Need some general tips on improving your small business’s health –especially when it comes to getting finance? This week, we have the pleasure of welcoming Bessie Hassan, who shares our drive to educate the market and help small businesses. As the Money Expert for finder.com.au – the site that compares virtually everything – Bessie is an experienced commentator who often appears on national radio, TV, and throughout online publications sharing her best money-saving tips and property advice. Bessie is passionate about empowering Australians to make better decisions, whatever it is they’re looking for.
Whether you’re an entrepreneur looking to start a new business from scratch or a seasoned owner wanting to expand your business offshore, you’re going to need some capital at some point. To get your hands on this extra dosh, it’s likely you’ll need to take out a business loan. In business, time is money and money is time, so it’s worth knowing a thing or two about how to apply for finance the right way.
Here are four ways to improve your chance of getting the “green light” for your business loan.
1. Check your credit health
Although we’re told to keep our business and personal lives separate, this rarely happens for business owners, as lenders often look at both your company and personal credit scores before lending you money. There’s no point applying for a business loan if you know you don’t have a great credit history (either personally or via your business). Being patient and working to improve your credit score before applying will give you a better chance of securing finance.
Your company’s credit score will be impacted by how long you’ve been in operation, your credit enquiries, Personal Property Security Register (PPSR) registrations and director information. You can improve your score by paying your bills on time, keeping balances low on credit cards and communicating with your creditors. Your personal applications for credit and accounts held in your name may also be checked to help the lender determine your risk profile. Being happy with your credit score and taking steps to improve it will put you in a strong position to begin your finance search.
2. Have a solid business plan
Lenders are most concerned about your ability to repay the loan over time. They’re not going to fork out and invest in your business if they doubt you’ll be profitable and successful in the future, so they’ll want to see proof-points that your business can stand the test of time.
A thorough business plan will make it easier for you to communicate your business vision, strategies and goals to lenders. Including information about how the money will be used and some cash flow projections will show you’re serious about your business and confident in your ability to repay the loan.
3. Know what type of loan you need
There are many different financing options available for businesses. To be eligible for most, you’ll need to have an Australian Business Number (ABN) and for some you’ll need to have been operating for a certain period of time (eg one year for most unsecured loans). You also might need to generate a minimum amount of annual turnover, which can range between $50,000 and $200,000 depending on the type of loan you’re going for. To decide which option to take, you’ll need to understand why you need the capital in the first place.
For example, if you need some additional funds to meet daily business expenses, you might want to take out a business credit card. Remember you’ll need to compare providers to score the lowest interest rate you can. If your expenses can fluctuate (maybe on days when you purchase stock) then consider a business overdraft account, which allows you to overdraw on your business account to a certain limit.
There’s no point approaching a lender for equipment finance if you’re just going to spend the money on inventory – it’s important to do your research so you apply for a product that will complement your needs.
4. Don’t leave it until the eleventh hour
All businesses need money to operate so if you’re short on cash, your business’s lifespan may also be short. If you know you’re going to need extra cash in the near future, start researching your loan options now! Approval for a loan can take anywhere between a few days and a few months, depending on the type of finance you’re applying for. It’s important to have some time up your sleeve so you’re not rushing the application and can wait out the approval process (without going bankrupt in the meantime).
When embarking on your search for finance, it’s important to practise due diligence to ensure you take out a loan that will suit your business needs. Understanding your credit history, having a solid business plan in place, researching your finance options and being prepared are simple ways to improve your chance of being approved so you can make your business vision a reality.
The Banking Royal Commission has opened many people’s eyes to the need for greater transparency in the financial sector. It has also shed light on how challenging it has been for SMEs to get funding. Marketlend CEO and Founder Leo Tyndall breaks down why the push for greater transparency and accountability from the finance sector helps cutting edge platforms like Marketlend which have these values built in. Leo also suggests that banks are now shying away from SME lending, making funding sources like Marketlend even more important. Click play to hear what he has to say or scroll down to read a transcript of his interview.
Look, I think the faith in banks generally has fallen away a little bit. The credibility definitely has been damaged, and investors are now looking at alternatives, especially in the investing side. They’re actually looking at who’s out there, who’s actually lending, right, sort of brought up an article recently where they said they saw a serious influx of more investment capital.
