Martin Cattach is a Working Capital strategist, and who small business owners when their bank says No!. In this episode we discuss the stranglehold of the big four banks on small business lending and explore alternative options for financing.
Host @Michael Kerr and @Martin Cattach , founder of Finance for Business, discuss the stranglehold the big four banks on small business lending, and explore alternative options for financing.
Martin outlines alternative #financing options, especially the diverse and fast growing range of #fintechlenders for #smallbusinesses
We cover;
Martin shares examples of clients he has worked with and the positive impact alternative financing has had on their businesses.\
Michael Kerr (00:01.262)
Hi, it's Michael Kerr here presenting Small Business Banter.
Michael Kerr (00:12.59)
Welcome to the Small Business Banter podcast. I'm Michael Kerr, your host, and I'm also the founder of Kerr Capital, where I work day to day with business owners. The Small Business Banter podcast is built just for business owners and will be especially relevant if you're an owner looking to sell, if you've been unexpectedly approached by a potential buyer, or if you're an aspiring owner about to buy a new business. There's a lot on the line personally and financially. It's stressful.
It's emotional and it's usually new territory. So to help, each episode of Small Business Banter is a discussion between me and another business owner or an experienced small business advisor. We talk about their experiences. So what you'll get is practical real life advice, different takes on everyday problems and a renewed confidence to tackle your own business challenges.
Michael Kerr (01:22.894)
and welcome into edition 139 of the Small Business Band podcast. Martin Caddick joins me today. Thanks for coming in, Martin. Oh, thank you for inviting me, Michael. It's a great pleasure. Yeah. Martin, for those listening, Martin's who you call when the banks say no. I think your tagline is call me when the banks say no, which prompted me to reach out and chat to you. You're...
the founder of Finance for Business, a working capital strategist for small and medium businesses. He's had a, prior to that, a fairly diverse career. So again, big thanks for joining today. A really relevant discussion for small business owners for reasons that we're gonna talk about the stranglehold of the big four have had on.
business lending to small business over the years. So we'll also touch on some of the options available to small business owners today outside of the big four. We're going to talk a little bit about how to prepare better for getting any finance really. It's often the lifeline of a small business and maybe some of your experiences and
and examples of some of the clients you work with to help them grow their business. So Martin, do you want to just give us a couple of minutes on your background, where you came from and what the core business is today? Right. Yeah, no, more than happy to Michael. I was sitting down preparing for this and I thought I've actually spent 20 years in finance. And 10 years of that was at the beginning of my career. So.
from about 22 to 32. And the last 10 years I have spent in finance and in between, I did a couple of interesting things. I worked in a number of different industries, communications, IT and social and policy research for government. So it's quite diverse, but I suppose I'm always been orientated towards the sales and marketing end of the business.
Michael Kerr (03:40.718)
And the diversity of things that I've done in my past gives me a great understanding of the issues that small business face. And of course, I run a small business right now myself, which is finance for business. So it puts you in touch with a lot of things. I suppose something that goes back a little bit earlier than that that is interesting is that I grew up in hotels, which turned - Family run hotels, yeah.
family run hotels, which is basically gives you a great cross section of society to deal with. And I started working in a public bar when I was 14 years of age. So, you know, I've been in colourful old Fitzroy, wasn't it? Yes, it wasn't colourful old Fitzroy. So actually, if anyone knows a little bit of the Australian gangster history, the hotel we were in was actually where the famous Squizy Taylor, who was a gangster in Fitzroy,
some time ago and they actually launched his book in that hotel some time ago as well. So it was a bit of an notorious site. Unfortunately, it is now closed and has been taken over by St. Vincent's and is now a renal unit. But Fitzroy at the time, I think had more hotels than any other suburb in Melbourne and it's one of the smallest. So there's a hotel on every corner in Fitzroy.
Yeah, there's some there are some great old hotels in there. You know, it's it's heartland stuff, isn't it? And some of the hotels have actually preserved pretty well what what they might have been, you know, in a 50 years ago, it looks, look and feel. So, yeah, as you say, that's a great foray into a into a business and a career advising small business owners you've you know, you've worked across those different sectors.
He grew up in a family business and the small business community in Australia is very, very diverse. And so you're going to be talking to all sorts of different business owners about different sorts of challenges. So you can kind of perhaps see it from a few different perspectives or from their perspective, even if it's a fairly unique business. So let's get started.
