Marketlend Academy: Tips to pay off business debt

While some debt is necessary to fund a business, if you’ve ever found yourself turning to a personal credit card to stay afloat… it’s time to stop for a moment and consider your options.

 

Here’s a sobering statistic: Last year, a survey of 1,200 Australian SMEs showed about two thirds of small business owners rely on credit card debt to maintain cash flow in their business. Just two years earlier, the Australian Bureau of Statistics found only a third of SMEs would use credit cards to maintain cash flow.

 

That means the number of businesses turning to credit cards to keep their businesses afloat has doubled in two years.

 

While there’s a certain convenience to using the credit card, the ensuing interest rates can put a business under even more financial pressure. Instead, here are a few tips to smooth out cash flow, and start to pay off business debt in your firm.

 

1. Are your costs too high?

 

Reevaluate your regular expenses. Are you paying too much for supplies or materials? Research new suppliers and see if you can get similar materials elsewhere for less.

 

You could also reduce your office space and sell off equipment you don’t need or no longer use, or look into reducing your energy consumption.

 

This will result in savings you can put toward reducing your debt, or for maintaining cash flow in lieu of entering into even more debt.

 

2. Can you buy now, pay later?

 

When looking at supplies and materials, have you considered services like Marketlend UnLock? Launched late last year, UnLock is similar to consumer ‘buy now, pay later’ models like Afterpay, except it is designed for small businesses.

 

In effect, Marketlend pays the supplier upfront for the materials, then gives your SME extended credit terms to pay the amount back – typically 90 days instead of the usual 30-day time frame.

 

This longer credit term allows businesses more time to repay, thereby smoothing out cash flow.

 

3. Can you prioritise paying off your debt?

 

If you’re going to owe money, then you should know how much you owe and to whom. If you’re accumulating so much debt that it’s becoming challenging to keep track of what payments you must make every month, it’s time to take stock of your debt in order to prioritise your payments. Generally, when looking at loans it’s best to pay off those with the highest interest rate first.

 

Also consider consolidating loans if possible. Not only are consolidated loans easier to manage, as there are less people to pay, but you can typically find a lower interest rate – depending on the circumstances.

 

Start Today

 

This is by no means an exhaustive list, butit’s the three best places to start. If the debt your business carries is slowing you down, the best thing to do is take steps to pay it down today. Even if those steps are small at first, they’ll compound into giant leaps over time.

 

Marketlend Academy: How Can I Fund my Business?

Funding is often a constant concern for SMEs.  To fund a business doesn’t just mean finance and there are creative ways to bring money in the door that can support growth.

What are your best options for funding? Here are some “outside-of-the-box” options that can help.

 

Presell Services or Products

 

This is a creative way to fundraise when your business is in the early stages. Get your elevator pitch ready for anyone who wants to talk about your new project. If you plan to offer a consulting service, web security, a new line of grocery stores, offer a presale.

 

A presale means you receive money before your grand opening. Give your customers proof of purchase, such as a coupon, to be redeemed when the business opens. Customers love to help a business they believe in and are happy to exchange a proof of purchase for something new.

 

This works best if you can show proof that your business is more than a concept. Blueprints for your new building, a working model, or an online store all help push presales.

 

Approach Angel Investors

 

If you have a tech startup or product idea that will disrupt a market, try pitching to a group of angel investors. If you get an offer of money, it will come with the caveat of equity. Angels want to take part in any business they fund, so they choose businesses they know well or like. This can work to your advantage if you are open to hearing a new voice as you build or expand. However, if you don’t want a board or individual looking over your shoulder or combing through your books, this might be a detriment to your growth.

 

The key to approaching angel investors is use your connections and your reputation. Start by asking people you already know if they have any connections to the investment community and use those familial or social ties to build your network. When you meet a new investor because a mutual, and trusted colleague introduced you, the prospect of getting money is much greater.

 

If no one can give you an introduction, try a cold email or a message sent without the buffer of a personal introduction first. Research the investor you want to talk to and see what kinds of projects they prefer. Stick to those who are active in your industry and go for it.

 

Once you take meetings, be sure to be as transparent as possible with your numbers. Any exaggeration or dishonesties will paint you in a negative hue and keep potential partners at bay. Be yourself and let your business speak for itself to win people over.

 

Crowdfund Online

 

Crowdfunding sites like Kickstarter let you set a financial goal, break down your vision and timeline for visitors, then market yourself to potential donors. Each campaign has a set number of days to raise the necessary money. If you reach your goal, you get the money deposited into your account and the site asks for a small percentage of what you earned. If the donations fall short, you receive nothing.

