Hi, and welcome to the Banjo Loans Deal of the month. My name is Brendan Widdowson and I’m the Head of Sales at Banjo.
Today, I will share a recent Working Capital Loan scenario in the retail or grocery sector. This client is an established business owner, who has set up and run several IGA supermarkets and hospitality venues in NSW.
The business had an opportunity to secure a lease and establish a brand-new IGA supermarket. The newly leased land is in an up-and-coming suburb in Queensland, surrounded by several housing developments that require a local supermarket.
The client funded the fit-out of the new premises with working capital from the business, however, required additional funding to purchase stock and other equipment. A referral partner sought out Banjo to assist with this, as they knew we would be an ideal lender for this client.
Despite establishing a new business, the client was eligible for a Banjo loan as they have been successfully running the existing businesses for the past 4 years, with an annual turnover of $1.8M. Due to the business owners’ other ventures performing well, Banjo’s credit assessors recognized the strong financials and ability to repay the loan.
A $250,000 36-month Working Capital Loan was provided within 3 days of their application so the business could move forward with its new venture.
Thanks for watching. If you have any customers you feel could benefit from a Banjo working capital or asset finance loan, please do not hesitate to contact your local Business Development Manager from Banjo.
For more please follow us on LinkedIn at Banjo Loans and subscribe to our YouTube channel.
Whether it’s inflation, property values, employment levels, new car sales or copper prices, there are as many recession 'tipping points' as there are commentators on the subject. The economists’ jury is still out on the likelihood of Australia entering a full-blown recession, but the chatter is getting louder.
The traditional definition of a recession is two consecutive quarters of negative real GDP growth. But others, such as independent economist Saul Eslake, define it as a period in which unemployment rises by 1½ percentage points or more, in 12 months or less, and then until it starts coming down.
Currently, there are signs for and against an economic slump. In August 2022, the Roy Morgan Monthly Business Confidence indicator was 96.0 (up 1.1pts since July), the first monthly increase for four months since April 2022. This was the first rise in business confidence since the RBA began increasing interest rates in early May this year.
The August Roy Morgan index showed mixed results, with businesses saying they are concerned about the next year, and less likely to invest in growing the business in the next 12 months, yet more confident about longer-term prospects for the Australian economy. In short, businesses see some short-term pain ahead but are more upbeat about the longer-term horizon.
On the other hand, one of the indicators that economists and analysts watch is the price of copper, which is widely used in electronics, industry, transport, and renewable energy. According to the Sydney Morning Herald, the price of copper on the London Metal Exchange plunged by almost US$4000 a tonne between March and July this year. It has since risen by 10%, believed to be markets hedging their bets about whether a recession will be global or only in Europe.
There are several things that may buffer Australia against a recession, compared to other economies like the US, UK and New Zealand. Wage pressures haven’t yet made any material contribution to rising inflation, which should mean that the RBA doesn’t have to raise interest rates as aggressively as its counterparts in those and other countries. Our exports, especially energy products, are also strong.
Whichever way you define a recession, and whether this is a blip on the chart or a more sustained downward trend, it makes sense to ensure your business is as recession-proof as possible. Take a look at some of these strategies you can use to build in resilience before any downturn hits:
The Australian economy train may be pulling into Recession Station soon, or it may speed past to Business-as-Usual Central. Either way, a bit of planning and preparation will make for a smoother journey for your business.
To pre plan your cash flow needs, check out our flexible range of solutions including Business Loan Flexi, Asset and Equipment Finance, Banjo Express and more to give you control and peace of mind in case of a recession.
Hi, and welcome to Banjo Loans Deal of the month
My name is Nick Rogers, and I’m a Partner Manager for VIC and SA
This business is a privately-owned Australian retirement village development and management business. An established business in operation for almost 15 years and has an annual turnover of $16 million, it currently comprises of 404 completed and occupied independent living units.
Their growth goals aim to develop up to 1,110 units. In their plan, their vision is to provide residents with commercial and retail spaces, a 9-hole golf course, and related recreational facilities.
Historically, the retirement village achieved new settlements of 45-55 per year, however the flow on effects of COVID saw the settlements reduced to as little as 17 in FY22. This resulted in the cost to complete funding ratios to be exceeded, as well as delays in earth works and building.
