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Finance & Investment

CreditorWatch sees SME cracks appear prior to coronavirus

By Leon Gettler >>

A LOT OF BUSINESSES have done it hard since the shutdowns and social distancing rules came in. But CreditorWatch data suggests small businesses were struggling with cash flow issues long before the coronavirus lockdown measures came into play and were unprepared for the current downturn.

Patrick Coghlan, CreditorWatch CEO, said it was all too evident that many businesses were unprepared – although not many companies would have been prepared for it.

He said the majority of small to medium enterprises (SMEs) only held a few weeks, maybe a couple of months at best, of cash reserves that can withstand a 70-90 percent downturn in revenue. 

Mr Coughlan said the data showed that small businesses were being paid 40 percent slower than the previous quarter.

“And that was for Q1 2020, so that’s pre-coronavirus,” Mr Coghlan told Talking Business. “So they were already struggling to get cash in the door before they got hit with the pandemic itself, which means there is underprepared and extremely underprepared – and it was a horrible situation for most SMEs and their directors and owners out there.to have to deal with this, as well as the already slow-paying customers.”

RIGHT ACROSS THE BOARD

Mr Couglan said the problem was right across the board, but there were some specific sectors that stood out.

He highlighted agriculture, which was no surprise as it had been hit by fires and floods in late 2019 and early 2020; construction which is always slow over that Christmas-New Year period; retail which had experienced a number of administrations taking place in November and December; transport was struggling; and a lot of professional services businesses, with many customers slowing their payments and looking to see whether they could move somewhere else.

“SMEs at the moment are doing it extremely tough and the challenge is how do they get out of it?” Mr Coughlan said. “I’ve been talking about zombie companies, companies that were struggling pre-corona.

“If corona hadn’t come along, you’d be questioning whether they would still be around within the next six months as a result of tightening cash flow, reducing margins and a reduction in profit and revenue,” he said.

HELPFUL GOVT RESPONSES

Mr Coughlan said the government sector had responded by introducing terrific measures like insolvency changes.

“What I think that does, though, is kick the can down the street so to speak in terms of directors and shareholders looking at their business and saying: ‘We probably should have wound this up in early 2020 but why don’t we take advantage of JobKeeper and why don’t we take advantage of the fact that we can trade insolvent and let’s see what happens. Who knows what will happen? It gives us six months, so let’s go with that.’ “

That said, there were plenty of signs of businesses looking for opportunities. 

Faced with revenues falling 90 percent, businesses were now coming up with new models, selling food online and marketing it through social media, or re-producing office furniture recalibrated for a work-from-home environment, or businesses creating protective gear for health workers and ventilators.

Mr Coughlan said CreditorWatch had seen a significant drop in credit inquiries in March, but in April it jumped 36 percent not only on existing customers but new customers applying for credit. This was a healthy sign.

“I think what you’ll find is suppliers, distributors, manufacturers will start to have a good sense of which of their customers are hibernating or potentially going out of business,” Mr Coughlan said.

“They’re starting to do new searches on companies that are coming to them and they’re getting a sense of which of their existing customers are healthy – and that’s all designed for them to be able to continue to trade or to start trading as soon as possible,” he said.

www.creditorwatch.com.au

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.

 

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ASIC extends reporting deadlines by one month for June 30 financial statements

ASIC has amended the Corporations Act 2001 to provide an additional month for companies to lodge their financial statements.

This affects all entities with June 30 year-ends which lodge financial statements under the Corporations Act.

Importantly for listed entities, the ASX has not extended the deadline for the lodgement of Appendix 4E under ASX Listing rules 4.3A and 4.3B. This means that non-exploration entities will still have to lodge financial statements by 31 August. 

If the audited financial statements are not available by that date, they must lodge unaudited financial statements. The extensions above do not affect continuous disclosure obligations, and listed entities should continue to lodge their financial statements as soon as practicable. Where listed entities intend to rely on this extension, they should disclose this to the market, and state the reasons why they have used the extension. 

Commenting on the extension, RSM Australia national technical director, Ralph Martin said, “We welcome ASIC’s extension of relief from financial reporting deadlines to 30 June preparers. The impact of COVID-19 on business has been significant, and its effects will cause substantial challenges in preparing and auditing financial statements, including issues such as the determination of fair values, impairment assessments, and going concern considerations.

"While Australia has currently been less affected than some other jurisdictions, many Australian entities have global operations which continue to experience a high level of disruption to their operations. The deadline extension offered by ASIC is a suitably proportionate response which balances these issues against the need for timely and relevant financial information.” 