Michael Kerr (05:59.31)
Can I just set the scene a little bit with how you see the current, we have been, I think we still pretty much are dominated by big four banks when it comes to small business lending. What's the state of play as you see it? Well, there's been a lot of change in the last 10 years in what's available to small business in lending. The banks are still the dominant player. And in the majority of cases, they're the cheapest.
And the reason they are the cheapest is that the banks do most of their loans or 99 .9 % of them secured. And by a residential property mostly. Yeah. And a lot of people don't realize that the banks use a document called an all monies mortgage. So for example, if you have a mortgage with let's use NAB as an example and your business banks with NAB,
and you have an overdraft with NAB that you might have done rather quickly, might only be a small overdraft, but it is in fact secured against your residential property. And people don't actually realize that those two things are linked. So what the banks have traditionally done is they have locked a client up. So once you're with a bank, all right, they've got your house, they're possibly funding your investment property as well. And the situation is that,
you've got a single supplier source, which is a risk in any business, because if the bank changes its mind, and if I look at the current environment now, and I do a lot of work in the construction industry, but particularly in the residential construction industry is considered by most of the banks don't touch, you know, we've seen a lot of big failures in that area. And there's a lot of small builders that have fallen over as well. What do you do if you're a builder and you've survived the
the current problems, your bank is going to be of no help to you because you've got a single source of supply. You don't have a diversified range of borrowing in your business. You're sort of put all your eggs in one basket to use the investment type statement. You know, no one would invest in just one. Yeah, yeah, yeah. So, yeah, I did understand there was almost to
Michael Kerr (08:26.062)
classify that lending as either residential or business. There was, I think a lot, some of it was, or a lot of it was buried in as residential lending at some points. But so one way or the other, it's, you know, it's, it's cheaper. It's probably easier because you don't need to necessarily dig too deep on the business. If you've got plenty of coverage on the residential property security.
That was the case once, but they tend to look very deeply at the moment. They're incredibly risk averse across all small businesses because we're in an economy that's tightening at the moment. And, you know, I've mentioned builders and construction related, which is a big part of the Australian economy. But also I've seen that they are not very helpful to those in the retail industry either. Yeah. At the moment, which are under pressure, you know, that so, uh,
I often use the expression that banks are fair weather friends. Fair weather friends. Yes. Yeah. Yeah. Yeah. And so they are undertaking their analysis of a credit in a way we might expect anyway, which is to look at the business first. Is that what you're saying? And setting aside for a moment that there is security, they're going back to like a
primary analysis of the business. Yes, they're looking at the business. And they have a big advantage because a lot of funding and that is, is not so much based on financials these days, you know, here's my profit and loss and balance sheet. If you're a banker or the new fintechs, everybody wants read only access to your trading account. Yeah, because no source.
Yes, no matter what the financials say, if we look in real time at transactions through the bank, then we have a good idea and we can run analytics software across those transactions and make some decisions about how creditworthy they are, what's their trading position and their liquidity. Yeah, okay. Yeah, so it's unfettered, unadjusted, real data, isn't it? What goes through your bank account day in, day out?
Michael Kerr (10:51.374)
And there's a, you know, but you've got to see from the banks where they see industries and get early warnings. They have enormous data warehouses when you consider the size. Let's take someone like Nav or Commonwealth Bank. They would have 500 ,000 small business customers, possibly a million. And they have that real time data and they see trends and trading situations all the time.
So with that data, that's where they tend to be a bit awkward at times. I think what you're saying is that with that large bank of data, if each of the banks have such a significant number of small business customers, they're able to really dig deeper and look at it industry by industry, then they can take a view that construction or retail isn't a particularly attractive industry for them. So,
there's forces at work there, either if you're a part of that industry, you're going to find it really, really tough. So in terms of the, from an owner's perspective, given this, what you've just talked about, you know, still strong control dominance by the big four,
What should an owner be thinking about doing to untangle themselves if they're completely tangled up? And what are their options outside of the big four banks and what do they do to better prepare themselves? Well, there are now quite a number of options outside the big four banks and let's talk about detangling. I apply a methodology I call Better Business Banking.
which is basically to diversify and not go single source, which is what happens when you're targeting the bank. So for example, let's take Jim, where the owner's residential property has some sort of mortgage on it. You can replace that mortgage with a non -bank mortgage or from a different bank than where you actually do your business banking. So we can keep our personal and business assets separated.
