The Growth and Growth of E-Commerce

The growth of e-commerce

Is E-Commerce Growth an Un-Stoppable Train?!

This fascinating graph shows the timeline of retail sales growth in the United States since the year 2000. It also shows the relative percentage of that revenue, per year, which is attributable to e-commerce.

e-commerce growth as percentage of US retail

So for instance, going back to the year 2000, there was a total of $2.98 trillion or nearly $3 trillion in retail sales, but only 0.9 % was attributable to e-commerce.

20 years later, in the year 2020, the total volume of sales grew to $5.62 trillion, so nearly double in 20 years. But the interesting aspect to observe is the massive relative growth of e-commerce, which in 2020, accounted for 14% of all retail revenue.

So where the overall retail sales grew by not quite 100%, the percentage of e-commerce sales grew by 1400% or 14 times that of normal Retail sales growth!

This chart graphically shows the importance for all businesses of considering the e-commerce channel, whether they sell products or services.

Unfortunately, many businesses seem to view “bricks and mortar” retail versus e-commerce retail as a mutually exclusive option.  You either do physical retail, OR you do e-commerce, but this is far from the truth.

A good example would be the gym industry during 2020 when the world experienced the beginnings of the COVID 19 pandemic.  Certainly in Australia and New Zealand, and no doubt many other countries, most gyms suffered a lockdown and were simply not able to trade at all.

However, we saw many innovations where online and e-commerce modalities were used to continue to engage with the gym’s existing clientele and even to attract new clientele and provide avenues to pivot the business into virtual and online models.

However, now that certainly in Australia at least, there is considerable relaxation of the COVID-19 measures it’s interesting to see how many of these businesses are defaulting back to a pure bricks and mortar model, (and as well of course, many are embracing hybrid models of both!)

Even some major gym chains seem to make very little attempt even to really engage with members through online channels, apart perhaps from a boring monthly newsletter!

This is such a shame considering the massive opportunities that they have to:

  • educate their clientele through online channels
  • engage with their clientele and …
  • most likely to sell other products and services be they virtual or face to face or through other forms of delivery.

If they made the effort to engage through the means of various online communication channels I’m pretty sure they could grow, and profit from additional use of e-commerce even in that industry!

What do you think?

What do we do in the fitness industry?

Well, thanks for asking?!

Our division and website is a specialist funder to the fitness industry.  This means that our business is to know exactly what your fitness or gym business needs.

Our directors started Fitness Finance Australia in 2014 with a vision to improve the finance options available to Australian small businesses, so that the fitness sector can continue to thrive, and innovate.

We’re proud to have financed the following well known brands to assist them with complete gym, or studio start-ups, through to equipment or premises refurbishments.

Watch our video guides below, or click here for more information!

Goal Setting for the New Year

Goal Setting for the New Year

The prospect of setting goals as a business owner can be both daunting and exciting. It is exciting to look forward and think about what you want to achieve both personally and as a business over the next 12 months, however the prospect of significant changes and large projects can make the upcoming year seem quite intimidating as well.
We have a few tips and tricks for setting goals that you can implement yourself or share with someone else. These can be great tools if you are a business advisor or in a field manager role, looking to help business owners and franchisees plan their year ahead.

Take a holistic approach
The first thing is, it is important not just to focus on things hat you want to achieve within the business, but consider how you want to grow personally as well. Taking a balanced approach is best with, well, anything in life and this is no exception. Taking the time to think about how you want each part of your life to evolve throughout the year and in what ways these goals align and possibly overlap with each other. Focusing on personal growth can often allow you to achieve more and perform better in other aspect of your life, even in ways that you may not expect.

Put it on paper
Next, it is important to be held accountable. Sharing your goals with others and putting them down on paper gives you a place to reference and remind you where you wanted to go. The psychological impact of writing down goals is significant, with a Harvard study finding those who do so are three times more successful in meeting them. This is due to the way our brain filters messages and activates the Reticular Activating System (RAS).
The RAS aids in classifying incoming messages as urgent and non-urgent and helps us identify opportunities to act based upon that messages. Writing is an effective way of communicating with this RAS function and helps cement goals in our minds, making us more likely to recall and work toward them, whether consciously or subconsciously.