Details are:

  • The deadline for listed companies is extended until 31 October 2020 (but see below in respect of Appendix 4E).
  • The deadline for unlisted disclosing entities and registered schemes is extended until 31 October 2020.
  • The deadline for proprietary companies and other non-disclosing entities is extended to 30 November 2020.
  • Listed entities with a 31 December year-end now have until 13 October to lodge their half-year reports.

www.asic.gov.au

 

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Small business survival depends on credit - Ombudsman

THE Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the Federal Government’s decision to provide some non-bank lenders with access to the COVID-19 SME Guarantee Scheme.

The scheme provides eligible small businesses with access to up to $250,000 in unsecured funding, including a six-month repayment holiday with interest accrued to be amortised over the course of the loan.

“The inclusion of five non-bank lenders in the scheme, means there is a greater chance of credit flowing to viable small businesses that need it,” Ms Carnell said. 

“Non-bank lenders are accustomed to lending unsecured and getting funding to SMEs quickly.

“It is important the selected fintechs pass on the lower rates for loans under this scheme to small businesses, as they are backed by a 50 percent government guarantee," Ms Carnell said.

“Essentially this means the government is taking on half of the risk of the loan and that needs to be reflected in loan pricing. This is something my office will be monitoring closely.

“We certainly support the inclusion in the loan guarantee scheme of fintech firms on the proviso they are signed up to the Fintech Code of Conduct, as this commits them to provide a process for complaints-handling  and transparency around loan rates.

“It’s encouraging that four of the chosen non-bank lenders are signatories to the code - Prospa, Moula, Get Capital and On Deck Capital.”

www.asbfeo.gov.au

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Finder warns of 730,000 interest-only mortgages: 'a ticking time bomb'

UP TO 730,000 Australian mortgage holders on interest-only loans will be hit with higher repayments this year, according to new research by Finder, the Australian comparison website. 

A Finder analysis of Australian Prudential Regulation Authority (APRA) data has revealed that 730,000 interest-only home loans will convert to principal and interest loans in 2020. 

Finder is warning that of all the home loans granted in 2015-2016, a worrying 39 percent ($295 billion) were interest-only (IO).  

Graham Cooke, insights manager at Finder, said borrowers on IO loans needed to financially prepare for their interest-only period to expire. 

“Interest-only home loans allow borrowers to only repay the interest portion of their mortgage for a set period of time, usually between three and five years," Mr Cooke said.

“This means repayments tend to be lower because you’re only paying off the interest on your loan, rather than the principal as well. 

“But borrowers can be hit hard once their mortgage converts to principal and interest, as their repayments can increase significantly. If you know your IO loan is expiring this year, it’s important to factor this into your budget,” Mr Cooke said. 

If the average loan size during the 2015/2016 period was $395,000, interest-only borrowers can expect to pay an extra of $3,600 per year if forced onto a standard variable loan with an interest rate of 4.80 percent. 

Owner-occupiers or investors who borrowed above the $395,000 average could be hit even harder, he said, with the increased cost for a million-dollar loan clocking in at $789 per week, or $9,468 annually.

Mr Cooke said interest-only borrowers did not need to stick with the same lender once their loan converts. 

“If your interest-only loan is due to expire in the coming months, start comparing your options now," he said. "There are hundreds of principal and interest loan products to choose from. 

“Banks will sometimes offer a discounted variable rate on a case-by-case basis in a bid to keep your business. It’s therefore worth negotiating with your lender for the biggest rate discount you can get. 

"The lowest rate available on Finder is currently 2.84 percent, and there are more than a dozen variable home loans that start with a '2'. If your current lender can’t match this, there’s no need to stick around,” Mr Cooke said.

www.finder.com.au

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Small business 'crying out for capital' to grow - Ombudsman

AUSTRALIAN Small Business and Family Enterprise Ombudsman,  Kate Carnell has urged senators to back the Australian Business Growth Fund Bill, claiming it will "significantly encourage business growth and promote economic expansion".

“We strongly support the investment by the Commonwealth in the Australian Business Growth Fund to provide much-needed patient capital to SMEs seeking to realise their high-growth potential,” Ms Carnell said.

“This investment is critical to the success of the fund. Previous attempts leaving it to industry to establish the business growth fund, resulted in no action. 

“The fund is aimed at SMEs that need patient capital and have been overlooked by venture capitalists and other investors. The fund is focused on helping an SME grow to a point where they don’t need the equity investment," Ms Carnell said.

“The overwhelming feedback to my office from the small business community is that a lack of access to funding is their biggest barrier to growth.

“RBA Governor Philip Lowe has made a number of pertinent observations about the credit squeeze impacting the small business sector and how that’s effecting the economy more broadly.

