Business Management Skills

Today’s economic system is quite tight making it tougher for small and medium sized enterprises (SMEs) to secure credit to bank lending facilities. The tightening of credit criteria through the banks has been one rationality why the overall lending to business customers has fallen according to recent data.

However, SME’s who already have a lending facility can find that increasing the level of funding can be challenging which puts them in a challenging situation. On the one hand, they need to find new funding to keep growing their business, but then again they do not want to give up the bank loan they already have. Furthermore, when the bank has a “fixed and floating” charge over all assets of the business, it will likely be challenging to get a new lender to work alongside the bank.

Nevertheless, the debtor factoring industry can work with SME’s in these situations. Factoring companies who offer lines of credit based on the receivables generated through the SME are willing to work together with banks on isolating parts of the security that the bank has and agreeing this collateral is freed up. Banks and factoring companies collaborate all the time on which is often called a ‘deed of priority’ or ‘subordination’ in order to agree with which financier can have certain collateral with the SME in the unfortunate event to a liquidation.

Why would a bank be willing to do this? Mostly because they want the customer to be able to obtain additional capital whilst they cannot provide additional funding to them under their credit guidelines. The business crucially needs the working capital for them to continue growing and operating at a normal rate protecting the bank’s existing lending facilities which have been drawn down. Furthermore, typically the bank would have other forms of security (property, equipment, etc.) that could satisfy their loan balances in the liquidation scenario.

SME’s with bank facilities already in place should consider working with one of Australia’s factoring companies on a debtor facility if their bank can no longer provide them additional credit in the existing facility.

For more info about factoring, call The Interface Financial Group (IFG) at 1300 957 900.