Make SMARTER Goals
This is likely something you have heard before, but we cannot stress the importance of making goals that are thought out and achievable. The SMART acronym stands for specific, measurable, achievable, relevant, and time bound, and is designed to help people clarify their ideas and spend some time thinking about what they really want to achieve. Some have also suggested adding ‘ER’ the end of the acronym to represent evaluated and reviewed – because it is important to consider things change over time.

It can be quite discouraging to feel like you are working so hard towards a goal that you just can’t seem to meet, and unfortunately that can be the result of unrealistic goal setting. This is why adopting a structured approach can aid in finding the perfect balance between a goal that requires a little stretching but isn’t completely out of reach.

Don’t Use Deadlines
Whilst it may seem counter intuitive, setting hard deadlines for big goals can actually be detrimental to your ability to achieve them. Rather, it is more effective to break down a big project into smaller tasks and work towards those. Big deadlines can become overwhelming and adopt a very ‘all or nothing’ approach. However, by breaking down your goals you can work towards them gradually and even get a boost of motivation by tracking your overall progress.

Be Ready to Accept Failure
Not to bring the mood down, but if nothing the past year has taught us that life can throw you a curve ball at any moment. It is important to be real with yourself that you might not tick of everything on your list, or it may not be in the way you initially thought or the timeframe you decided.
When setting goals it is important to work within spaces that you can control, and acknowledge that even within those spaces outside forces can have an impact. As they say, the only certain thing in life are death and taxes – so make sure that you manage the risks and get real with yourself about what you can and can’t guarantee.

How To Maintain Corporate Culture Without Social Events?

How To Maintain Corporate Culture Without Social Events?

COVID-19 has had a significant impact on what the working day looks like for many Australians, and for people across the globe with offices left empty, zoom meetings commonplace, and work-related social events off the table for the majority of the year. Shifting from office spaces being the epicenter of organizational activity to a network of work from home employees has been a difficult transition for some, with team members missing out on the vital social component of office life.

Even as restrictions eased within individual states, travel bans made is difficult for teams to come together and celebrate after the year that was 2020. With such social events making up the heart of many organizations cultural calendar, we explore how to maintain a positive corporate culture when getting together for some good old-fashioned bonding just isn’t possible.

Whilst the pandemic situation continues to improve here in Australia, there is no doubt that the habits established over the past year will shape the future of business operations. Remote working and flexible arrangements will become more conventional, and as a result organizational leaders will have to think innovatively about how they create a cohesive group and bond their team together with a collective culture.

The first step is to change the way we approach corporate culture and its management. Sadly, for many teams ‘culture’ is often set and forget, with a list of company values posted on the wall not to be mentioned again until the annual meeting. However, as people and companies are ever-evolving, so should be corporate culture. The most powerful and everlasting cultures are ones which are fully embraced by employees in their everyday actions, and one that guides the direction of leadership in their decision making.

However, embracing this culture isn’t just up to the employees themselves. It is the responsibility of management and leaders within the organization to ensure the culture is developed in a collaborative way so that it is a true reflection of the team and create opportunities to solidify these shared beliefs.

So how can this be achieved with all the barriers that are in place because of the pandemic? Well, it all begins by taking every chance to show your employees that the organization is sticking by their values even when things get tough. People look to leaders and take cues about the company culture based upon their actions and choices. Therefore, leaders should actively seek way to display to employees that their core values remain unshaken despite change, leading the way for employees to do the same.

This could come in many forms depending on what the team’s values are, but could mean offering additional support resources for employees, engaging in corporate social responsibility through donation or volunteering, or even something as simple as actively seeking feedback from employees and asking how they feel the company can better uphold their values.

The concept of a collaboratively developed culture that centers around employee input and feedback is key and will help leaders in maintaining it despite disruptions to the workplace. Corporate culture is often described as a competitive advantage, but only if it is unique and irreplicable. By bringing your team together to help shape your culture you get an individuality that cannot be duplicated, because it is a unique blend of everyone that makes up the organization.

Once this culture is developed, it will grow and evolve as the business does. However, leaders do have a significant influence over how it is managed, and this is achieved through managing the behaviors that shape culture, rather than the culture itself. Validating positive actions and discouraging negative ones is an important part of this, which has been made increasingly difficult throughout the pandemic due to the distance between leaders and their team.

