It’s hard to overstate the importance of working capital to business survival and success – particularly when trading conditions are tough.

Easy, cost-effective access to working capital underpins smooth business operations. It provides essential stability, ensuring core tasks and functions can continue without holdups. But working capital can also be a critical pressure point when costs rise unexpectedly or debtor days blow out.

Andrew Speers, CommBank General Manager, Working Capital, says “Working capital is really the most important thing, because if you can't fund the day-to-day, you don't have a day-to-day.”

That’s why CommBank has created a new lending solution for business owners looking to access working capital without putting their homes and other assets on the line.

Demand for working capital is rising

A recent survey of 400 Australian businesses conducted by House of Brand for CommBank shows that cash flow is their most worrying concern. For 49% of respondents, it impacts business growth, and impacts stability for 40%. Some 59% of businesses say they experience uneven or unpredictable cash flow.

Further to this, an August 2021 survey by ACA Research found that one in five small-to-medium enterprises would need extra finance over the next three months, with 65% planning to use those borrowings for cash flow or working capital.1

Helping drive this heightened demand are both the pandemic and its economic fallout. As CommSec Senior Economist Ryan Felsman noted in July, “while uncertainty over Sydney’s virus lockdown and border closures will unnerve businesses, perhaps an even bigger headache for Aussie firms relates to inflationary pressures due to labour shortages and supply chain bottlenecks.”2

In the June quarter, those pressures saw labour costs rise 1.9% and purchase costs up 2.1%, the fastest rates of increase since 2010 and 2008 respectively.

Speers says ongoing supply chain disruptions, caused by both the pandemic and geopolitical tensions, have seen businesses building inventory, increasing the level of working capital they need for everyday operations.

“Far fewer businesses were importing on a just-in-time basis from markets like China and Vietnam. In that model, they traditionally had supplies on the water, coming in every four weeks or so. Whereas now we're seeing a lot more bulk importing, with domestic supply chains holding stock for longer, making sure people can always get the stock that they need.”

Businesses are also seeking capital to make their operations more efficient and sustainable for the long term. A CommBank survey of 900 businesses in 2020 found that four in 10 businesses saw the Coronavirus downturn as an opportunity to improve efficiency by transitioning to more energy-efficient plant, equipment, and vehicles.

Lending criteria not in step with business

While demand for working capital is strong, traditional lending criteria can be problematic for many businesses. A key reason is the historical reliance on property and other physical assets as security for loans.

Speers says feedback from business owners shows that these existing loan structures have limited capacity to evolve with the business’ operating environment, since the security (and as a result, the business’ borrowing capacity) tends to remain static, even as the business and its needs grow.  

Just as importantly, using assets like the family home as collateral can be a significant cause of stress for business owners. Announcing a new mental health support program in March 2021, Australian Small Business and Family Enterprise Ombudsman Bruce Billson said “small business loans are often secured against the family home, so if they lose their business they could lose their home. The stakes are incredibly high."3

Speers says this traditional approach also risks locking young entrepreneurs out of easy access to capital: “We’ve seen a generational change in business ownership occurring at the same time as enormous upwards pressure on house prices domestically.”

“Not a lot of younger business owners have access to home equity to secure business lending, so securing against business assets is increasingly important.”

That’s why CommBank has shifted its focus from property and event-based lending to a more flexible model.

Introducing Stream Working Capital

Stream Working Capital is a new, invoice-led financing solution that avoids tying up business owners’ personal and business assets. Designed in response to feedback from CommBank business customers, it’s available 24/7, with fast, streamlined approvals and cost-effective access to capital.

“We interviewed customers and prospective customers and said, ‘What do you need from a product?’," says Speers. “And the thing that came back was, ‘we need a product that's accessible 24/7, because as the owner of a small or medium business, I’m running my business during the day, then coming home at night and thinking – how do I fund the next purchase I need to make?’"

Instead of tying up the business owners’ home and other assets, Stream Working Capital uses unpaid invoices as security. If your business sells to other businesses on credit, you can borrow up to 80% of the value of your outstanding invoices. That means your borrowing capacity grows in step with your business.

CommBank’s recent research shows that 60% of businesses feel they’re “at the mercy of their customers paying on time”.

Speers says it was important to create a truly digital solution that made loan applications and management easy. “It's fast. It's efficient. It's user-friendly. It’s also very cost effective compared to other solutions currently available on the market. So we’re offering a great product and people are loving what we're doing.”

The benefits of flexible access to working capital

Speers says customers are already taking advantage of Stream Working Capital to strengthen their finances and access new growth opportunities.

“We've got a drinks manufacturer that makes sales on credit. Stream offers them a way to expand that credit and bring on new customers without using too much cashflow, so they can actually make more sales,” he says.

“We've got recruiters who are putting people out on temporary labour hire. They have to pay those contractors every two weeks, but they get stuck in 90-day invoicing cycles with big businesses or government. Now they can access that cash flow faster by releasing the cash trapped in those invoices.”

“That gives them a much more robust business and helps remove the risk of a cashflow crisis if a customer is late to pay.”

Our working capital experts

Andrew Speers is CommBank’s General Manager of Working Capital. In his leadership role, he’s accountable for innovation, digitisation, sales, risk, product management, technology and partnerships within the working capital product house. With a background in sales, innovation, product and general management, Andrew drives his team to best support Australian businesses with their diverse working capital requirements. Andrew has been with CommBank since January 2020, most previously as its Executive Director of Working Capital.

Ryan Felsman is CommSec’s Senior Economist, responsible for analysing economic trends and developments in the Australian and global economy, including key trends in capital and business investment. A sought-after analyst and presenter, he appears regularly on Channel 7’s Sunrise, Sky News, ausbiz TV, SBS World News and Triple M. Ryan has been with the CommBank Group for 10 years and has two decades of funds management experience, including roles with PIMCO and MIR Investment Management.

This article is part of the CommBank Foresight Spotlight Series, helping guide Australian businesses towards a stronger economic future.

Visit Spotlight Series

Things you should know

1 ACA Research, COVID-19 Small & Medium Enterprise Sentiment Tracker, Wave 30, August 2021.

2 CommSec Economic Insights, 13 July 2021.

3 Australian Small Business and Family Enterprise Ombudsman, My Business Health connects stressed small business owners with new support service, 19 March 2021.

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