We look at high net worth individuals or sophisticated investors or experienced investors, so we’re in a different bucket than, say, [others]. But, we have found that our investors are definitely willing to put more money to work with us, and are looking at our businesses and going well, I can see everything you’re doing. The big thing with us is transparency: they can see everything that’s being done. The Royal Commission, I think the best thing about it, is, it shows us a lack of transparency. It shows that there’s things going on that you just don’t know what the bank’s up to.
And I mean, it depends on the press, who’s saying what. But the reality is that if people are charging fees for people who are no longer around, and they’ve been running forwards and the like, I mean, the whole faith in the banking system is really faint.
Now, I must say, that I would’ve said that there was a common thread, I think in the economists around post GFC, that banks will become more like utilities, and I think with the royal commission a few others, the banks are gonna get less and less money for lend, and it will be that there will be more like utilities without taking the money paid out, or receiving paid out, and you won’t see that type of lending that you saw in the past. And we are seeing that banks are very, very, reluctant to lend at the moment.
We’re seeing clients come to us, who, typically, would’ve said the bankers actually would’ve given them more facility, and we’ve also spoke to banks, and they’ve told us similarly.
Your small business is thriving. You’re growing. You need to hire, but unsure where to begin and what resources are available. The right hire can boost your business productivity and profitability. The wrong hire can be an expensive and time-consuming mistake. Here are a few best practices for hiring employees for your small business.
1. Define the position
Before you set out to hire, ask yourself:
- What challenge is my company grappling with that a new hire could solve?
- Is this a long-term job or a temporary, contract position?
- Am I open to a remote hire?
- Can I afford a new person without damaging my bottom line?
Research each question and talk with your team. A remote hire is cheaper, but your team might struggle with the distance. A contract worker can also be a cheaper option, but if your company is growing, you may just need a full-time on-site staff member. Evaluate the full cost, including salary, benefits, taxes, workspace and equipment before you make your decision. Requirements can vary widely across regions and countries. Australia, for example, has a range of requirements that can get complicated very quickly, the Government’s Fair Work Ombudsman has a page devoted to this that includes a Pay Calculator.
2. Set your hiring budget
Hiring can be an expensive endeavor. Before you advertise the position, make a spreadsheet with the following categories:
- Job boards and advertising – Note the cost of each post per site. If you have a premium membership that lets you post for free, write the zero.
- Assessment – Skill tests run by an external company will have a flat rate per candidate. Multiply the number of applicants you want tested by the exam price.
- External recruiting – Consider outside organizations who can search and hire for you and record the cost. Remember recruiters typically take a percentage of the employee’s compensation, but this amount will usually be refunded through a “claw back” fee if the hire doesn’t work out in an agreed period of time.
- Human Resource hours – Multiply the hourly rate of each person on your hiring team by hours spent on resume reviews, interviews and follow-up.
Keep in mind that the cost to recruit is unpredictable. Record your actual costs after the process is complete and keep an eye on your hiring budget from month to month.
3. Write the Job Post
A good job post should be a clear description of the job. It should entice candidates with the essence of what the company has to offer with these basic elements:
- A clear title for the position
- A thorough overview
- The desired qualifications or experience level
- Information about how to apply
- For local hires, try Seek
- Quality remote hires can be found at WeWorkRemotely, RemoteOK, and FlexJobs
Check your job ad on any board or website to make sure your description is displayed properly and any associated links work when clicked.
4. Make the Most of Social Media
The typical company today has a minimum of seven social media accounts. Make the most of these spaces and attract your next employee with the contacts you already have at hand.
- Focus on what sets you apart – draw candidates in with industry news, updates on projects and photos of your team. Give them a peek into your company before the official application.
- Highlight value – think about what your employees love about their work. For example, UPS tells potential hires they can “Deliver wishes” as an employee. Play up the best qualities of your company and share them on all your social channels.
- Find niche networks – look for the online forum specific to your position. If you need an SEO expert, you want to post on Freedom with Writing. Developers prefer StackOverflow while Moz is home to marketers.
5. Review resumes
Resume and cover letter reviews can be a good chance to get to know each candidate. Each is a chance to see how much care a candidate put into her application and what she can add to your company.
- Look at the big picture – Read through cover letters with care. Is this a form letter or a piece written directly to your company? Review the language choice and professionalism used in the text to make sure this person knows your industry. No cover letter? Move on.