This is where communication comes in. Though we cannot be together in person there is ample opportunity for increased communication between team members, and this provides the perfect platform to discuss culture. Corporate culture is more effective when it is discussed openly and on a regular basis, and this is something leaders can do well despite the pandemic. This means being willing to discuss when the company gets it right, as well as when they get it wrong.

Remaining connected with employees through frequent and meaningful communication will minimize any erosion of corporate culture. By opening the door for a two-way conversation companies can continue to recognize employees who live up to their values whilst addressing any concerns that are present.

In lieu of the spontaneous social moments that can happen in a shared environment, organizational leaders must help facilitate social experiences despite a disrupted workplace. This could mean a weekly team meeting where there wasn’t one, with a focus on sharing personal stories rather than work updates, or it could mean hosting zoom happy hours on a Friday afternoon for those who wish to join.

There may also be requirements to address employees needs in a different way. While a teams physical and mental health should always be of importance to managers and leaders, more emphasis should be placed on this when undergoing significant change. The pandemic took a toll on many people and the way in which each person recharges and recovers will vary, but how can we expect employees to make the best choices when they are not feeling their best. Organization’s may approach this in different ways depending on their preference and capabilities, but there is plenty of ways that they can help.

This can mean being more understanding when it comes to the personal struggles team members may be facing. By leaders communicating that there is flexibility in these unprecedented times employees will feel more comfortable in acknowledging their needs and asking for help is desired. Management should also try implementing new patterns and processes that better suit the new environment, for example avoiding zoom fatigue by keeping meetings short and sharp at 15 minutes max.

It Is important to remember that while the way we manage corporate culture may look a little different as a result of the pandemic, it is no excuse not to invest time and energy maintaining it. In-fact, research found that across Culture 500 companies (those who live and breathe their corporate culture), average culture ratings actually went up in March and April right when the pandemic hit. The most notable change was an increase in comments around communication and integrity, specifically positive praise for leaders who engaged in honest and transparent communication in the wake of the pandemic. So let’s take a cue from the best of the best, and strive to excel in difficult times by taking a step back and really thinking about how our organizations can create and fuel a culture that guides, inspires, and supports our teams.

How To Step-Up Your Recruitment Marketing

Talent acquisition is a competitive environment and for organizations looking to secure new team members a thought-out recruitment marketing strategy is vital. Modern recruitment marketing starts above the top of the funnel and doesn’t only involve engaging with applicants, but capturing the attention of anyone who may be considering a new career opportunity.

Attracting qualified talent is the first stage of recruitment marketing, and you don’t just have to be playing in spaces where job seekers look. Expanding your recruitment marketing efforts to capture the attention of high performing individuals who may not be actively seeking a new role broadens your audience and increases the potential of finding a great fit for your team.

Whilst traditionally many people view the recruitment process as a way for applicants to showcase their merits, however now it is just as important (if not more) that the organization sells themselves to prospective employees. Many applicants are considered passive, meaning that they aren’t necessarily scrolling job listings and sending our resumes. However, if you were to create interest in potential opportunities by showcasing your company culture and making yourself a desirable employer you are likely to receive more, and higher quality, applications.

Firstly, we look at how to generate that interest. As an employer you may know all the brilliant things about working at your company, but it is important that you have an effective communications strategy to help prospects realize these things as well. Your organizations digital presence is at the heart of this, with the vast majority of job seekers conducting their research online. It is more important than ever to have a strong social media presence that gives an insight into exactly what it is like to be a part of your team, backed up a website which provides more informative content about opportunities, benefits, and application process.

This window into your workplace can be achieved by sharing authentic content with plenty of team pictures, team achievements, and anything else that showcases your organizations culture. This should be supported by a thorough recruitment page on your website which gives potential applicants all of the key information they want to see before beginning the recruitment process. This whole process comes under the umbrella of employer branding is should be a joint effort before Marketing and HR.

When it comes to advertising any open positions, effective recruitment marketing means incorporating a multi-channel approach. Digital advertising is the most popular choice here, as companies can easily list and receive applications through third-party platforms such as Seek and Indeed. However, this should be paired with a social media recruitment drive to ensure that you are reaching people where they spend most of their time. As we mentioned before, not everyone is actively searching meaning it can be harder to reach top-tier talent.

