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Interest rates at record lows - so why are SME insolvencies up?

Interest rates at record lows - so why are SME insolvencies up?

Despite record low interest rates and borrowing costs for SMEs, there was a pronounced increase in the number of company insolvencies during FY15. This fact is fairly obvious when you have a quick look at the official statistics recently published by ASIC.

The latest figures reveal 2,734 companies entered Voluntary Administration in the three months to 30 June 2015, compared to 1,971 in the previous quarter. This represents an increase of around 28%.  These figures don’t include SMEs which just fail and go straight into liquidation. Whilst a percentage of these companies which stop trading simply start up again as a new entity, often to avoid creditors and accrued statutory payments, the fact remains that company defaults and failures are on the rise despite cheap funding costs.

Why are more SME owners taking the easier option to ‘throw in the keys’ or ‘shut the doors’ and then open up again around the corner?  We believe there a few key reasons behind this current trend:

  • Directors wait until it’s too late to seek help and don’t engage experienced financial management advisors to devise a ‘turnaround’ plan;
  • Poor overall management of the business and the crucial areas of margin and cashflow;
  • The ATO has not been actively chasing company tax arrears in the SME space and many owners think arranging business funding with a reputable financier is simply too difficult and time consuming;
  • Overall business confidence is low and people are generally uncertain about the future of the Australian economy and which sectors will stimulate growth, again, despite record low interest rates and the Banks constantly spruiking that they are open for business and strongly support SMEs.

Here at FactorONE we are constantly listening to, and speaking with, SME owners across various industries who are facing cash flow issues and lack of flexible working capital funding solutions.  In many cases we are able to quickly offer our services, become their new funding partner and work closely with the businesses to implement a plan. These plans not only address the causes behind key issues but also provide a stable platform to achieve the business’ goals – preventing them from becoming a statistic.




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