 

Successful campaigns start long before they are up on the crowdfunding site. This requires marketing videos, a large following and tons of buzz over what you have in the works. The most successful campaigns have money promised to them before the timer ticks down.

 

Once the campaign is up, it can be a full-time job to manage the social media and email marketing to bring in additional money. You will also have to organise rewards for donors that don’t gobble up all your new money but still make it worthwhile to give. A campaign requires creative marketing in all outlets in order to succeed.

 

It’s a lot to handle, but people make real money on these sites. If you are a master of marketing, this is a good option.  

 

Government Grants

 

Australia’s government offers a variety of grants for small businesses, but expect a complex application process and very specific criteria for funding.

 

Grants are available at the state or federal level and are listed online. They tend to favor specific projects or a stage of business, such as funds to start or funds to hire as you expand. Research grants ahead of time so you know what to apply for throughout the year. Tailor each application to the specific grant, don’t rely on generic forms and answer each question with clear, honest responses.

 

Some of the categories for grants include expansion, green business or disaster recovery. They’ve been created to help solve problems as opposed to a basic round of funding. Check out the whole list and mark which ones line up with your business or future undertaking, then mark due dates on your calendar. If you can talk to someone who received a grant in the past, ask for advice on how to present your problem in the best way possible.

 

Before you Finance

Still think you may need finance?   Here are some things to avoid to help you make finding finance smoother and more likely to lead to success:

• Not working with an accountant – Many business owners turn to bookkeepers, but an accountant will keep your statements in order and all your numbers on point.
• The wrong partner – Investors want to see dynamic teams that balance each other out and have a clear vision with a solid plan to put it in place.  Don’t waste time with someone who is unprofessional or doubts your vision. Find a partner who shares your vision and knows exactly how to help you succeed.
• No plan for the money – Anyone who funds you wants to know your plan on how to spend it. Have all of that in place before you borrow or accept the grant.
• Waiting to ask – Plan out your search for finances early. The decision to put off the search for finances can put unnecessary stress on your business. You know what you need to stay functional, so don’t hesitate to ask for it

Marketlend Academy: A Chat With Chris Van Homrigh 

As a former Regional Commissioner NSW, Australian Securities & Investment Commission, Chris Van Homrigh has brought his deep background in market regulation and best practice to the Marketlend team over the last year. At Marketlend, this knowledge and experience has helped support the continual refinement of a first-of-its-kind lending platform, and our constant focus on transparency and delivery of value for investors and SMEs.  If you prefer to read Homrigh’s thoughts, you can scroll down for the transcript.

 

 

Well, I mean, if you look back at what ASIC looks at, it primarily has two primary objectives: one, is to have a fair and efficient markets, and the other is about having confident, informed consumers, and investors, or financial consumers, and investors. So, from a regulatory perspective, working on the investors’ side, it’s about knowing what we need to disclose to investors, the level of detail.

Marketlend, as you know, is quite transparent with all the information we provide. So, when we establish a facility with a borrower, all the information that we have, with respect to that borrower, is basically passed through to the investors. So, disclosure is a big tenant. Asset focuses a lot on disclosure, so it’s being consistent, and very apparent with the disclosure.

Again, being a lending business, there’s always loans that you don’t think are going to go into arrears, but they’ll go into arrears, or potentially go into default, and again, it’s about getting the information in a timely manner across to the investors, and the right level of information.

Now, of course we do have some investors who want more information than others, but, again, it’s about getting that information, and answering their questions. Sometimes with the legal process where things go into arrears or in default, that can be protracted. Investors are always concerned about getting their money back in a timely basis, and obviously in return they get for making the investments.

Marketlend Academy: How Do We Assess Potential Borrowers?

Marketlend CEO and Founder Leo Tyndall wants his investors to know that no one applies for a loan on the site without a thorough review of their financials, and that transparency and responsibility –and ultimately care for the underlying businesses that borrow– drive Marketlend’s mission. In this video, Tyndall breaks down what his team looks for in a potential borrower’s financial profile.  The key for Marketlend is the long term health of the businesses it lends to, because healthy SMEs thrive as businesses and as borrowers –that’s why assessing what is reasonable, fair and sustainable in terms of repayment ability is so critical.  Click the video to hear about the process. Prefer to read? Scroll down for the transcript.

 

 

So, Marketlend requires at least one year’s financials. We look at their debt servicing ratios, we actually look at what it looks like before the loan and after the loan. We typically have a hurdle of 1.5% on debt servicing after the loan. We also turn around and we point out to the borrower that we’re doing a monthly charge, on the uninsured we may do weekly, but what we do, do is, we look at their ability to repay.