Further, you should be utilizing your network of existing employees by asking them to share news of any vacancies via word of mouth. The likelihood is that your current team have connections through their personal, professional, and educational networks that could be a good fit. You can incentivize this through recruitment bonuses and help encourage your team to spread the word.

From here, it is important to keep applicants engaged and informed throughout the application process. Even if they don’t receive the roll at the end, they may have great potential for a future opening, so it is important to ensure that they have a positive experience. Ensure that communications are timely and relevant, and most importantly be sure to let unsuccessful prospects know the outcome of their application – nothing is worse than being left in limbo.

Asking applicants about their experience throughout the recruitment process, what drew them to your organization, and whether they would apply again in the future can provide valuable insights and help your team identify strong and weak points.

There is a lot to take on board here, and for some small companies implementing a thorough recruitment marketing strategy can be a significant task. There are a range of third-party resources and services available that can aid in just one part of the process or handle it for you from beginning to end. Recruitment marketing is an ever-changing activity, so explore through trial and error what works for your organization and be sure to take on board feedback from applicants and current employees.

The Worst Advice We’ve Ever Heard About Getting an SME Loan

The Worst Advice We’ve Ever Heard About Getting an SME Loan

Increase your chances of approval by applying everywhere

Multiple loan applications are an instant red flag for many lenders and can have a negative impact on your credit. Whilst some business owners see submitting multiple applications as an opportunity to cover all their bases and increase their range of options, it can actually be damaging to your chances of approval. To lenders this may appear as though you are struggling to access funds and getting declined from multiple financiers, suggesting that you may not be an ideal applicant.

Rather, you should examine the funding options available to your business and pick the one which is the best fit for your current situation. In deciding this, you may choose to consult with a broker or business advisor. Then apply with one lender, and ensure that your application is comprehensive and complete, this reduces the need for back-and-forth and speeds up the assessment process. If you are unsuccessful then re-examine your options, but avoid casting your net too wide in the early stages.


Anyone aside from the Big Banks is a last resort

While historically people turned to the big banks for both their personal and business finance, the Australian lending landscape is making a move away from traditional lenders as the first choice. Of course, strong applicants may find success in obtaining business funding through the big banks, but many small business owners find that the limited funding options available through traditional lenders just do not fit their needs. Further, the requirements of these traditional lenders are becoming stricter and approval processes are becoming more involved and lengthier.

There is a wealth of non-bank lenders available that specialize in certain industries and niches and offer tailored funding solutions to fit business operating within these spaces. These lenders often operate under more flexible terms and are less risk-adverse than the banks, meaning they are more open to funding SME’s in a unique position. For many business owners, these alternative lenders are becoming the preferred option because of their ability to offer specialized solutions that take their needs into considerations.


Reduce your debt and utilize your working capital

There is no doubt that minimizing the level of debt against your small business is a good thing, however it is important to find a balance that ensures you have enough working capital to sustain your operations. Draining all your cash reserves during the start up phase of your SME or when undertaking a refurbishment or expansion project can place your business is a risky position.

Having a pool of working capital available for when opportunities or emergencies arise is vital, further these funds can be used on other facets of your business such as marketing and promotion. Strategically utilizing financing for tangible items such as equipment, fitout and vehicles often means you can use the assets themselves as security, whereas when financing soft costs such as legal fees some form of external collateral if generally required. This approach means that you are not putting your home or personal assets up for collateral, and are still able to preserve some of your working capital through the use of financing.



6 Best Women in Business Bloggers You Need To Follow

6 Best Women in Business Bloggers You Need To Follow

Ali Brown

Ali Brown founded and runs We Lead, a company created to empower women in business through entrepreneur coaching and business advice. Named as one of Forbes’ Women to Watch, Ali has a significant following and recently launched The Trust, a global network of female entrepreneurs.

Ali describes herself as a self-made millionaire, and now mentors other women who want to achieve big things in business. Her blog shared her own personal insights as well as the stories of other women, as well as advice on how to make the most of opportunities and excel.


