Small business capital challenge
More than a third of Australia's businesses will be in a rush to refinance this year, according to a survey conducted by financial services group, Ernst & Young.
The survey revealed that 34% of Australian companies will need to refinance loans or other debt obligations in 2011, while 48% will need to refinance within the next four years.
The small business market may be hardest hit, says Paul Clark, debt advisory leader at Ernst & Young. “The reason is that small businesses are less sophisticated, so potentially they won't be able to put up as strong a case to the banks as some of the larger corporates.”
Brett Nicholson, director of Melbourne Financial Group, says SMEs that can demonstrate robust management and generate strong cash flow will be best-positioned when approaching lending institutions. SMEs must have a sustainable business on their hands and be prepared to offer security.
“A battling business that can't show proper financials will always struggle. If you're taking a lot of cash out of the business and putting it in your pocket, you won't get a dollar out of the bank,” says Nicholson. “The banks are picking and choosing a little bit more, but the better businesses are still getting finance on good terms. In fact, the banks are fiercely chasing their business.”
Ernst & Young's Clark believes that those in the retail, hospitality, property development, and tourism sectors will be most likely to top up on capital in the current environment.
“A large number of small business owners are driving the economy. What happens if they can't get funding? These guys need to get access to funding in a market that will be tighter and more expensive,” Clark says.