Loan management tips for business owners
Cashflow and a tightening of government loans during 2022
Disruption is here to stay for business owners as we are in the third year of the covid pandemic. Working capital and ensuring you have a sufficient cash buffer to handle these disruptions will be the difference between a business surviving this challenging period and a business that has to close its doors.
Government guaranteed loans where banks are able to lend money to small businesses more easily will start to wrap up, as we can see the government is reducing the guarantee from 80% to 50% as of 1 January 2022. This is a sign that the government will be gradually pulling back on its financial assistance.
Demonstrative sustainability during COVID times is a must for all.
There is additional scrutiny a buyer needs to undertake when assessing the sustainability of a business when they are doing their due diligence.
Businesses are more exposed to concentration risk, whether that’s their clients or the market they compete in or their supply chain.
COVID has demonstrated that disruption can have a massive negative impact on certain businesses that nobody has thought of in the past. A clear example is a café or food business in a high traffic location such as in the CBD etc. The banks or finance providers will without any doubt take these same considerations into account when assessing the risk of your potential business purchase.
Stagnant business growth requires reimagined strategies
COVID has really challenged the traditional marketing and growth strategies of many businesses, especially those that relied on a personal face to face relationships such as sales reps, conducting trade shows or using event marketing. However, it has also given rise to allowing businesses to take advantage of digital strategies to grow their business where they are able to scale their efforts cost-effectively without the heavy burden of employing more staff.
I would encourage all businesses to reimagine their growth and marketing strategies by thinking about markets and opportunities outside their usual comfort or safe zones so they can continue to grow their business.
Smart borrowing is the first step
Mistakes I’ve seen business owners make is not making an effort to understand the bank’s lending requirements when it comes to borrowing money for businesses. In addition, not having a trusted broker or banker that whom they can discuss scenarios with before taking action.
For example, it’s important for a business owner to always think a step ahead and plan for the future whenever they are borrowing money to purchase something for the business. They need to understand how this new loan impacts their future ability to borrow as they grow. That way, they can weigh up the pros and cons and ensure they don’t make decisions without considering future consequences.
Speak to the right person when it comes to understanding your borrowing options. Not all mortgage brokers are equal just as not all bankers are equal!
Many mortgage brokers specialise in assisting clients who are in PAYG roles and usually deal with residential property matters.
Assisting business owners with business lending is a completely different ball game, so you need to make sure the person giving you the advice has the relevant experience and expertise in assisting clients similar to you.
Also, be aware of just going to speak to someone at the bank that you have your business account with. Banks have different policies and risk appetites when it comes to business lending. Just because one bank does not support your situation, doesn’t mean you can’t obtain finance. This is why speaking to a mortgage broker that specialises in business lending will help explore the different options for your needs and find a solution that fits your business Situation.
Warehouses over street frontage
The changes that we saw with our clients is that COVID made many of them question the need to have a physical presence, whether that’s a shop front or working in an office environment. Many felt that it was necessary to have a physical presence, however, with COVID forcing many business owners to deliver their product/service remotely, they realised that technology was able to fill that gap and they can save significant overhead costs.
We saw an increase in demand for commercial warehouses, especially the ones with a mezzanine that supported small to medium e-commerce businesses. Many clients wanted to purchase these types of commercial properties as owner-occupiers or investments as they saw that tenants in these properties were greatly immune to the disruptions of COVID.
Delegate and adapt with technology to success
Running a business will always make you vulnerable to risks and changes that you cannot control.
However, the resilience of the business owner cannot be underestimated because business owners are the economy’s engines of innovation as they will always find ways to change and adapt to the environment to keep their business going.
Get out of your comfort zone and explore different growth and marketing strategies while embracing as much technology as possible to outsource or delegate your low-value activities so you can focus on the things that give you the highest payoff.
3 tips to better manage loan/debt commitments in 2022
- Make sure you review your loans and banking set up proactively every single year. Do not wait for the bank or your broker to contact you to do this, at the end of the day, it is your responsibility to engage these people to make sure you have the most up to date products so you can save money on interest and fees
- Take an active interest in your business financials, make sure you have the right accountant who can explain the state of your business financials to you in a matter that you can understand, and if you don’t, get them to explain it until you do.
- Always pay off the loan or debt with the highest interest rate first! This may be a no-brainer, but for business owners who are absorbed in running their business day in and day out, it can easily be overlooked.
Every dollar of interest you save is the same as earning an extra dollar without paying tax!