Natalie MacNeil

Natalie MacNeil is the writer behind She Takes on the World and is a coach for female entrepreneurs across the globe. Her focus on is tackling big tasks by doing them in little steps and helping people build habits that lead to success. Her platform shares a wealth of advice and encourages readers to focus on personal growth as well as their business goals.

Natalie’s blog posts feature a wide variety of special guests to provide their insight on topics such as productivity, networking, and brain performance. As well as this she also covers mental health and physical wellness and how this connects to your business success.


Nicole Matejic

Nicole Matejic is an international author and trusted source on topics such as military operations, social intelligence, and diplomacy. Her book, Social Media Rules for Engagement examined how to use social media as a tool in times of crisis and to control your own story.

Nicole’s blog covers a range of topics including social media, crisis management, and responding to problems – making it an excellent resource of business owners everywhere. Taking a slightly different tact to many other business bloggers her unique perspective is fuelled by her diverse educational background, making her articles an interesting read.


Kate Cook

Kate Cook is the founder of Small Paper Things and is known as ‘The Attribution Gal’. Her marketing-based blog helps those in the industry by offering resources, guides, and templates, she also provides 1-on-1 mentoring, audits and consulting for clients.

A self-described ‘geek’, Kate highlights the importance of data in digital marketing and creating a seamless system. Her blog covers a broad range of topics and has excellent advice on all things marketing, from budgeting to reporting to what tools to use, her platform is a comprehensive guide.

Naomi Simson

Naomi Simson is the founder of RedBalloon, which later became part of Big Red Group, a community of over 2000 small businesses. However, you may know her for her role supporting small business start-ups on the television show Shark Tank. As an entrepreneur, investor, and business owner Naomi gained a depth of knowledge over her 20 years in the industry.

Naomi’s blog covers a broad range of topics from tactical business planning, to entrepreneurship advice, and how to build a positive workplace culture. She also offers a weekly newsletter so you can get her articles delivered straight to your inbox every Monday.


Kasia Gospos

Kasia Gospos is the CEO of Leaders in Heels and started her journey in 2011 after leaving Poland only a few years earlier to seek new experiences in Australia. Leaders in Heels has built a community of successful women and shares their stories and advice through their platform.

Kasia’s blog articles discuss career development including public speaking, leadership and changing jobs; she gives advice on business start-ups, running an online business and marketing; and delves into lifestyle factors such as productivity, relationship management and wellness.

5 Answers To The Most Frequently Asked Questions About Start Up Loans

5 Answers to the Most Frequently Asked Questions About Start Up Loans

What defines a start-up business?

This definition may vary, so it is important to clarify with your prospective lender whether you fit their definition of a start-up. Typically, a start up is a new company founded by entrepreneurs who want to bring a new and disruptive offering to the market. Given the high percentage of start ups that don’t make it past the first year, such ventures are associated with a certain level of risk, meaning it can be difficult to secure financial backing. As a result, many start-ups are running on a skeleton budget until they begin to generate revenue.

Working in a start up business can offer an exciting and fast-paced environment, often bringing together a group of people who are passionate about the idea. Some of the world’s most successful start-ups are not global organisations such as Microsoft, Facebook and Airbnb.


What funding options are available for start-ups?

Start-ups can access a wide range of financing solutions, from traditional and structured offerings to more alternative funding sources. Start-up businesses may struggle to get approval from mainstream lenders, especially if their business concept is a new and unproven model. However, there are still traditional business loan options available, often in the form of an operating lease or chattel mortgage. Such loans are generally secured using collateral like your home, vehicle, or savings.

If you do not want to put this collateral at risk, you may opt for a form of alternative funding. Non-bank lenders, private investors, crowdfunding and loans from family and friends are all great options. Non-bank lenders offer tailored funding solutions under more flexible terms and are a great fit for new businesses. If you are happy to consider exchanging a financial investment for equity in your start up, private investors and family loans can be a great option, especially if you are looking to launch an unconventional concept.


How much money do I need for my start-up?

This is something that business owners should figure out before approaching any funding providers. Lenders of all kinds will want to see proof of how much money your venture needs, rather than what you would ideally want. You should take the time to work out how much you need for tangible items such as equipment and fit-out, and how much is required for soft costs such as legal fees, marketing, staffing and rent. Depending on what funding option you choose you may not be able to access funds for soft costs, so it is important to have a clear breakdown of these expenses.


