Credit conditions have tightened, with banks less willing to lend where a loan is not fully secured by a tangible asset and personal guarantees. In May of this year, CPA Australia issued an update to its 'SME access to finance: recent experiences of SMEs in accessing finance' report, discussing some of the more pressing issues preventing SMEs from securing finance from the major banks.
The report notes that relationships between banks and SMEs were damaged during the GFC, with not a lot changing in the past 18 months to January, 2012.
While banks are still lending to SMEs, this is mostly being done where the loan is fully secured by a tangible asset and personal guarantees. CPA Australia also notes that in instances where there was an existing loan, banks are requiring additional security, and significantly increasing reporting requirements for existing and new borrowers across the board.
Importantly, lenders are no longer prepared to provide finance on 'soft' security such as cash flow or goodwill, an avenue that had been available to SMEs prior to the GFC. CPA Australia notes that the withdrawal of such finance options has caught many businesses off guard, especially given the recent contraction of the Australian manufacturing industry, which has left many with declining profitability and cash flow.
Banks, then, are far stricter with their credit conditions now than they were pre-GFC, leaving SMEs with fewer options for financing through conventional channels.
In this environment, SMEs are constantly searching for ways to offset capital expenditure, and preserve as much cash as possible for growing and expanding their business. One way this can be achieved is by leasing or hiring commercial equipment as opposed to buying it outright.
Commercial equipment leasing or hiring, however, can be problematic. Both approaches:
- require a Directors' Guarantee, putting the personal assets of the business owner on the line
- entail long term contracts, with penalties for breaking out before the end of the contract; and
- are considered balance sheet items, which reduce the SME's equity, ability to borrow and, accordingly, availability of working capital.
GoGetta's Rent.Grow.Own is a smart and flexible equipment finance solution that allows SMEs to rent commercial equipment without being locked into long term liabilities.
The initial Rent.Grow.Own rental agreement runs for 12 months, providing businesses with the flexibility to:
- purchase the commercial equipment at any time during the first 12 months and receive a 75% net rental rebate
- return the equipment at the end of the 12 month agreement, if it is no longer needed; or
- continue to rent, with continuing reductions to the purchase price.
Commercial equipment rental, then, offers a level of flexibility that equipment hire can't match. For further information on GoGetta's Rent.Grow.Own solution, click here.