Michael Kerr (13:18.094)
And that's one thing you can do. And there are also the banks to have in order to manage their risk and diversify their own portfolio, they are often the funders and the partial owners of most of the new fintech companies. So, but what the fintech does is it takes it away from the banks policies and puts it into a higher risk category, which generally means that it also has a higher rate.
but it's easy to get. So, you know, in finance there's always this rate for risk type calculation. And then as a business owner, you've got to look at what your ROI is going to be. You know, I often, there are some terribly good unsecured overdraft products in the market at the moment that you can apply for and have granted in 24, 48 hours, except the only problem with these products, you know, it's no problem getting 100 ,000 or even 200 ,000.
is that the rates are between 19 and 22 percent. But I suggest to businesses that they look at applying for one of these overdrafts and keep that as a cash reserve because you only pay when you draw down the funds and as an overdraft you can reduce the cost of those funds by paying it back. But when opportunities arise and let's for simplicity let's use 80 percent as the number. What's a percent and a half a month?
So if I can buy, perhaps my competitor is falling over next to me and I could buy all this stock and a fire sale value, we'll then have to pay a percent and a half a month to grab that stock at 50 % or 25 % of its value. It's a simple business decision. Yeah. Yeah. Yeah. And look, this is, you know, it's the nature of a lot of small businesses to be for one of a better term hustling. And, and,
if you can see an opportunity, grab it. I think one of the things you're kind of saying there is that they are expensive, but if you look at the return, it may well be worth it. I think it's also potentially the right thing to, there's this idea of having credit, you had said having a credit facility there, applying when you're in a
Michael Kerr (15:43.79)
perhaps a strong position, even if you don't need a facility there and then, is that a part of being ready for opportunities? Yeah, I think being ready for opportunities in a dynamically changing market and somewhat of a down zone that we are now, I stress to my clients, we'll get one of these unskilled overdrafts, a holding cost per year if you don't use it is like $495. Yeah.
to have a hundred thousand available in your back pocket because one of the advantages that a small business has is they can be very nimble. And if you're going to be nimble, you need liquidity or to have some cash available to exercise that because that way you can take opportunities and that's what small businesses are very good at doing is taking opportunities and turning them into profit.
Hi there, it's just a quick interruption to the podcast and it's a message from Kerr Capital, a supporter of the podcast. If you're a business owner thinking about selling and you're unsure about what you should do, well the worst thing you can do is jump straight into an unprepared business sale, cross your fingers and hope for the best. If you wanna take control, get a sense of what your business is really worth and a plan to make it more sellable, then head over onto the Kerr Capital website,
check out the value and sellability diagnostic. If it piques your interest, contact me, Michael Kerr, or book one of the free 45 minute diagnostic calls. Now let's head back to the podcast. I also just want to just go back a little bit to that detangling thing. One of the barriers when you are entangled like that, and not just from a lending and a security perspective, but from a, if you core,
operating account is with the same institution and you have direct debits and you have payments coming in and it's a real pain. It's non -trivial to set up another operating account with all of your connection with your software, accounting software. So, is that often a barrier just because it can look...
Michael Kerr (18:07.822)
just too complicated, too hard? Look, it can be a little complex, but the idea is how I would detangle in the majority of situations is we wouldn't change banks where we have our trading account. Tend to leave that because, you know, there's a bank on every corner or there was some time ago. Now there's not many in the branch presence. But, you know, whether you bank ANZ, Westpac, NAV or Commonwealth, doesn't really make a great deal of difference. You know, and if you've got that,
set up a trading account and that's all working, it's the other things that the bank has that need to be tangled. So it might be that you put the residential property somewhere else because it's a very competitive market there and there are non -bank lenders that are as cheap or cheaper than the banks. So you can look at putting your, so decoupling the residential property from the business and you know, depending on what your business borrowings are.
particularly if you're planning to sell your business, which I know a lot of your listeners are looking at that as a long term strategy. Will you want to try and make it as clean and as easy to do that and unlock from the bank or begin that process as you begin getting the business ready for sale? Yeah, yeah. Yeah, no, it's, yeah, I think the one of the other things leading into it.
you know, planning a sale is you need to keep your foot on the accelerator and you need to keep chasing opportunities. And those, if there's an opportunity to acquire stock, as you say, from a competitor that's failing or, you know, these opportunistic, they're not completely opportunistic, but because you're keeping an eye out for, you're always on the lookout for where can I, you know, generate another sale or another relationship that's a.