 

We don’t want a situation where we’ve advanced the money, and then they can’t pay us back. So what we’ll do is have a look at all their cash flows, we also look at, essentially, a new structure in the way of we look at their full cash flows, their expenses and then say, “Okay, what is their true flowing cash that they can afford to pay it?”

 

And we will go through their bank statements as well, so we will go through their bank statements, and for example, on a supply chain, we may turn around and someone says, “I want 100,000.” We look at their bank statements and say, “You couldn’t even pay 100,000 back to us on three months on the supply chain, so why would we advance you that money?”

Financial System Reform – Recommendation 18- facilitate crowdfunding for debt – SME finance – Marketlend well poised for the future.

Financial System Review – click for the full report

Government should continue its current process to graduate the fundraising regime to facilitate securities-based crowdfunding. This would enable entities to make public offers of securities to a potentially large number of people (the ‘crowd’). The risks associated with crowdfunding investments would require some adjustments to consumer protections, including capping individuals’ investments and clearly communicating the risks.

Government should then use the policy settings for securities as a basis to assess wider fundraising and lending regulation to ensure it facilitates other forms of crowdfunding, including peer-to-peer lending.

A range of crowdfunding models are emerging globally. Crowdfunding facilitates the funding of projects or businesses, where small amounts of money are raised from the ‘crowd’ via an online facilitator (or platform).⁶⁸ Financial crowdfunding models include:

• Securities-based crowdfunding, where the ‘crowd’ invests in an issuer in exchange for securities — either equity (crowd-sourced equity funding, CSEF) or debt.⁶⁹
• Peer-to-peer lending, where an online intermediary facilitates lending between individuals, often in the form of unsecured personal loans, potentially to fund a business.⁷⁰

Objectives

• Graduate fundraising regulation to facilitate innovations in fundraising emerging from new technologies and ensure policy settings are consistent across funding methods.
• Provide firms, particularly small and medium-sized enterprises (SMEs), with additional funding options.

 

Financial Reform Recommendations for allowing the development of crowdfunding options for business to access

Article by Neil Slonim – Financial Reform Report released on 7 December 2014

If adopted, the financial reform recommendations made by the team headed up by businessman David Murray could usher in some of the biggest changes to Australia’s banking system in recent history.

The recommendations are broad, but the key ones impacting small business are those calling for super funds to drop their prices and the government to relax rules around governing crowdfunded equity.

The big banks will be required to hold much more common equity capital against their mortgage business if the inquiry’s recommendations are adopted, while financial planners would need to hold a relevant tertiary degree and be able to prove their competence in managing superannuation.

The inquiry has recommended a ban on self-managed super funds borrowing to buy assets and says the corporate regulator, the Australian Securities and Investments Commission, should be granted more power to crack down on white collar crime.

Numerous professional bodies expressed their support for the recommendations yesterday, including CPA Australia, whose chief executive Alex Malley said in a statement that the report “addresses some of the fundamental issues facing Australia’s financial system and signposts some of the critical work that needs to be done”.

“Recommendations for allowing the development of crowdfunding options for businesses to access, the establishment of a new ‘innovation collaboration’ and an emphasis on removing unnecessary regulatory impediments to innovation all have the potential to help business prosper,” said Malley.

However, SME banking expert Neil Slonim says that the 2.1 million small Australian businesses have missed out.

Slonim, who heads up advisory firm ‘The Banking Doctor’ told SmartCompany the report’s lack of specific recommendations relating to the SME banking sector is “disappointing”.

“There was really nothing specific in the 44 recommendations that related to SMEs and startups, other than a generic statement that the inquiry wants to encourage the development of crowdfunding and peer-to-peer lending, which would potentially give SMEs more funding options than they currently have,” says Slonim.

“But other than that, there is really very little if anything else in the inquiry that would give SMEs hope they would get better access to funding.”

Slonim says the two key banking issues facing SMEs are a lack of access to finance and the need for greater competition between the big four banks.

“The inquiry makes some recommendations that would level the playing field between the big four banks and smaller providers of mortgage finance, which will help the consumer sector, there is nothing similar for SMEs,” he says.

“There is a lack of genuine competition between the big four banks, which control more than 80% of the marketplace, in an environment in which it is very difficult for smaller players to compete for SME business.”

And while the Murray report recommends that the government extend protections from unfair contracts for SME loans, Slonim says that “assumes” small businesses are able to sign a contract with a lender in the first place.

Slonim believes it is likely the government will adopt most of the recommendations contained in the Murray report, but says there will be another period of consultation with Treasury before the government officially responds at the end of March 2015.

“Joe Hockey will now be lobbied by all and sundry, particularly the banks” he says.