in the way they manage their businesses, which improves the overall productivity dividend to Australia’s economy.
The banking royal commission has seen many of the larger lenders reduce their risk appetites, leading to fewer SMEs being able to access finance from them and brokers looking to specialist lenders for solutions. How is Capital Bridging Finance able to fill the void?
There are three primary points to answering the question of how Capital Bridging Finance can fill the widening void that stemmed as a result of normal credit cycles and compounded by the banking royal commission and its findings:
Capital Bridging Finance has the available capital to assist SMEs. Our team has many years of experience in “filling the void” and we can provide a pathway to securing a quick and reliable financial solution to help with their business or personal finances.
Capital Bridging Finance can move quickly and efficiently to ensure our clients get access to their money within 24 to 48 business hours. This is in direct contrast to the direction banks are now operating in, with anecdotal evidence suggesting that loan approvals are taking up to 90 days.
Generally, we find that our SME borrowers require funds quickly as they have already applied for their loans with the major institutions and rejected at the 11th hour. Borrowers need clear-cut decisioning to ensure business continuity.
Incidentally, Capital Bridging Finance is observing a significant surge in very high-quality borrowers that perhaps would not typically require our services.
The end of the tax year can be a trying time for SMEs. What can brokers do to help SMEs at this time of year?
Managing SMEs’ end-of-year cash flow and financial accounts can be a stressful time, but it can also be an opportunity for businesses to properly assess their financial position and understand what cash flow and financing requirements are needed for the next financial year.
There are no better-placed entities to assist with this than brokers – particularly those with strong SME client relationships – who can work collaboratively with SMEs to help them better understand their tax funding options and longer-term structuring opportunities.
Brokers have the monetary resources and financial skill to provide SMEs financing options for working capital needs, operating cost management, and tax planning assistance to ensure that SMEs can start the new financial year on a sustainable path.
There are also several other areas where brokers can be of assistance; for example, through the management of bad debts, taking advantage of government changes such as instant asset write-offs and concessional superannuation options.
If a business isn’t able to access finance due to hardship or poor credit, what can be done to help?
At some point in the life cycle of a business, many SMEs experience financial hardship. This can be for a multitude of reasons, from sickness, injury or cyclical business trends, so it’s important to understand that many institutions can and will assist when approached.
Transparency with your lending institutions is vital early on. However, there is a difference between financial hardship and un-affordability. If the problem is long term, extra time to deal with your creditors is important. With that being said, without strategy, extra time may be counterproductive.
Our sister company, DJ Partners, specialises in bank debt. Brokers can visit www.djpartners.com.au for more information.
If a broker is looking to enter this space for the first time, what advice would you give them?
There are many alternative lenders in the marketplace and many more products to choose from.
Specific to Capital Bridging Finance’s loan products, I would offer the following advice:
- a) What is the interest rate?
- b) What are the set-up costs?
- c) What are the exit costs?
- d) Is there a minimum term?
At Capital Bridging Finance, we have built a model so our borrowers and brokers understand precisely what the costs are upfront. We have a very modest inspection fee and one flat interest rate. We have no early exit fees, no minimum term for borrowing funds and no hidden costs.
The feedback from our brokers is extremely positive and welcomed.
Case study in focus
A catering company requires urgent funding
One month prior to the commencement of the Commonwealth Games, Capital Bridging Finance was approached by a catering company that required a $1.2 million bridging finance loan. Initially, the catering for the Commonwealth Games was to be split between four catering companies, but our client was provided with the full catering contract.
The client’s major bank had indicated that all approvals were in place to fund this rare business opportunity; however, the bank advised our client they would be not be willing to fund the proposed level of debt required to accept this very unique contract, citing high LVR and debt exposure.
From receiving the application from the broker to cleared funds available in our catering client’s bank account, the turnaround time was four business days.
Our client was able to provide catering services from bus drivers to dignitaries, and they made a significant profit for a contract of 16 days.
This is a typical example of the benefits of having a relationship with a responsive broker who understands their client’s urgent needs and understands how to source urgent funding for their client.