What are lenders looking for in a start-up loan application?

Typically, lenders are guided by ‘The 5 C’s of Credit’. These principles help funding providers evaluate the borrower and business viability, ensuring that responsible lending guidelines are followed. The 5 C’s are: Character, Capacity, Capital, Collateral and Conditions.

These guidelines build a holistic picture of the venture risk by looking at the character and reputation of the borrower, the businesses financial capacity to repay the loan based upon income, expenses and existing debt, how liquid the borrowers financial position is, what collateral is available to secure the loan, and the conditions of the finance term including interest rate and fees.

Whilst lenders each have their own unique application process, there is some standard information that will likely be required. Collating documents including ID, a business plan, asset and liability statement and financial projections can all make the process run smoothly.


Why might my start-up application be declined?

There are a range of reasons that potential lenders may decline your application for a start-up loan. These reasons likely relate to The 5 C’s of credit identified above, such as your perceived ability to repay the loan, the outlook of your cash flow forecast, and your ability to secure the loan.

However, some lenders only operate within specific markets, may seek to mitigate risk by not funding certain business models, or have a cap on funding limits for particular sectors. Based upon the information supplied in your business plan, a funding provider may opt not to approve your loan or invest in your start-up. This can be unrelated to the quality of your application and may be at the discretion of the lender and their own business decisions, if this is the case they will likely indicate this as the reason for decline.


New Support for Victoria’s Small Business Sector

New Support for Victoria's Small Business Sector

Recently Victorian business owners were told they can expect another wave of relief, with the Government announcing a third round of the Business Support Fund designed to help businesses through the struggles of trading in a pandemic landscape. This support is specifically available to businesses operating in Victoria, and is in addition to the Federal Government’s $40 billion Coronavirus SME Guarantee Scheme.

This new round of funding (Business Support Fund 3) will offer eligible businesses between $10,000 – $20,000 depending on their employee payroll expenses. The funds can be used towards a range of things to keep the business operational, including rent, salaries, legal support, marketing, and other business costs. As many small businesses try to continue operations despite decreased trade, they are still incurring overhead expenses relating to rent and staffing, which are significantly impacting revenue potential causing many to run on a loss.

To break this package down further, businesses whose annual payroll is less than $650,000 are able to access $10,000 in support funds. Those whose annual payroll falls between $650,000 and $3 million can receive $15,000, and between $3 million and $10 million may be eligible for $20,000. These figures mean that most small business owners can expect to receive at least $10,000 in funding.

Under Business Support Fund 3, only businesses operating in specific industries and sectors will be eligible for support, as they have been identified as the hardest hit because of COVID-19. These sectors include:

  • Tourism, Culture, Entertainment, Events, Sports and Recreation
  • Consumables and Services including Hospitality, Hair & Beauty, Real Estate and Retail, etc.
  • Community Services including Education, Healthcare, Veterinary Services, etc.

For a comprehensive list of the eligible classes, you can view the full list from the Victoria State Government here.

Eligible businesses can apply up until the 23rd of November 2020, and funds will be granted through an application process in which businesses will be crosschecked against the State Revenue Office and Worksafe among other government agencies to confirm their circumstances.

In additional to the third round of the Business Support Fund, the Victorian Government has also announced a range of other grants and incentives targeted and Sole Traders, Licensed Venues and Alpine Businesses.

The first of these builds on the existing Hospitality Business Grant program which offers grants to licensed venues such as bars, restaurants, pubs, and clubs. The government has assigned $251 million to be distributed in one-off grants of up to $30,000 to eligible businesses. Little details have been made available as of yet, but the level of funding will be based upon venue location and capacity.

The next program is designed to offer support for Sole Traders, who cannot access the current Business Support Fund currently available. The $100 million package offers grants of $3,000 to sole traders who are tenants of licensees in commercial locations. This is expected to provide relief for approximately 33,000 business owners.

Finally, the government has set aside $4.3 million to help alpine businesses cover fees and overheads after their high season was essentially shut-down, distributed in grants of up to $20,000.

