How SMEs Can Bank On Floating Assets and Imagination

Australian Banks aren’t immune to further attacks from the GFC…

A read recently about Tony Abbott’s pitch for a small-business ombudsman. Basically a harmless piece of pre-election lobbying. A gentle, thirty second grab on the six o’clock news. Fluff!

According to estimates by the Bank for International Settlements, banks worldwide owe nearly $5 trillion to bond holders and other creditors. These will be due in 2012.

To put it in perspective, the cheap cash provided by central banks and governments during the GFC is being called in. One does not have to be Warren Buffet to work out that banks worldwide will respond by increasing interest rates and tightening lending criteria.

So what can Australian SMEs expect over the next 24-36 months? An increase in the range of flexible, short-term loans from banks? Probably not. I suspect they won’t get much joy from a newly appointed ombudsman either. My fear is that SMEs, as usual, will ostensibly be left to fend for themselves.

And so the cycle continues. SMEs call their financial advisers, who invariably preach the predictable. “Reduce debtor days. Cut advertising and marketing. Tighten spending….” Well, you’ve heard it all before.

Sensible enough, but it’s reactive. One can tinker with fixed and variable expenses only so much. One can only borrow against a fixed asset (like your family home) only so many times.

Unfortunately, too many small business brokers and advisers are also small-minded. To put it in perspective, a small business is more than the sum of its fixed assets. Floating assets (i.e. accounts receivables) can be sold or ‘rented’ for short periods to meet expenses and/or raise capital. If you’re a small business broker, find out more about it!

Another asset which small business owners have in abundance is the fact that many are inherently entrepreneurial. Masters at hussling-up business. I say “Go hussle!” Go get the orders that will grow your business, then worry about the cash to fulfill them.

I can hear accountants and brokers out there tut, tutting at such a suggestion. Well, you can tut away all you like, because now a firm purchase order from a solid customer is as good as cash. Bring one to me and I’ll prove it.

Just as Australia is not immune to the financial difficulties impacting Europe and the US, we can also take advantage of some of the solutions that have gained traction during the GFC, such as purchase order finance.