And that's so important as well that going into a sale, your business has momentum and you can point to where the growth opportunities are and capture some of them. So not having one of those facilities might actually also be a detriment from the point of view of just not capitalizing on revenue potential. Yeah. Yeah. That's...
Michael Kerr (20:28.59)
That's very much the case. And a business, if you want to sell my experiences, it's got to be growth. And often you have to fund growth. See, one of the problems, and coming back to why I use the term working capitalist strategist, is that people are consistently talking about they have cash flow problems. The term cash flow is often overused. They don't really have a cash flow problem.
They have a lack of working capital problem. And a way to illustrate this is let's use these numbers because it makes it nice and simple to work with. Let's say the business has a $1 .2 million turnover. It's $100 ,000 a month. So it's pretty simple to work out. Now, any business that has that sort of turnover is going to have debtors, people, you know,
the way we fund our customers because unfortunately, one of the things you have to do in business is you provide credit terms to your customers, just as your customers, your suppliers provide credit terms to you. And so let's say we've got that 100 ,000 a month. Well, generally any business that is trading and rolling well normally has about two months worth of debtors on its books. So let's say we've got two months worth of sales. So that means we've got 200 ,000 out to us.
And just to make it simple, my suppliers, because I have 50 % pay into it, my suppliers owe them $100k. So at any given time, I've got terms where I need $100 ,000 in the business. My suppliers are carrying $100 ,000, but I'm taking $200 ,000 with customers. So I need $100 ,000 working capital. And people think it's cash flow because they're waiting desperately for someone to pay them or trying to bring their terms in early.
which just so they don't have enough liquidity in the business. And this becomes acute when the business grows because if I turn around and double the business size, so it's gone from 1 .2 to 2 .4 billion dollars for turnover, I've got $200 ,000 that I can get from my suppliers. My customers owe me $400 ,000. So I now need $200 ,000 to run my business. If I do anything, you're broke. Trade will do anything. So that's where the...
Michael Kerr (22:51.854)
this working capital I'm having and that liquidity of the business is crucial for growth. Yeah, it's a very, I think just about every small business owner I've dealt with does understand cash in, cash out. But when you come to this calculation and impact of working capital, it's great to have money owed to you, but you've got to finance it. And it's,
It's a trap. And I often kind of try to relate it back to if you were starting the business tomorrow, to explain it, you had nothing, but you sold $100 ,000 in month one, well, you're going to have from day one, you're going to have expenses to pay and suppliers. So that's straight up, you might even be trading profitably, but you don't have any cash.
So you need a facility to plug, you know, pay the bills while you become more profitable. And as you say, as you grow, it gets higher and higher. And it's that shortfall. It's good to have, you know, it's good in the sense you've got, you've got money owed, but if you can't get it or can't get it quickly enough, it, you know, it cripples, it can cripple a business. And yeah, so with,
owners and what they can do. You talked about the feed of raw bank account data into Xero or Myob or Recon or whatever. How can business owners and their bookkeepers, accountants use that information more effectively?
I think it's about how they look at their accounts. You see, one of the things that you need to do is understand your business's trading position and understand where you are because you've got to manage those debtors and creditors carefully. And so there are important issues to understand and to have a crook to be a cross in your business and understand what those issues are. Yes, I'm out.
Michael Kerr (25:14.062)
In terms of, yeah, we were chatting earlier about the bank feed, the raw data that comes out of the bank account, which in time becomes management accounts and then tax returns. But banks and others, fintechs are looking at that raw data. So how does an owner and their accountant or their bookkeepers, you know, often the first port of call,
for producing interim management accounts. Interestingly, when I'm advising owners about the sale of the business, evaluation as at today, the raw management accounts are often the most important, often mostly between financial years. So you might have the last finished return would be,
six months old or 12 months old even. So we go to the management accounts and that's where you get a lot more detail about what a business is really all about. Because by the time it gets to a tax return and all the stuff's rolled up into buckets and it doesn't really tell you a great story. So it's vitally important information. So bookkeepers, accountants, owners, what can they do with that to help them better prepare for a credit application?
Well, I call this keeping the account clean. Often as people come to me, because like you said, I'm the place to go to when the banks said no, the situation is they often are in a bit of a liquidity pinch. So, and that's reflected in their bank accounts. But the one other thing that's a black mark, which I still see today is dishonored payments.
