Tips when borrowing to increase SME production output

ADVERTISING FEATURE

By Savvy

Both sides of the aisle agree that Small to Medium Businesses are the backbone of the Australian economy. The CSIRO says that SMEs are “key to driving growth” in Australia and are by far the largest employer of Australians. It is vital that SMEs thrive in Australia, and the Albanese Labor Government has doubled the share of government procurement for SMEs – now 20 per cent of procurement of value must be sourced from SMEs.

How can your SME meet the production outputs required? You may need new equipment, staff, or space to work – which requires capital. Borrowing capital can be hard to navigate – so here are some tips for borrowing to increase production.

What do you hope to accomplish?

You need to be clear about your goals before asking for loans. Do you want to grow your business, or get additional orders on board? Have a greater number of locations? If you use long-term liabilities to finance inventory, a short-term asset, you risk disrupting essential cash flow. Therefore, you must match your funding with the assets you intend to finance.

Invest in technology to improve output

Small business can improve output, whether it’s IP or physical production, by investing in technology. This may come in the form of machinery, software, automation, or even digital marketing. With greater technology comes more potential for agility in the marketplace – you could tackle more projects with what you have or more complex projects than your business did before. With better technology you can also reduce waste in the business – or use it as a business model.

Get the right type of business loan

With your business plan in place and your technology wish list written down, you need to get the right kind of business loan the right kind of business loan with competitive interest rates that will not overburden your cash flow and set you up for the next stage of increased production. If you’re a small business, you may want to grow into a medium business. Though taking on loans may feel like a big risk, the CSIRO says for every $1 spent on research and development there is a $3.50 return to the economy at large.  Spending money on R&D could lead to better outcomes in terms of production. Make sure your loans are proportional to the assets you intend to purchase and have applicable loan terms.

Additional sources of financing

You may also have a look at lines of credit or invoice factoring if taking on a sizable loan sounds a little scary. A line of credit can be used by businesses as needed. Instead of giving your company cash, a lender will provide it credit. Only the interest you actually utilise is charged. By borrowing against unpaid invoices, invoice finance or factoring helps maintain cash flow. Although you might only receive roughly 85 to 90 per cent of the total invoice at the end of the day, low-risk lenders view it as a cheap way to obtain early sales value; as a result, it may be a stop-gap strategy to keep cash flowing early on.

(The advice here is general in nature; contact a financial adviser before moving forward with any type of business loan.)

Picture: Shutterstock

Savvy is one of Australia’s largest online financial brokers, focusing on personal and commercial financial products. Founded in 2010 the firm has seen rapid growth, a testament to the provision of market-leading rates, reaching customers with the latest in media and technology. Savvy is a proud supporter of Kids Under Cover, a charity assisting homeless and at-risk youth to strengthen their bonds to community and education. Savvy was named one of BRW’s fastest-growing companies in 2015