“In November last year, Dr Lowe said we will all be better off if businesses have the confidence to expand, invest, innovate and hire people," she said.

 “The Australian Business Growth Fund will help address the critical funding gap as identified in our Affordable Capital for SME Growth report, for long-term, patient capital to enable our up-and-coming, high growth potential  SMEs to flourish.

“Similar models in the UK and Canada have been tried and tested, providing access to affordable capital for businesses that have gone on to demonstrate successful growth.”

www.asbfeo.gov.au

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IPA cheers targeted, simpler small business tax concessions

THE Institute of Public Accountants (IPA) has commended the Board of Taxation for its holistic review of small business tax concessions.  The report was tabled by the Federal Government in December 2019.

“The IPA has long advocated for simplifying the tax concessions regime for small business to ensure greater simplicity and efficiency; and, importantly to ensure they meet the intended policy objectives,” said IPA general manager for technical policy, Tony Greco.

“This holistic review introduced the important concept of concessions helping small businesses at all stages of their business life cycle, from crucial inception and survival stages through to maturity and retirement phases.  

“This life cycle approach allows for better targeted assistance to meet real world commercial issues facing small businesses at every step of the way," Mr Greco said.

“Tax concessions can be better utilised by addressing challenges that face small businesses, particularly with fundamental changes to traditional ways of doing business.

“The retention of the $10 million small business threshold definition and the alignment of all small business tax concessions to this definition is a positive step towards removing the complexities of the current system," he said.

“We are also very pleased to see the adoption of our signature policy recommendation of improving the unincorporated small business tax discount by increasing the cap to what will be a more meaningful incentive.

“The small business capital gains tax (CGT) concessions will be simpler, fairer and more sustainable by increasing the turnover threshold to $10 million (currently $2 million); repealing the net asset test; and collapsing three exemptions into a single capped exemption.

“The capping of the small business CGT concessions will make this important tax concession more sustainable as the cost is significant and continues to grow.  This will go a long way in addressing the issue of a large proportion of the benefits being accessed by a relatively small number of businesses,” Mr Greco said.

www.publicaccountants.org.au

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Bitcoin strives to attain trust and access

By Leon Gettler >>

BITCOIN is expanding globally but the cryptocurrency still has to deal with issues of trust.

Bitcoin CEO Stefan Rust said the strategy for expansion, however, was going well.

He said Bitcoin’s strategy is to focus on two areas – payments and non-custodial financial services – with the Australian market for Bitcoin cash “doing really well”. 

Mr Rust said the company seeks to replicate the model it has used in Townsville and Ljubljana in Slovenia, going city by city and enabling each of those cities – and getting the merchants and retailers in those cities to accept Bitcoin cash, enabling consumers to go to them with the Bitcoin Wallet and pay seamlessly.

Bitcoin is also launching products that allow merchants to connect to a pay server that automatically links to exchanges to have settlements in fiat instantaneously, without any worries about exposure to volatility. 

Bitcoin will also partner with original equipment manufacturers (OEMs) to align the Bitcoin Wallet with their customer and user base.

NON-CUSTODIAL SERVICES TOO

For its non-custodial financial services, Bitcoin is building the capability for users to write programmable tokens to the Bitcoin Cash platform. They are doing this so users can mint their tokens through just one website and manage their tokens, with interest rates, or distribute rewards and dividends to those token holders.

Mr Rust said the attraction for retailers was that they could save significant amounts on transaction fees as they usually pay a 3-5 percent margin on every transaction to banks and card companies. For the merchants, Bitcoin is partnering with payment processors to distribute point-of-sale (POS) systems or to integrate the ability to receive Bitcoin cash, through a special pay server that Bitcoin is now launching.

Mr Rust said the blockchain industry is now bringing to consumers what was previously only available to high-net-worth individuals or multi-national corporations in terms of access to trust funds and financial products

“We’re about helping the under-banked and unbanked, and middle class, with access to services that are not as easily attainable to them as they are to the minority part of the population,” Mr Rust told Talking Business.

TRUST IS PARAMOUNT

He said one of the big challenges for Bitcoin was acquiring trust.

“We have a lot of the population interested in crypto, in financial services. However, they don’t know what to do, so a large portion of educated is needed,” Mr Rust said.

He believes attracting people to crypto is about trust and access.

The other issue facing Bitcoin is regulators telling the public that cryptocurrency is not transparent.

“I think the regulators and the governments need to understand the transparencies and the advantages that they have from adopting and supporting cryptocurrencies in their market,” Mr Rust said. 

www.bitcoin.com

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness. 

 

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