If you really want to up, you know, so some of the fintech say, oh, we'll accept no more than two dishonours in six months. Now, those dishonours can be happened for a lot of reasons. And it's basically showing the business doesn't have enough liquidity, but it's about keeping your bank account clean. So don't let dishonours happen. So, you know, don't make a payment when you don't have the funds, you know,
Michael Kerr (27:43.118)
Talk to your suppliers negotiate there are there are ways you can get around this but this is the first red flag It's a red flag that the bank see from there when they're holding your trading information or when someone else has a snapshot of your account They have the same situation. They see that these there's a problem or just measuring sales You know the three months ago the sounds were a hundred thousand this month. They're only fifty You know what is going on here? Yeah, it's not really rocket science to understand that so
That's why it's very important to look at putting in place credit limits and arrangements like the unsecured order drafts before things get taught. Yeah. Yeah. When the goings when the goings good and you don't need it. Necessarily. Yes. The banks only lend money to people who don't really need it. Yeah. So when you're in need money, it's not the time to make an application. So that's a bit of a business planning cycle. I think people have got to look.
further down the track and open their planning cycles to see what their liquidity requirements are going to be. Yeah, I think one of the other traps or failures is not really knowing what goes through your bank account necessarily. There's a lot of things that can go through and over time you direct debits subscriptions, but also I have been aware of
innocently or otherwise, not disclosing a lease or a regular payment for something and that can catch you out in terms of an application because what about this? And you said, oh, I forgot about it. I didn't. I see that happening quite often because people often forget about.
leases and you know, photocopier can be all sorts of things. And of course, they are all revealed when the analytics go across your trading account, because we're seeing this payment and it might be to the photocopy company, but it's still that it's a rental contract. It's a commitment. Yeah. And yeah, I think this is the the the failing and also the great opportunity with deriving a better
Michael Kerr (30:05.486)
financial return from your business is really understanding those numbers and then, and using that data yourself, forget about the banks just for a minute to change where you focus and how your business performs. If you really do go through and understand where it's spent, where it's coming in and how it compares to last year, same period.
It's a very telling sign. So we are talking about financing here to replace existing facilities or for growth, but 101 for any business owner is using those management accounts if set up correctly and with the right chart of accounts. So it's good information. There's really...
You know, if you're going to grow your business or change the way you run your business, you've got to understand what that what the numbers tell you. That's very, very important. So and a well informed business owner is a great client, because they know what's going on in their business and you're not telling them the look, I'm noticing these issues that are going to become a problem in as far as credit goes. And at this point, just
There are some interesting things that one can do with the new accounting systems. And let me use my old and zero both have facilities to do this. But one of the things I do a lot of work in is in debtor and trade finance. And debtor finance is something that people will lend to you against the invoices that you have outstanding. In other words, that 200 ,000 I buy your customers and trade finance works in the other direction.
And that will provide the ability to pay your creditors. So that's lending you money to pay your bills in simple terms. But with the new accounting systems now, data finance used to be a bit of a complex manual system, you have to run shadow ledgers and have banking details change. Today, there are lenders that will simply look at your myop, they'll take a live feed from your myop and say, Oh, look,
Michael Kerr (32:26.606)
you at any time have $200 ,000 worth of debtors. All right, we'll give you a overdraft type facility for 150 secured by those debtors. So you can, and that's a very simple system now and using, you know, the modern accounting processes and the live feeds from the bank account into myob or to zero means that that asset can be assessed and lent against my lender. Right. So,
Yeah, look, it makes it makes an awful lot of sense. Again, like game awareness, what you know, what what assets do you have that you could finance or where do you need facilities? Does that often bump up against their their incumbent bank with their their floating, floating charge or against all business assets? Or, or is that just a bit of pre planning needed to kind of start to unwind and untangle that?
The banks, you know, like to have the residential property and they like to have a charge over the business as well. Yeah. And, and, you know, like, if we look, let's say mortgage rates at the moment are at six and a half, 6%, you know, it just depends where you are. If that mortgage is all of a sudden turned to business loan, then the banks add an extra two or two and a half points on top of it. So business loans, 8 .5%, but it's secured by the exactly the same thing as your mortgage. So, you know, I've.
better problems understanding why that it's more expensive. But yes, it can be an issue with floating charges over the business. That's part of that de -entangling or I've had situations depending on what the assets of the business like that the banks will allow a debtor funded to take a charge over the debtor book. But they'll keep their charge on the rest of the business. Okay. All right. So a lot of planning here and, and getting some assessment, some advice about how you structured what
probably most importantly, what you might need going forward. Do you really need to tie up? You know, I think it should be an objective for many, for many owners to untangle that. You know, it's how practical and how quickly, but it happens. I'm not sure, but it's, you know, when businesses get to, you know, this is a challenge in the SME market.
