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Finance for
small to medium sized businesses (SMEs)
SMEs make up
a huge part of the New Zealand economy. And they are notoriously
hard to raise finance for.
Unless they
can show a strong track record of profitability and cash flow for
the last three years, and proper sets of accounts, banks are not
particularly interested in lending to SMEs. And then they usually
want additional security over your house or other property.
The most
common methods of raising finance for a business - without property
or other collateral security - are as follows:
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Borrow
against stock
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Borrow
against debtors
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“Factor”
accounts receivable
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Borrow
against plant and equipment
-
Obtain a
“cashflow” lend against the business’s historical results and
financial forecasts.
The
secret in obtaining finance for business is finding the best
combination of security and lender.
There are
several financiers specialising in each category. Amongst these are
those that:
-
Offer
high loan ratio no-financials loans to self employed business
owners using residential property as security.
-
Require
no property security whatsoever.
-
Place
less requirement on balance sheet strength and more on
profitability and cash flows.
-
Compete
with banks against overdraft facilities by providing more
flexibility and understanding of the business itself.
-
Will go
to higher loan ratios than traditional lenders on all classes of
assets including stock, debtors, plant and machinery, and larger
chattel and technology items.
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Will
schedule a repayment programme that fits the business’s cash
flow rather than traditional monthly P&I repayments.
-
Place
the emphasis on the quality and experience of the management
rather than the P&L and balance sheet of the business.
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Are
happy with start up businesses.
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Specialise in franchises – different lenders have relationships
with different franchises.
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Place
more emphasis on who the business sells to. For example some
factoring companies are only interested in business rather than
retail debtors.
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Enter
into partnerships with the business’s trading bank (which
usually holds a GSA over the entire business) to either release
certain securities or fund against cash flows.
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Offer
renting or leasing options
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Are
solely in the business of business lending.
Many of them
will work together to offer the best possible solution to purchase a
business or to provide a working capital solution.
And as with
property financiers there are new lenders in the market seeking to
get a toehold - whether it to be make their presence felt, or
because they don’t already have an exposure to a particular sector.
It is
important when arranging finance to isolate different securities to
different lenders. Those that remember the late 80s and 90s will
recall how one poor performing loan could seriously affect other
businesses and properties owned, as the lender sought urgent
repayment.
So even if
you’re not looking to buy a business, or to raise more money,
re-financing your existing loans could be something you should be
looking at.
For further information contact:
John
Paine
Global Pacific Corportation
Phone 09 303 3700, 021 902 004
or email
john.paine@globalpacific.co.nz
________________________________________________________________
Call us at 09 630 1600, toll free on
0800 180 222, visit our website
www.abcbusiness.co.nz or email Managing Director Steve Smith (AREINZ)
on
steves@abcbusiness.co.nz |
