Breaking the barriers of expansion for SMBs

Access to finance is a key constraint to business-led innovation, particularly for SMBs, who tend to have more limited access to finance than larger firms.

According to Deloitte Touche Connected Small Business report, small and medium-sized businesses (SMEs) are "seven times more likely to be exporting" and "more than 14 times more likely to be innovating by offering new products or services".

There are over 2.1 million SMEs in Australia and they make an important contribution to the Australian economy. These businesses account for over half of private sector economic activity in Australia and over two-thirds of its employment.

However, access to finance is a key constraint to business-led innovation, particularly for SMBs, who tend to have more limited access to finance than larger firms.

According to Australia's International Business Survey (AIBS) 2017, small, young firms with very limited resources are looking to expand overseas not long after their establishment. These SMEs, including startups, have an increasing presence in international business.

Born global

These organisations have a different mentality from traditional larger firms. According to AIBS, small, young firms with very limited resources begin their export journey very early - these are the growing number of "born-global" companies.

The firms have deliberately ventured overseas soon after their establishment (within two years). Examples of well-known born global firms include MYOB (accounting software) and Cochlear (medical devices).

These Australian startups were "born global" through focusing on overseas markets rather than just domestic. According to the survey, "the greater proportion of companies today who are born global, suggest this is facilitated by ease of trade and technology".

Although many traditional firms look to establish themselves and generate enough capital before looking into moving into global markets, SMEs are more agile. For these organisations, according to Export Finance and Insurance Corporation (Efic) , Australian SME exporters are positive about future overseas sales revenue. With a net balance of +56 percent, almost two thirds (63 percent) expect their overseas sales revenue to increase in the next 12 months.

The main reasons SME exporters believe sales revenue will increase are expectations of increasing demand in existing markets (24 percent) and offering new products and services (20 percent).

However, access to export finance is a key concern for Australian SME exporters, stated Efic in its Exporter Sentiment Index. According to Efic this year, SME opinion was divided with 16 per cent expecting access to become more difficult. The number of SME exporters who felt access to finance would become easier was steady at 32 per cent and just over half expect it to remain the same (52 percent). The main impediments to accessing finance are the cost of credit (19 percent) and increased business risk (17 percent).

Accessing cash

To combat financing issues, Australian SMEs have turned to Efic for finance support. One such company, Victorian-based beauty product business Babe Australia (Babe), used its loan to deliver on purchase orders in the US, Mexico, and other overseas markets.

According to Kim Peirce, founder and director of Babe, manufacturing her beauty products started off simple - at the kitchen bench. Export was always part of the equation for the business. With a limited market in Australia, Peirce knew that overseas markets would factor into her business success.

Securing two ongoing orders from two large US stores and having received a significant purchase order from Mexico, Babe needed working capital to help with product production and delivery, and the continuing strong push to build the brand in existing and new markets.

"We have the most sensational EMDG consultant who we were talking to about our cashflow challenge. He said, 'You've got all these purchase orders in the system, loan against them'. And I didn't even know you can do this! He said that Efic can help and made an introduction," Peirce said.

Babe applied for an Efic Small Business Export Loan, an online loan process that provides unsecured funding from $20,000 up to $350,000 in as little as nine business days. For small businesses, being able to access cash before you need to deliver on a purchase order means you have the financial support needed to deliver on your contract and continue to run and grow your business.

According to Peirce, the online application process was easy."At that time it was really helpful to help with the reality of long payment terms in our industry. I'm really glad that we've learned about Efic," she said.

Securing a loan to export overseas isn't the only problem organisations have. According to Lee Featherby, founder and CEO of PowerfulPoints, another key challenge in his industry is long payment terms.

Featherby started his business in 2003 when he helped develop a PowerPoint presentation for a friend on the "pathophysiology of the gastrointestinal tract". Four years later, he was able to secure MacDonald's (Asia Pacific, Middle East & Africa) as a client.

"We developed this relationship and started providing services to their offices in Singapore. Through word of mouth inside McDonalds, this spread to China, the US, and the UK. We have even done the Crew Induction Video for McDonalds in China, in Chinese," he said.

As his business began to win lucrative contracts, Featherby found that it took "usually about 60 days after the end of the project, to be paid". This meant that he had to "fund the project for up to four months, which presented a real challenge when you're a small business."

Featherby was referred to Efic by a couple of business colleagues. This allowed him to find a quick solution to working capital.

"What I really liked about Efic's Small Business Export Loan was being able to borrow the funds over 12 months even though the project was only four months," he said. "If I had to pay the loan back in four months, I would not have achieved much because I would have had to have paid it all back before I actually got paid. Having that flexibility is a real asset".

When financing becomes tough

To help SMEs ensure their success in global markets and overcome financing complexities, Efic can provide support. With its extensive expertise in exporting, Efic's range of finance solutions can help businesses when traditional methods may not be available.