Michael Kerr (34:52.366)
there are significant risks that can come from left field. And you understand why a bank would want to have that cover. But at what point do you cross over to the bank? The business has a track record. It's got some other financeable assets. So you strip away the cover everything kind of approach of having the house and the flooding charged to.
in identifying specific assets or specific needs and using this suite of fintechs around to that specialize in all sorts of different lending. Martin, could you just breathe, I know we're going to a bit of time constraint, but a couple of just quick examples of clients you've worked with recently, you know, how it started, where they ended up and what was the, the,
the positive impact on them. Oh, look, I suppose the first one that's got a couple of interesting listens, I had a, a line hole boring company in WA and what they basically did, they had a couple of big trucks that would go out to the mining areas with metal laves and all the stuff, all the machinery stuff you need to support operations. So they could do onsite maintenance to a dozer, for example. And
Here's an actual example. Their clients were BHP, Western Mining, all absolute blue chip clients. One of the problems they had is that they would go on site and the site foreman would say, well, look, we've done the pin on the blade of this dozer. And they'll say, I'll machine another pin now. But then their technicians would have a look and say, look, the pin on the other side of the dozer is going to go in 50 hours, we think. And of course, the on -site foreman says, do both.
However, what happens is when you're dealing with blue chips, they have very rigid processes and you only have a purchase order to do one item, not two. Now you were authorized in the field to do the second item, but that means, you know, what do you do then? So one of the mistakes they initially made is they would put, they had a purchase order number one, one zero, let's call it, and would put both items on it. And that would mean they didn't get paid for the first one or the second one.
Michael Kerr (37:16.91)
while everybody in the accounts panel worked out or not. So a rule for businesses, when you've got a purchase order and you have variations, send your first invoice that matches the purchase order and then argue about the variations later so you don't hold up that cash flow on those payments. Now, what also happened is that this was just before COVID, but they are an interesting example. BHP, which was their main client, outsourced its payments to India.
So not only do we have time difference and all that complicated procedure, but they were waiting 90 days to get their funds. So generally anything over 90 is considered outside trading terms and in default, but because of who the clients were, we managed to put in a facility that would let them go to 90 days and gave them the liquidity they needed to grow the business. Recently, they have sold that business at a substantial profit.
And they've actually retired and they're both about 40. So it was a, it was a good story, but just somewhat, sometimes the mechanics of business can be a problem. Yeah. Yeah. Perhaps another example, um, is that sort of illustrates the cash gap that we were talking about earlier is I have a couple of clients that are in traffic management. So in traffic management, that means they're the guys that have got casual workers out there with a stop go sign and a truck with all the.
the signs are laid out on all the road works. The problem they face is that they have to pay their casual workers every seven days. Okay, so pay runs on Thursday and that's when it happens. However, their income from the builders or construction companies they're working with and so forth, they don't get paid till maybe 45 days. So they're a classic case and in their business it's labor.
and can't have terms on your labor. So they require things like debtor funding to give them the money to pay their staff when it's due while they're waiting to get paid by their clients. And the other thing that has been very useful to one of those particular clients is that the receivable, in other words, the invoice is insured by the lender. So the lender has taken out insurance in case one of the companies you work for becomes insolvent. And
Michael Kerr (39:42.926)
in the construction industry in the last couple of years, that's been very handy. My clients had over a hundred thousand dollars in insurance claims, three different claims. Um, and if he had, if they hadn't been insured, they're insured to 80 % of the value. Um, he would have possibly been in a lot of trouble when a major customer defaults on their payment and goes into administration. So there's some ways and that's something that you don't necessarily have to use data finance, but.
judging the risk of your receivables, particularly when you have large customers is a very important business strategy and something that you need to look very carefully at. Yeah. So a lot of what you're saying, and it makes an awful lot of sense to me is, in some way of assessing where you're at, how entangled are you? How much of a negative is that for the business? And thinking forward to what you might need. So on that note,
We've both used and are familiar with the term fintech, but if, you know, I'm not sure necessarily that all small business owners would understand what fintech is. However, my understanding is, you know, it's really technology and data -driven lenders who can break down...
a business into component pieces and say, we can, we can lend against this. We can lend against that and debtors stock, um, you know, would be examples, plant and equipment would be another, um, so is, is that a, like a, okay definition of what a FinTech is because there's an all point is there's an awful lot of these kind of lenders out there and it seems to be mushrooming. And so I'd say that for many small business owners, the whole,
quite a much bigger range of options to finance their business and they might be aware of. Yes, and look, that is a fair definition there. I suppose as organizations, they're using data and they use data, but they use their experience. They are very quick, like you can get a $200 ,000 overdraft in 48 hours. However, you've got a score. All right, so.