- Think in terms of Yes/No questions – Does the candidate have the qualifications you specify in the job description? Can the candidate be trained?
- Red flags – Long, over-written descriptions that take up a lot of space, spelling or grammatical errors or general descriptive language that doesn’t really tell you anything, like “a leader” or “enthusiastic” are all red flags that should give you pause.
- Find your favorite – Take the applications you like best and start the next phase of the process.
6. Interview candidates
Good job candidates see the interview process as an opportunity to talk about the job, the company, and why they would be a good fit. An interview should be a comfortable, professional conversation. But be prepared with specific questions that will help you know whether the candidate meets your needs. Additional tips:
- Assess and test – Check for a skill match with technical questions or a skills assessment test as a part of the interview. This way you know how each person works and how fast they can produce.
- Keep a goal in mind – If you want to know how a worker interacts with authority, try “What kind of oversight would an ideal boss provide?” Autonomous workers will want an absent boss while collaborators prefer an accessible leader.
- Ask for questions – At the end of the interview, give your visitor a chance to ask you something. You want an employee who asks about future projects or milestones, has questions about you as a boss or office culture.
- Watch for body language – Look for moments when your candidate’s face lights up with enthusiasm or sits forward. These are signs of deep passion.
- Define your culture – Think about what kind of office you run. Do you value teamwork? Place a premium on collegiality? Or are you looking for a lone wolf who can just get the job done? Make sure your candidate fits your company culture.
- Hire people you like – Do you like the candidate? The interview should be an opportunity for you to see whether there is any professional rapport. You’re building a team, after all, that needs to want to work together. And you’re the head of it.
7. After the interview
Narrow down your choices to two to three candidates. Start with your top candidate and do your research.
- Fact check – Is the work history accurate? Has your candidate exaggerated her experience or invented a past company?
- References – Call them. Ask them to describe their professional relationship and be specific about why the candidate would be a good fit for the job. Strengths and weaknesses. Ability to work with people. Attention to detail and deadlines. Ask them what else you should know about the candidate.
- Other calls – Do you have mutual colleagues who might have insights on this person? These calls can be more helpful than the listed references.
- Keep in touch – Potential recruits with good skill sets will get snatched away fast. Maintain a correspondence with your top two or three and let them know they are still in the running.
8. Extend the Offer and Negotiate
You have your favorite, you’re ready to hire, now what?
- Act Quickly – Decide as fast as you can so you don’t lose your hire to a competitor. Aim for one to three days after the interview.
- Put the job offer in writing – the whole job and all the details. Include any policies your company upholds including sexual harassment, dress, extra work days or hours.
- Make the Offer – Schedule time to present the offer. In person is always best, but not always possible. Then, present it with enthusiasm! Make sure the candidate understands all the elements of the offer, both in writing and in your presentation.
- Set a Deadline for a Response – Give the candidate time to consider the offer, discuss it with family, etc. But set a deadline for a response.
- Negotiate – If the candidate wants to negotiate salary or other elements of the offer, be prepared. This is where your budget comes in handy. Be flexible, but know what your budget will allow you to offer.
- Make the Hire – If the candidate accepts the position, you have a new hire! If not, move on to your next resume and keep going.
You did it – you’ve made a great hire! And you now have a bank of resumes that might come in handy for future hires. Be sure to save them and note the ones that stand out.
Thank each of the candidates you interviewed with a personal call, if possible. Send email responses to all the candidates who applied for the position, thanking them for taking the time to apply and letting them know the position is filled.
The hiring process is a difficult one, for all involved. How you handle the candidates you don’t hire is as important as how you handle the ones you do. Your professional courtesy in this process will serve you well in the long run. You’ll likely be making more hires down the road, and word will travel about what it’s like to apply for a job with your company. Make sure it’s a good experience.
Running a SME is always a challenge and funding one can be particularly difficult. Marketlend Founder and CEO Leo Tyndall and his team are focused on delivering a more transparent and fair marketplace for SMEs. Part of this job is helping to educate the market to help SMEs avoid some of the pitfalls in the lending space. Watch below or scroll down for a transcript of his interview.
