SMEs lean on brokers amid prolonged cash crunch

According to new data from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) this week, there was a 50 per cent jump in requests for help from small-business owners concerned that a business owing them money had become insolvent or were worried about their own ability to meet financial commitments.

Ombudsman Bruce Billson has said that payment disputes were the greatest area of concern for SMEs, adding on Tuesday (28 January): “Cashflow is the oxygen of enterprise.

“Difficult conditions mean that late payments can cascade through the supply chain, creating widespread financial stress.”

Indeed, the Business NSW December 2024 Business Conditions Index recently found that the top challenge of running a business in the current economic environment is financial management, with 39 per cent of survey respondents experiencing blowouts in invoice payments.

SMEs seek broker support

Given the increasing pressures on SMEs, a growing proportion of businesses have been turning to brokers for cash flow support and business advisory services.

Brokers specialising in the SME space, such as Equilibria Finance’s Anthony Landahl, told The Adviser that he is seeing more SMEs treating brokers as valued credit and business advisers.

“I think businesses now are a lot more open to seeing the benefit of working with a broker and brokers having access to a number of solutions; being able to get the best rate and solution for the client,” he said.

“With higher interest rates over the last couple of years, this has become a lot more relevant and a lot more important to clients.

“There are a lot of SMEs right now with cash flow challenges; whether it’s [the] challenges of running their business due to increased costs pressures and falling demand, or whether it’s challenges around payment terms and then getting the money in order to buy more stock and be able to trade.”

Landahl said that identifying pain points for clients was key.

“We’re trying to help them to find a solution that is actually reflective of what that cash flow need is. [We ask] Is there a working capital facility? Is there an overdraft? Is there asset finance or risk or invoice finance? That is actually where the pressure point is for the cash flow,” Landahl said.

Similarly, Cruz Blanchett, a senior finance broker at National Finance and Loans, told The Adviser that, when offering cash flow support, a personalised approach was essential.

“I think it’s very, very important to have a broker that customises the solution for what the business is looking for because it’s a very competitive industry and there are lots of options,” he said.

“You need to take the time to really understand what the client’s looking for, otherwise it’s easy for them to fall into a ‘debt trap’. For example, there are so many lenders out there that will do weekly or daily payments. What an SME might do is get one, pay for one expense but then realise that they’re running at a loss because they’re paying say, $1,000 a day in loan repayments. So then they get another loan, and then they’re just getting into a snowball and deeper and deeper in debt.

“But with unpaid invoices, there are other solutions that a knowledgeable broker may offer, like invoice finance (where it’s secured by the invoice and capitalised) and there’s no actual upfront cost. Or, rather than just going and getting an unsecured higher-interest-rate cash flow loan they could look at securing an asset and consolidating debts.”

Other brokers have been working to plug funding gaps when traditional lenders are unable to do so. For example, SME finance brokerage The Finance Consultancy told The Adviser that its broker Miriam Portela recently helped a client who received a large order from a major supermarket for hot cross buns that was put into strife after it was unable to access funding from its lender over December and January.

She was able to organise a series of facilities that bridged the gap and incurred minimal costs when the client no longer needed the funding. This also helped the client boost its wider expansion plans for 2025.

Being more than ‘just a broker’

Chris Slack, founder and finance broker at The Finance Consultancy, said the brokerage has found that growing pressures for SMEs mean that they now require “additional services beyond the remit of being ‘just a broker’”.

Speaking to The Adviser, he said: “Many clients of ours are facing rising costs, but part of that can be attributed to certain industry groups whereby the cost of insurances and risks incurred by lenders have dramatically increased with larger industry players failing.

“We support clients with regular reviews of their facilities but also by connecting them with other industry professionals where appropriate to obtain an optimum outcome.”

As an example, Slack said that he was increasingly helping SMEs access Trade Credit Insurance to protect them against failing debtors, while allowing them another way to best negotiate lending costs (by demonstrating to lenders that they are mitigating risk).

Brokers are also supporting SMEs to understand, navigate, and access the complex landscape of government support.

For example, Mhairi MacLeod, founder and managing director at finance brokerage Astute Ability Group, has built a guide with links to relevant programs, making it easier for businesses to access support like government grants and training opportunities.

MacLeod said: “We wanted to do the legwork and create a resource that would save business owners valuable time.

“The guide provides direct links to the main programs, making it a high-value tool for those who need support but aren’t sure where to start.”

The guide highlights many services not widely known among businesses including initiatives aimed at improving cyber security and accessing overseas markets.

[Related: What it takes to be Australia’s Commercial Broker of the Year]