Business leaders in Australia have called for better collaboration on how to increase capital flow and liquidity to small businesses that need it most to keep the supply chain flowing smoothly.
Smaller companies are known to struggle most when there is a buffer on capital flow with less cash available to take the hit as it comes through. Meanwhile, bigger businesses with enough float can typically carry on as usual for some time. However, when all these businesses intertwine in the supply chain, the problems that small companies face should not be happening, according to some business leaders.
Anthony Pratt, Executive Chairman of Visy Industries, said that new models needed scrutinizing, especially with the number of emerging players coming to the market.
Technological advances have seen a proliferation of new companies in Australia fighting for market share in recent years, with new solutions for old problems seeing their reputations grow quickly. Many of these businesses are in fintech, and industry heads believe that they have a lot to offer, but they need to be able to access capital more easily to grow and benefit those who use their services.
Pratt highlighted the work done by Greensill Capital, saying that it has been growing at an impressive rate of around 300% a year. Pratt said that “it provided $US800m in working capital in 2017” and rose again by 400% in 2018, now allocating “over $3bn to June this year to more than 25,000” [small to medium enterprises].”
Lex Greensill, Greensill Capital Business Director, also commented at the same event organized for Fairfax Media that Pratt attended, He said that Australia needs more of what he is offering, and it is clear that the trend should receive support.
Greensill said: “SMEs want flexible capital that allows them to grow. And globally, Greensill is the biggest in the world at what we do.”
He added: “Australian businesses have always embraced new tools for these kinds of things.” He was referring to selling invoices to third parties to get them paid faster by enlisting support across the supply chain.
Pratt believes that Greensill is being “heavily supported” by the right players, such as the big pension funds that recognized how much use their large access to capital funds could have on the economy.
Given the “real need” for SMEs to carry on growing, according to Pratt, it is a shame that the banks have decided to tighten their lending practices in the face of the Royal Commission inquiry, which revealed a great deal of malpractice.
On this basis, a collaborative vision is necessary to determine how SMEs are best meant to access capital. At present, super funds have easy access to corporate lending, but only 1% of their funding pots work their way back to businesses.
According to Pratt: “Super funds get a much-needed risk diversification away from having over 50% of their money invested in equities, which makes them vulnerable to a market correction.” This large figure is the highest of all the countries in the Organization for Economic Co-operation and Development (OECD).
A recent Scottish Pacific growth survey said that 96% of the 1200 SMEs polled said that they are looking away from banks when they need to source funding, which suggests that the lending picture could well change entirely over the next few years.