The problems there is there’s no long-term support to the SME industry. So, the typical loan and if you look at the last fintech report, they pointed that the majority of their lenders lend between six to eight months. For an SME, they need a lot longer loans, they need capital to be turning over regularly. They have growth or they have needs, and what happens is these lenders are firstly doing principle interest payments, it’s a short-term lend, it’s a little bit like what I would call a sugar high, it gives them money right there and then, but then it doesn’t set them up for the long term. The classic one is the … talking about the tea company, she’s able to deliver to Sydney Opera, but with … line, it would have been P and I and it would have drained her cash flow on a daily basis.
So the issues that seemed to be with the SME lenders is that they, themselves, probably still haven’t been able to get their heads around what the real risk is, so as a result of that, what they do is just go in quick and come out quick, and it is a case that they’re generally not interested in lending over about 50,000 dollars. They don’t want to go for higher, and part of the reason for that is if you set up a direct debit for say, 100,000 dollars, and you got back to the client and you say, “Look, here’s what you’re going to be paying per day,” the client may balk at it because he’ll go, “Well, that’s going to strain all my cash flow…”
Well, it’s not that they get away with it, it’s a need, it’s a demand thing, and it’s speed. So if you ring up tomorrow and you ask for a loan, and get (other firms), one of the others can give you a loan within 24 hours. We had a comment from one of our borrowers who was lending through us, and then they got a … loan, and they turned around and said, her husband actually did this, and her husband isn’t the finance guy, and she said it was so easy: just click the buttons and you went ahead and did it, and as a result of that, they caused him problems because we looked at the risk and said, “Well, why do you have this … loan that’s draining your cash flow?”
And it’s more that businesses don’t have time, typically, to look at their various options. They’re not strongly educated in that area of finance, and then they’re just looking at speed. They need to pay their next supplier, they need to pay their wages, and as far as they’re concerned, they’ll fix it up next day and it’s fine, and that’s their focus, and so it works okay for a while, but if you don’t have a very clear plan of how you’re going to pay it down, well, then the problem is it bites into your cashflow, and we’ve seen that happen a number of times.
ABC News just did a hard-hitting story on SME lending in Australia and they turned to Marketlend for some perspective on the question. In particular, they were looking for Leo’s thoughts on recent attempts by some players in the market to self-regulate amid general shortcomings around disclosing the true cost of loans to SMEs. Leo and the Marketlend team believe it’s absolutely essential that SMEs know what they are getting into when they seek funding and that there are no surprises.
Click here for the news story. Leo appears at the 5:25 mark.
Marketlend CEO and Founder Leo Tyndall wants his investors to know that no one applies for a loan on the site without a thorough review of their financials, and that transparency and responsibility –and ultimately care for the underlying businesses that borrow– drive Marketlend’s mission. In this video, Tyndall breaks down what his team looks for in a potential borrower’s financial profile. The key for Marketlend is the long term health of the businesses it lends to, because healthy SMEs thrive as businesses and as borrowers –that’s why assessing what is reasonable, fair and sustainable in terms of repayment ability is so critical. Click the video to hear about the process. Prefer to read? Scroll down for the transcript.
So, Marketlend requires at least one year’s financials. We look at their debt servicing ratios, we actually look at what it looks like before the loan and after the loan. We typically have a hurdle of 1.5% on debt servicing after the loan. We also turn around and we point out to the borrower that we’re doing a monthly charge, on the uninsured we may do weekly, but what we do, do is, we look at their ability to repay.
We don’t want a situation where we’ve advanced the money, and then they can’t pay us back. So what we’ll do is have a look at all their cash flows, we also look at, essentially, a new structure in the way of we look at their full cash flows, their expenses and then say, “Okay, what is their true flowing cash that they can afford to pay it?”
And we will go through their bank statements as well, so we will go through their bank statements, and for example, on a supply chain, we may turn around and someone says, “I want 100,000.” We look at their bank statements and say, “You couldn’t even pay 100,000 back to us on three months on the supply chain, so why would we advance you that money?”
The thought of approaching a professional investor with access to millions makes you sweat, but if you’re like many startups, you need money to get your new business off the ground. What is it that makes investors reach for their wallets?
Businesses who bring in money do several things right. Here are key points you want to present to any potential partner.
1. Do Extensive Research
A lot of entrepreneurs skip this step as they develop their product or service. But market research is crucial and it needs to cover each angle.
