Finance for SME’s

Many people complain that banks don’t support Small and Medium Sized Enterprises. However don’t expect politicians, economists and bankers to come up with the solution to problems besetting SME finance.

Residential mortgages are cheap because the risks are relatively easily defined and standardised. Except when they were securitised into some bastard demonic child and sold off without any link to their underlying risk or value.

Each business owner would say her business is unique. Thankfully trade and receivables finance has grown and is “not your father’s factoring” anymore.

SME’s must seek out these smaller financiers whose skill and systems allow them to move faster and understand SME risk better. While receivables finance costs more than a residential property secured loan, that is because Australians will do almost anything to avoid losing their home. Therefore the risk to the financier is lower.

Dick Smith sold out the first time to Woolworths because he didn’t want to put his house on the line, again, to fund another round of expansion.
At some point every entrepreneur must resist putting the family home on the line for access to the cheapest funding. If your business can’t afford business finance then improve the business don’t take the cheap funds.

Waiting for any “pillar” of the economy to step into this space is a long shot.