What does the Banking Royal Commission Mean for Small Business Cash Flow?

As a result of the Banking Royal Commission investigation in Australia and to ensure more responsible behaviour from lenders, there have been many changes to banking rules.

Nathan Daly
May 21, 2020

What does the Banking Royal Commission Mean for Small Business Cash Flow?

As a result of the Banking Royal Commission investigation in Australia and to ensure more responsible behaviour from lenders, there have been many changes to banking rules. Although instigated initially to assist customers, negative impacts are emerging for those relying on the flexibility of lending practices to run their businesses. They will now need to change their habits or face the risk of losing their company. In these uncertain times, small enterprises are struggling to meet the costs of operating effectively.

The combination of strict lending criteria from banks and the inconsistency of debtors paying on time, means small companies need to turn to alternative commercial lending options in Australia. If you are cash strapped for reasons beyond your control and in need of an additional boost to help you through these trying times, or you are ready to take your business to the next level, you may have felt despondent and restricted since the introduction of the new rules.

Don’t despair; there is light at the end of the tunnel. Acumen Finance can help you get back on track by connecting you with the money you need to keep your commercial dream alive.

Why a Business Needs Cash Flow

If you are a small business, you will understand that many companies rely on lines of credit and overdrafts, especially when their client payment terms are different from those of their suppliers. Sometimes there just isn’t enough cash in the coffers to pay wages or rent, which has a disastrous impact on a business. There is a flow-on effect when the funds are not there to keep up with outgoings - before you know it, creditors have not been paid and they are denying further provisions, which you need to service your clients. It becomes a messy cycle when the cash flow is not sufficient to meet the needs of the company in a timely manner. If staff don't receive their wages, they are likely to leave and then you are left with inefficiencies in the operations of the business, not to mention damages to your reputation. When you can’t afford to pay the lease, the landlord comes knocking and threatens eviction. Sadly, this is not an uncommon series of events.

Banks Lockdown on Lending

With stricter lending criteria,  a direct result of the Royal Commission investigation into Banking, small businesses no longer have easy access to flexible funding. In times of minimal cash flow, if a company is to keep running, they need access to funds, often referred to as commercial lending. As banks are restricting quick and easy access to additional funds, these firms will need to turn to other options to bring cash into their company, or in more extreme circumstances, they will have to change their business practices.  

As a business, you can decrease your operational costs, including reducing unnecessary spend, including staffing costs, merchant fees, and annual fees for services which no longer serve the company. You can also ensure payments and receivables are in alignment, by communicating with your creditors and debtors. You could focus on expanding your client numbers, which will help to increase revenue. Another strategy is to downgrade office space and lower your lease costs.

These are all methods, which, even though they may seem easy to do, are timely and costly to implement, especially when you need an instant change, which is often the case when small businesses realise their predicament. It is, therefore, advisable to explore other options to keep your business afloat.

Getting Your Small Business into Debt

The Australian government suggests different types of finance available for small companies. They have collaborated with both CPA Australia and the Australian Bankers’ Association, to offer resources online for small businesses curious about the best options for finance. Given that more than two million small businesses are employing in excess of 4.7 million employees in Australia, the government support for SME preservation is critical. However, they don't highlight all options available to you as a small business, so make sure you do your research.

Annually, small businesses receive more than $280 billion AUD in lending. If you decide to add debt to your business, it is crucial that you make the right decision and can repay the funds on time. Borrowing options include credit card extension and overdrafts, traditionally offered by banks, are now less accessible due to the enforced behaviours stemming from the Banking Royal Commission. There are many other funding options such as debt, equity and internal funds. It is essential that you understand the type of financing you are entering into and you must consider how manageable it is, the level, type of debt and repayment terms – including interest costs and the length of the loan.

Lending Away from Banks, Credit Unions and Building Societies

If you would prefer to leave the banks and unnecessary red tape behind, consider private and peer to peer lending. These are not government-protected, but they are easier to access and often have comparable, or even lower, interest rates than banks and credit unions. This type of lending is growing in popularity, particularly in this current climate due to the COVID-19 pandemic. Many businesses are understandably reaching out to private investors to help keep their company afloat.

Acumen Finance is highly specialised in connecting small businesses with investors, utilising peer to peer and private lending collaborations. When you partner with us, you have access to a network of wisdom and experience, helping your business stay cash flow positive, so you can continue to feed the mouths of your employees' families and, of course, yours too. It is quick and easy; you’ll find competitive interest rates, swift responses and implementation of your new funds, so let's get started today.

Give us a call, and we’ll connect you to the best specialist for you and your business.