Start with your industry. Look at how new developments in tech affect your field and be an advantage. Make note of trends and patterns, what aspects are in decline and where the market may expand. Approach customers and ask them how they use the product or service and take notes.
Next, tackle demand. What do customers in your area of expertise want? Real estate firms may see a need for more rental properties. If you have a chain of gyms, ask your members what products or services they wish you had.
The creators of Instacart are a great example. They studied the food industry and saw the move towards deliverables. They put together a plan to expand delivery service to groceries. Today their industry is worth 2 billion USD. The company saw a demand and responded, which makes them a big draw to investors.
2. Write a Stand-out Business Plan
A business plan is your future company on paper. It lets investors see the results of all your research, understand what problem you want to solve and shows how you differ from your competition.
A good plan includes:
- A one to two-page executive summary, (an overview of your plan’s key components)
- Your research presented as proof of demand and market
- Financial data and how much money you need
- A description of your perfect customer
- A write up of any staff or team members
- Past accomplishments and future goals
Walk the line between enthusiasm and hyperbole. Use plain, straightforward language and be sure to edit several times. Ask a professional writer to look at it, make sure it reads well and seek any minor mistakes.
Your complete and polished presentation will help you stand out and make the right people pay attention.
3. Develop a strong Marketing Strategy
Break down your marketing for anyone who wants to buy into your business. It’s essential to be specific and have a breakdown of your numbers.
Take the college magazine as an example. Here is what an interested investor is waiting for:
“We ran a quick poll on Facebook and got a big response from readers aged 17 to 19.
We tested keywords in tandem with Pay-Per-Click, (PPC), on Google. A new reader costs us $4.50 and generates $30 dollars in profit.”
You know the audience, you can build the audience and be in the black. You are the expert of your project – show it.
4. Have a Working Model
Ideas alone are rarely enough. It’s those who have a working model that get the money. Show that your idea has traction and you are much more likely to get that deposit in your account.
A working model is your service or product offered on a small scale. For example:
Product: An online subscription magazine for students on surviving college
Working Model: A blog with over 1,000 subscribers and a substantial social media following
When investors see the success in your model they will see you as an asset.
5. Answer the Question: Why You?
Never forget that you are the true product, so make investors understand why you, not the competition are the real investment.
Put your best traits, biggest accomplishments, past success in the foreground. If you have a mentor, classes to help you continue your education or any seminars scheduled, bring those up as well.
The best trait about you is that you have more than an idea, you have your drive and your vision to back you up. Show investors you bet on yourself and that will help bring them around to do the same.
Why is starting a new business easier than getting a licence to drive in Australia? In the video below, Marketlend Founder and CEO Leo Tyndall explains how this is a problem and why we should think differently about the reality of starting a new venture. Prefer to read rather than watch the video? The transcript is below.
Q: What do you mean by it’s easier to start a small business that to get a driver licence in Australia?
Yeah. Well, what I mean, is it’s easier to get a driver licence first than starting a business is the reality is, is that driver licence you gotta do a number of hours, and you gotta do these tests, you’re gonna send your contact and accounting firm alike when you open up a company, and away you go. And people will take on commitments, and you’ll be operating.
The problem is, is that, directors’ responsibilities are not fully understood, people don’t realise that there is a lot more complexities around things of reporting, you have finances, or like they do when they grow, there’s no business plan required, and so they send you to get going. Some, you’ll find business plans, but are they realistic or not? So there’s all these problems that come with people setting up businesses, because there is no restriction: you can just contact one of these guys and set up a company. Now, I’m not suggesting we should have restrictions, but what I’m definitely saying, is, that businesses themselves, by the time they get started, get too carried away to actually think about all things they need to know, and unless they’re very experienced, they’re gonna find that things are gonna blow up or things are gonna pop up that they never considered would happen before.
So, there is a need for some more training, on-going training, maybe, or at least some form of compliance check, or supervision, you could say, for businesses that have been operating for a year, or the like. I mean, I just saw a proposal for someone who’s start-up, and I gotta admit, the idea was just on the left field, he’s already spent 2.5 million dollars on it, and it’s like oh my God, is no one sort of sat there and gave him a bit of a shark’s tank, … test, and said, “Really? You need to actually wake-up and realize.” There has to be a very clear delivery of a solution, and not only just an idea, but an ability to actually make it grow and deal with it as it grows over time.