As well as this new round of support packages being created to support struggling Victorian businesses, the government has announced they will be deferring $1.8 billion in fees and taxes to ease the burden during the pandemic. Businesses with payrolls up to $10 million will be eligible for deferrals across areas such as stamp duty, landfill levy, congestion levy, liquor licenses, residential land tax and payroll tax. At this time it is unclear whether this will be processed automatically or if businesses will have to apply.

Why the Government’s Coronarvirus SME Guarantee Scheme has delivered less than 4% of the $40 Billion allocated to it…

Why the Government’s Coronarvirus SME Guarantee Scheme has delivered less than 4% of the $40 Billion allocated to it…

When the federal government announced it would guarantee up to $40 Billion worth of loans to SME’s in order to keep funds flowing through the COVID-19 pandemic, business lenders cheered, but now those cheers have fallen silent. The funds have failed to flow and many people, including small business ombudsman Kate Carnell, are asking ‘why?’

So, let’s consider some of the hurdles…

  1. The Scheme specifically applies only to “Unsecured Loans”. Often this is one of the most expensive lending products pitched at small business, and whilst it may be one of the most flexible (the business can spend the money where they need to) many lenders charge a considerable premium compared to say equipment finance or other ‘Secured’ loans.

    Somewhat confusingly the Scheme Rules [3.2(b)] state that the loans must not be secured by any Security Interest (typically the goods financed by the lender which can be repossessed if the borrower defaults) other than personal guarantees or any Security Interest so long as the lender undertakes not to enforce it!

  1. Lenders are instructed to “determine lending standards in accordance with their usual credit assessment process”. A lender’s normal credit process is usually quite straight forward, put simply – “lend to businesses that can prove that they can and will pay you back.”

    Of course, in these abnormal times the usual credit assessment process simply isn’t realistic. Many small businesses cannot show that they will have any way to repay a loan without a change in circumstances, and without support (government support, community support, and creditor support).

  1. The fear of AFCA (Australian Financial Complaints Authority) Even though consumer Responsible Lending regulations don’t typically apply to small businesses, AFCA still hears (and often upholds) complaints in some form of “It was obvious I couldn’t afford the loan, the lender should never have lent me the money.”

    Wisely, the treasurer has amended AFCA’s terms so that an AFCA Decision Maker must consider complaints on the basis that lenders are allowed to disregard the impact of COVID-19 when determining the financial situation of the borrower (of course this is in complete conflict with “normal credit process”). More relevantly though, this ‘exemption’ applies only to Unsecured Loans under this scheme.

  1. The final nail in the coffin – Scheme loans cannot be used to refinance any existing debt. Surely this makes sense, right? Why would the government allow lenders to convert existing loans which it hasn’t guaranteed into new ones which it does guarantee? It’s important to understand that many small businesses do not access finance directly from a bank but via a ‘finance company’ (which may in turn be funded by a bank, or through another source).

    When COVID-19 hit and businesses started to miss repayments, the banks were given some relief around the treatment of impairments. However the finance companies were, and remain, at the mercy of their agreements with their wholesale funders. As bad debts increased many of these wholesale funding facilities have turned off the lights and gone home, or are simply overwhelmed trying to ‘fix’ the problem of existing customers who are behind in their payments, they have no intention of acquiring new potential problems.

What does all this mean?

Let us imagine for a moment you’re a small café struggling with limited trade due to COVID-19. You need to replace your broken coffee machine which costs $10,000.

You can apply for asset finance from your bank (it’s cheaper than an Unsecured Loan, remember) but the lender doesn’t approve it because:

  • The government guarantee doesn’t apply to this type of loan.
  • You’re a poor risk to repay the loan as trading is down and the future remains uncertain.
  • The lender needs to show that it appropriately applied its usual lending standards and credit policies.

OK, you say, I’ll pay a bit more and get a $10,000 Unsecured Loan under the Scheme, but is the lender any more inclined to approve you?

  • You’re still a bad risk to repay the loan.
  • If you don’t pay the lender, it does get back $0.50 in the dollar from the government, but to get any more it has to come after you personally (assuming it has your personal guarantee) and run the risk of being the big-bad-bank that sent you bankrupt.
  • The lender can’t even repossess the coffee machine as it would normally.

