Let’s talk about it?
I have read with interest, the results from a recent survey of SME business owners and there are several matters that are keeping us awake at night…
1. The difficulty in sourcing competitive and well-structured loan packages
2. Concerns about sourcing and managing cash flow
I will cover the matter of cash flow and time in future blogs and today I want to talk about the reasons why higher interest rate loan packages are being offered to SME business owners.
In this blog, we will discuss some of the reasons why interest rates for loans to SME owners are higher than PAYG earners and the steps you can take to alleviate this disconnect.
So why are SME paying too much for their loans?
1. The misconception of paying income tax
2. Lack of relationship with strategic business partners
The misconception of paying tax?
I talk to many business owners who are focussed on paying little or no tax – you hear it in BBQ conversations…and the winner is the person paying the least tax…
Whilst I understand the inherent drive to limit your outgoing payments & tax payments are one of those payments…I think we should be celebrating those who are paying tax.
1. Because paying tax means that you are managing and growing a profitable and sustainable business which will give you a range of competitive options for your financing needs.
2. Structuring your taxation returns to pay little or no tax will impact on your borrowing capacity and the interest rate charged on your loans. For lenders, it is about managing risk and whilst you may have good equity in a property that is being offered as security, if we are unable to demonstrate adequate cashflow to repay a loan, your finance options are reduced…. significantly. Which means…
3. You either limit your lender options to your existing bank which could mean an uncompetitive loan package or
4. You will be attracted to a ‘self-declared’ or ‘lo-doc’ loan which means you will pay higher interest & fees.
To give you a sense of the differential for ‘lo-doc’ loans, if we work on a loan of $500,000, you could be paying
$12,500 more in interest every year. And wait for the double whammy, you may not be able to access the level of finance you need for business or wealth management purposes which could limit your growth.
Lack of relationship with strategic business partner
We are living in an exciting and fast moving period for business… this creates opportunities…and complications for SME.
To assist SME succeed and grow, it is important that we leverage the knowledge and expertise of well qualified strategic business partners who understand and buy into your business and your wealth creation plans. I am referring to:
1. Your Accountant who is focussed on your business and growth aspirations as distinct from solely compliance matters
2. Your Financial planner – who focusses on risk and wealth management and
3. Your Finance Broker – who you can trust to help you source intelligent, personalised and well-structured loan packages
Do you currently have access to these professionals, if no, you could be limiting your business and your aspirations?
So, what to do?
You have time to set yourself up well for the 2017 and beyond by doing the following:
1. Establish a great strategic relationship with an Accountant, Financial Planner and Finance broker and meet with them two-times per year… my suggestion is by the end of the 1st quarter and 3rd quarter of each financial year.
2. Use these meetings to plan your year ahead & learn from your past year. What is it you are wanting to achieve in the year ahead? What can you learn from the previous year, what worked and what could be fine-tuned…almost a ‘stop’, ‘start’ and ‘continue’ and at times a ‘tough love’ conversation. How can you set yourself up to provide the best opportunity to achieve your financial and wealth aspirations?
3. Be prepared to pay tax and because you are meeting with your strategic accountant in advance, you will have strategies in place to meet this commitment.
4. During these meetings, take the time to consider your planned acquisitions in the areas of business, property, asset & equipment…and the financial implications of these investments. You could arrange finance pre-approvals &/or credit line so that you are investment and growth ready.
5. Just Do it…& review!
1. Paying tax is not the enemy, you are a growing business and paying tax means a profitable business which means opportunities…for growing your business and improving your wealth profile.
2. Plan your future year…and review progress
3. Involve your strategic business partners…and ensure they are well equipped in terms of knowledge, experience, trust and understanding of your business to help you achieve your aspirations.
Gayle Stapleton is a partner of AAP Finance Brokers. AAP Finance Brokers is a niche business specialising in financing solutions for SME Business owners and Entrepreneurs.