I think the other problem being, which is, in a way, a little bit being fixed is the failure for equity investors to participate in small business . . . the biggest problem in Australia I think is that people have to learn how to get more money, they can’t actually, most of them are not skilled enough to know how to raise equity.
If you look at our business, we haven’t borrowed anything. We’ve got equity partners, and every time we need funds, we’ve raised equity, and we’ve done that on the basis that we don’t, for the first few years, we didn’t think want to be levered. We didn’t want to have that debt hanging over our head, and it’s still the case, and it’s very much where it’s by comparable notes, or whether it’s by some other form, it’s very much that there is a need for the business to be able to grow, and by turning around and just going out and getting loans, ’cause you think that’s the only solution, isn’t the best solution.
Why a digital marketplace for SME lending? The simple answer is a need among SMEs for more access to capital and investment opportunities. Here as part of our Marketlend SME Academy, Marketlend Founder and CEO Leo Tyndall talks about how the search for money was a source of pain for many in the SME landscape when he began. (Prefer to read, not watch? The transcript is below.)
Q: What was the pain that you were seeing in the market [when it came to SME lending]?
A: What really was obvious was there was a number of things: firstly, that the size of transactions that was sort of sitting between the businesses turning over one to 20 million, they weren’t really getting the proper attention from the banks. The banks weren’t giving those SME’s and their sort number one attention. What also was seen is that suppliers would give credit that suppliers would have a vested interest in when they gave credit so that they would change the credit terms quite regularly, and then at the same time, they wouldn’t actually give them credit for different suppliers. They would only give them credit for one supplier.
So then, what we saw also, was that the investors would complain they weren’t getting yields. So they would go into major investment schemes, other type of investments, find that their managers were charging them one to 2%, find that there was a fee here, and a fee there, and by the time that they looked at their net return, they were lucky to get much more than what the banks were doing, and the banks were actually offering them, as they do now, one to 2% yield and yet they’re landing on the other side of 12, 14, even up to 20%.
So the SME’s, when we first started, which was in December 2014, what we found is the SME’s at that time didn’t have a lot of options. So there wasn’t that many SME lenders out there either, and they were very, very expensive. There has been a lot more SME vendors pop up, close to about 60. However, their rates have been still quite high, so the risk is not being matched against the actual, essentially, profile of the borrowing, not getting any interest rate for risk. So what you’ll find is a business that’s turning over, say one to ten million, which should be a fairly positive risk, is turning out to be paying quite high rates.
Marketlend founder and CEO Leo Tyndall wants every SME to know three basic things before they take out a loan. Click on the video below or read the transcript to get a closer look at better lending.
Q: What three things do you think SME needs to know about lending?
A: Well, they need to know what the true cost is of their facilities. So, first thing they need to know is when they get pummelled with all these different plethora of lenders, they need to be very clear about what is getting, essentially, what is the true rates. The other thing that they need to know about is what is the benefit in the long term.
One of the difficulties with a lot of SME’s is that they’re not looking what the long-term advantage is, they’re just looking at the short term, and then the last thing would be is this that is this lending facility something that I could actually put as my balance sheet management tool going forward in the long term. Is it something that when I go public or do a trade sale, I’ll be able to say, “Look, yes, I’ve got this facility, and that facility allows me to buy stock every 90 days, and I’ll pay it back, and I’ve got a good cash flow from it.”
It’s those type of things. whereas, if they’ve got [a certain type of] loan, generally, most investors will look at it adversely and go, “Well, this looks very risky, why are you drawing down these urgent loans?”
Cause it’s a drain on their cash flow: the biggest problem is the drain on the cash flow itself. (Certain types of) loans have a place, and all the other loans have a place, but if their cash flow is having a direct debit [inaudible 00:13:17] on a daily or weekly basis, and it’s P and I, it’s essentially a significant drain on their cash flow, which causes them to have difficulties repaying other people.
So, it’s got to be very much a case that if someone’s got a million dollar turnover, they go and get a 50,000 dollar loan, and they look at their cash flow and go, “Yup, look, I can afford that.” Well, then fine. But not someone who’s turning over 150,000 and go and gets a 50K loan, and has to pay it back in six to 12 months, their cash flow isn’t going to sustain it.