Michael Kerr (42:05.294)
would take they take a bank account fee and run their analytics over that. And then they look, okay, this business going well, how long is it? You know, they use simple criteria because they're mass transaction type people. So they said business been going five years, liquidity is good in the company. Directors are asset backed. Let's do a deal. Right, so they might validate that the directors have financial capacity, but
aren't necessarily looking to take a mortgage or you know over the but it gives them comfort that there's a business track record and a capability, financial capability of the owners and directors. Yeah, one of the things is that, you know, there's the the seas of credit, capacity, collateral, character. And when you start looking at some of those,
the character of the people because they're doing unsecured lending is important. And a way they don't necessarily need collateral, but they can see that you have the capacity because I've got a successful business person here who's bought a house and half paid it off. You know, those are other sorts of things that mean that you all the boxes are ticked and it's easy to get access to that sort of credit. Yeah, we discussed the three C's of credit with Ben Tushinsky from Judo Bank.
before Christmas and you know as a as a relationship driven traditional lender to small business they're doing an outstanding job you know a lot of ex big four bankers in there but they you know I've had a lot of interaction with them and they are very much on those three C's and maybe yeah and it's four C's depending on which way you define it. Four C's I was just yeah yeah.
But I worked with Judo and I found them very good, but they still are not quite a FinTech. They're a bit like a banker because they will lock everything up. So, you know, they are better and I find them more flexible than the traditional banks. Yeah, as a pound -for -pound comparison to a big four, timing -wise, understanding, going out, you know, stepping through the business,
Michael Kerr (44:28.078)
I think that, you know, I'm not here to promote Judo, but I know from a fairly significant number of interactions over the last few years that, you know, their business owners have been really happy with the options they presented, timely and, you know, cost effective. But yeah, back to FinTech. So, are you able to just break down that like reasonably quickly the range of
different lending you might tap into and then what we might do after that is just finish out with your contact details and a pit. Yeah. Okay. Well, look, I suppose that the fintechs often move into particular niche niches. Like there's a company called Luca Money and they're a relatively small fintech. But what they do is they provide trade finance. So they will give you an unsecured loan.
because they look at your my other accounting system and they say once again, where you are, but they only lend you cash to pay your supplies. So, but they'll say, Oh, look, you've got a reasonable business. Um, their cost is really good value. And they'll say, Oh, look, you qualify, you know, you've got a $50 ,000 line of credit now with us, you know, it's, it's quite simple. So there's someone who will only do that.
on trade finance. And then we have, as I mentioned earlier, some people that only do that on data finance. Yeah, some of those are fintechs, some are more traditional data lenders. And then we have a lot of nimble type fintechs that will do a mixture of things. So they are particularly like a company called shift. Shift does a lot of the unskilled overdrafts that I'm talking about. But shift also have things like
they'll take over your debtors for you. So say for example, I've seen this happen a couple of times in construction. They say, well, instead of you lending your money, which is what you do with your debtors, we'll manage your entire debtor book. So anyone buys anything from you, they want terms, that's fine. We'll give them terms, but they sign our paperwork. So they make an assessment. So they're actually lenders that know what they're doing and can score a business and decide the risk because...
Michael Kerr (46:49.39)
often small business people don't quite understand the risk that they face in their debtor book. And I imagine in that case also, in a lot of small businesses, you're chasing people or businesses that you're kind of friendly with. So here you've got a third party, not a debt collector, but a debt manager, take the emotion out of it. Because one of the problems is that,
Generally the manager director of the business has been the guy who's led the sales of the business. Yeah. Yeah. Secured all the big accounts and he has lunch with these. And what happens is that, um, there's a conflict of interest in a bigger organization. Um, sales will go and sell something. And then the credit department decides whether they'll take it on and they're two separate entities. But in a small business, we get a bit of a conflict of interest. Oh, Jack will be right. He'll pay us. He spoke to me next week should be fine. Yeah. And yeah.
You pick it up on that. I think I really noticed that in the accounting profession. There's a lot of great accountants out there have debtor books that stretch into the... I'm sure there are other, but it was quite notable for me in its personal relationships and they're very forgiving as accountants. Yes, exactly. And they have the worst books.
