Managing with a moratorium
Small and medium enterprises that are struggling to make ends meet are making increasing use of short-term moratoriums on their loans, according to one of WA’s oldest finance companies.
Ledge Finance founder Phil Botsis says an increasing number of entrepreneurs are seeking three to six-month moratoriums to help them get on top of their businesses.
He says the reprieve helped to spur cash flow. In many cases it enabled the entrepreneur to turn their business around.
In some cases, business owners organise a moratorium instead of getting a new loan. Both free up cash flow.
Botsis says a chronic level of businesses are suffering cash-flow problems, claiming the mining downturn had proved more damaging to small business than the global financial crisis.
“I haven’t seen it like this since 1991, when Paul Keating said we were having the recession we had to have, ” he says. Nonetheless, banks allow a reprieve only for those businesses that have strong foundations, albeit with some temporary setbacks.
Entrepreneurs can approach banks directly to seek a moratorium or they can go through finance companies such as Ledge, which help clients prove their house is in order.
Botsis says a major problem behind cash flow is that many businesses simply do not pay their bills in a timely manner.
One local business alone has gone under recently because of $50 million in unpaid bills owing to him.
On top of that, some are having trouble selling assets to raise cash, especially those with an exposure to mining.
The price of mining equipment has fallen by as much as 70 per cent over the past two years.
In some cases, business owners who purchased equipment for $1 million two years ago could not find a buyer at any price today.
“Businesses are not suffering because it is run by people who lack business acumen, they are suffering because they are in difficult circumstances, ” Botsis says.
However, he says some engineering firms, transport and food sector companies are performing well, albeit under extremely competitive conditions.
This year’s Small Business Development Corporation’s business expectations survey shows the biggest anticipated challenge this year is rising operating costs, followed by challenge of attracting new customers.
Survey respondents were not as confident about their businesses’ profitability, with only 39 per cent expecting an increase in profitability over the coming year; a significant drop from 59 per cent last year.
© The West Australian