In either circumstance if you’re already behind in payments on some other loan the lender may not be able to lend you the money even if it wanted to!

So, how does the government fix this?

  • Allow the scheme to apply to all the typical major types of finance used by small businesses including leases and loans.

    This means that businesses can access cheaper rates when using the loans to buy things and they can take advantage of the Treasurer’s other flagship business stimulator ‘Accelerated Asset Depreciation’.

  • In allowing the Scheme to apply to leases and loans, allow lenders to take security over the assets they have financed as they normally would, but allow them to take personal guarantees only when not taking security over the assets being financed.

    This gives lenders confidence in their ability to recoup losses through a combination of the guarantee and sale of assets as they normally would and gives business owners comfort that their home isn’t necessarily being put on the line in these uncertain times. You could even have the draw on the guarantee only allowed once the assets have been sold (so if the assets get more than $0.50 in the dollar the government pays out less).

  • Extend the scheme to any approved lender which holds the loan on its own balance sheet or assigns the benefit of loans to its wholesale funding facility.

    This would mean these lenders can assign the benefit of the guarantee to their wholesale funders and (hopefully) turn on the broader tap of business funding once more.

  • Allow lenders to refinance a certain amount of existing customer debt within the scheme (perhaps 50% of the drawn loan amount). This could be limited to existing customers that had a facility which were up to date when COVID-19 struck.

    This would certainly have a significant impact in allowing lenders of all types to turn the tap back on to the customer. Yes, it means the taxpayer may be on the hook for funds which the lender had already committed, but it also means that the lender is far more likely to be comfortable extending their risk further to this customer.

Wrap all of the above in a set of simple rules that ensure lenders cannot enforce security or guarantees too soon in the process, and must be flexible around payment arrangements for COVID-19 impacted customers, particularly where circumstances change (like a renewed lockdown as we’re seeing in Victoria).

Digital Integration Booming Amid COVID-19

Digital Integration Booming Amid COVID-19

With Australia’s population hyper-aware of how their behaviour may put them at risk of COVID-19, the country’s retail sector is experiencing a wave of digital transformation. Whilst digital ordering and payment technologies have been around for some and seeing a steady increase in adoption rates, the recent health crisis has pushed forward this change and caused a boom in usage.

Many businesses are informing consumers that their preference is tap-and-pay in an effort to avoid the contact required by cash payments, resulting in Australian’s making 800 million card transactions a month as of March 2020. In fact, Australia has become the largest user of contactless payments globally, with 83% of point-of-sale card transactions being contactless according to the Reserve Bank of Australia. It’s clear that the country has been heading in this direction for some time, but the circumstances resulting from COVID-19 have meant businesses and consumers are truly embracing the no-contact movement.

The logical next step is the integration of digital payment technologies, which often go hand in hand with digital ordering platforms. This may come in the form of McDonald’s kiosks which eliminate the need for face-to-face interactions, or it could be a virtual platform such as KFC’s click-and-collect app. As these facilities become more popular, suppliers are racing to product savvy point-of-sale systems and software to support the demand.

On the consumer front, Apple Pay, Google Pay, and Samsung Pay all offer digital wallet technologies which allow people to make payments using their phones and smart watches. Such services are now used by 10.8% of Australian’s. In this space, there are several trends emerging to ensure security and reduce the chance of theft or fraud. Biometric authentication is one of the most popular options and includes methods such as fingerprinting and facial recognition.

Longer standing digital payment providers such as PayPal are also getting involved, with many online and app-based ordering systems prompting consumers to connect their PayPal account for easy one-touch payment. This is part of the appeal of food delivery services such as Uber Eats where consumers can have food delivered completely contact-free with only a couple of clicks.

However, it is not only retailers that can benefit from adopting such digital technologies. Third-party providers are also taking a share of the market with a steep rise in the use of apps which allow users to send and receive money from friends. All you need to do it connect your credit card, bank account or PayPal and then you can use these apps to split the bill, send a gift or even manage rent payments among house-mates.

COVID-19 and the new health-conscious consumer landscape is certainly fast-tracking the adoption of digital technologies in both small and large business alike. However, we expect to see new and innovative ordering and payment technologies continuing to rise in popularity is both consumers and business owners seek convenience and efficiency.