The only one that's the only one I've seen that's worse is perhaps lawyers. Right. Yeah. They often and particularly those who work in family law because they're waiting for all the settlements and sales and they have fees outstanding for a year. Yeah. It's it is event. Yeah. In some part they're event driven but yeah because you've got to wait for it.
you know, a ruling or, you know, something, but yeah, it's, yeah, I do. I do. You know, I've seen that a lot. Just in closing, you are who you call when the banks say no. So just a quick recap on what you do and how people get a hold of you if they want to chat about an alternative financing arrangement.
Michael Kerr (49:08.174)
and rights. Well, what I do is, as I said, I'm a working capital strategist. So I help people with their debtor and creditors and their processes a little bit, not just the lending, because in order to achieve the right outcome, sometimes you have to look at how you manage your debtors, how you manage your creditors, and look at some some changes in that. But what I do is use different sources, different lenders,
to give businesses more liquidity so they can grow. So it's really about getting money into the business. And look, it may not always be the cheapest money. But it's the money that's available at the time. And then you make commercial decisions knowing what your cost of funds are to what I do with those funds. And that's, that's where I talk with business owners. Look, I suppose I'm a bit like an old fashioned bank manager. And you've got a big desk.
No, no, no, I haven't got a big business. I go and see my clients. Yeah, right. Walk around. Yeah, walk around. Now the bank send out graduates that are wet behind the ears, you know, and they're 22 years of age. It's not someone that, you know, I can sit down and talk to a business, oh, what are you doing marketing wise, how it sales at the moment. It's not just about a balance sheet thing, because then you get to assess and see what a business wants to do and get some understanding of where they want to go. Yeah, that way you can.
use your IP and experience to say, well, we can use this funding to achieve that outcome for you. Yeah. Yeah. And I think, you know, underpinning that is, is a, uh, getting to know the owner and what they're aspiring to do in their business. And if, if it's in a phasing down, that's fine. You know, you might, you know, just want to pay down debt and be done with it. But, you know, for growth orientated businesses and, you know, not, not only younger businesses, but those, you know, with a,
real opportunity to grow. You've got to look, it's like a lot of things that owners need to do. It's very easy for us to sit here and say, you should exit plan, you should restructure your finances, you should get better systems. But we'll keep saying it because it's all true and you've just got to find time. And also, I think just take a bit of a break. So,
Michael Kerr (51:30.67)
every now and again and think about what you want to do with your business. But funding is a lifeblood of a lot of them. So how do they get a hold of you, Martin, if they want to check? I have a website called finforbiz .com .au or the other thing is, I'm a bit old fashioned myself, I don't mind a phone call. Alright. You know, we can put that in conversation. Yeah, yeah, yeah.
I well understand and agree with you. What I'll do is I'll put their number in the show notes and people can follow you from there. Thanks so much for your time today, Martin. Practical as I expected and from a base of a lot of experience, I'm sure that'll be really well received and helpful for those listening. Yeah, look, thank you very much, Michael, for the opportunity because, you know,
The job is to educate businesses about what's available for them. So discussions like this and giving them some information is at least some food for thought because quite often they're so busy working away with something like a podcast. That's a great way to digest some information while you're still typing out the accounts or banging your hammers or whatever you're doing. Yeah, yeah. Now there's no end of things for owners to do and we both and all, you know, lots of people understand that, but.
We've got to keep hammering away because in lending, as one example, there's a lot more opportunity to diversify your lending than there has been for a long time. And so you've got to put your head up and as you say, prepare a bit. It's not as simple as just getting the finance, you can have the workflows and systems and that takes a bit of effort, but like everything, if you do it well, there's a return. All right.
Martin, thanks so much for your time today. You take care.
Michael Kerr (53:39.63)
Well, I hope you enjoyed that episode of Small Business Banter and I hope it was helpful in you getting the most out of your small business ownership. To subscribe or listen back or to check out any of the resources or information we talked about today, head over to the website, smallbusinessbanter .com .au or if you want, search up Small Business Banter on your favorite podcast player. Don't forget to subscribe and if it was really helpful, I'd love it if you told another business owner about the podcast.
If you thought it was exceptionally helpful, then how about you leave me a five star rating? If you think I can help personally, please reach out to me, Michael Curvi, the website. There's a new episode out every couple of weeks. We'll catch up then.