The business approached Banjo for our short-term funding solution in order to pay out builders for outstanding claims, for assistance with the earthworks/construction supplier and to cover GST payments for the following 2 months.
Banjo’s credit assessors reviewed the credit factors and discovered that the directors had a strong commercial background in finance and were considered high integrity.
This business was also a leading retirement village in Australia and was highly profitable.
Due to these factors, Banjo assisted with a 2 to 6 month Single Pay (bridging finance) Loan of $1,000,000 within 4 days of application approval so the business could progress with its vision.
Thanks for watching, and if you have customers, you feel could benefit from a Banjo Working Capital Loan, please do not hesitate to your local Business Development Manager from Banjo. Likewise, please keep an eye out for our soon-to-be-released Asset Finance product.
For more please follow us on LinkedIn at Banjo Loans and subscribe to our YouTube channel.
Business Wrap - August 2022
Although we’ve had four RBA interest rate hikes this year that have taken the official cash rate to 1.85%, many consumers are yet to feel the full impact.
The last three rate rises (June, July and August) are only just starting to flow through to borrowers, as banks and other lenders pass on each successive rate with a sufficient notice period.
So while Aussies are quite subdued by the knowledge that cheap money has ended, many may not feel the cumulative effect on their wallets until around November.
Commonwealth Bank CEO Matt Comyn is also quoted as saying said the record low level of bad debts is a lagging indicator. Both are compelling reasons to avoid complacency and look to revisit your business forecasts.
Current predictions are that the RBA will continue to lift the cash rate to between 2.5 and 3% until inflation (currently at 6.1%) peaks at 7 to 8% later this year, then falls back to the top of the 2 to 3 per cent target range by some time in 2024.
This has been the fastest annual growth in inflation since 2001, forcing consumers to shell out more for everything from fuel to food. Fruit and vegetable prices rose almost 6% in the June quarter alone, prompted in part by shortages caused by heavy rains in areas of the east coast of Australia.
We haven’t seen inflation grow this fast since the introduction of the GST, so many small business owners haven’t experienced running their business in such an environment.
And while supply chains are beginning to normalise, rolling lockdowns in China can still have an impact. Some suppliers are favouring larger markets like the US, causing headaches for Aussie businesses that need to pivot to different sources. On the domestic front, services like Australia Post have announced price hikes, effective from early September.
These and other challenges can eat into profits and impact your business's viability. Let’s look at some tactics for mitigating them. This assumes you already know what your margins and operating costs are.
Strong cash flow is essential to help you manage the inflationary headwinds and continue investing in your business regardless of the tactics used. According to Xero, about one in five small businesses experience a cash flow crunch – where expenses exceed revenue – at least 50 per cent of the year. Business loans can help cut through that crunch with the cash you need to move forward, whether it’s managing your supply chain, investing in new assets or simply covering unexpected expenses.
With business loan interest rates rising, and residential property prices set to dip, you’d want to think long and hard before taking out a loan secured to your home or business property. Instead, explore the non-bank lending products out there, like Banjo's Working Capital Loan which is much more adaptable to the needs of smaller, high-growth businesses across a range of industries.
Hello, my name is Jason Gatt, and I’m the Partner Manger at Banjo Loans for VIC/WA and TAS.
I’m excited to share our deal of the month, in which Banjo repeatedly helped this structural and architectural steel fabrication business overcome cash flow issues and manage its working capital better.
In business for 15 years, this established company have a healthy $2 million per annum revenue turnover, providing support to residential, industrial, and commercial sectors, and met Banjo’s initial eligibility criteria.
The business required operating funds as it was suffering from growing pains, cost pressures due to inflation and lagging accounts receivable that were all having a negative impact on its working capital and cash flow.
Having only borrowed from Banjo for the first time a few short months earlier, Banjo was thrilled they approached us to assist again, having been satisfied with the experience and service they received with their first loan. As Banjo were already familiar with the business and their journey ahead, we were able to increase their funding facility, and provide additional funding to assist with their general working capital and purchasing of materials.
From Banjo’s side, this client had proved to be a quality and reliable enterprise to do business with, with on time repayments on their original loan, we had no hesitation to assist this client again with another loan and help move their business forward.
An original 12-month loan of $75,000 was approved and funded, and then the subsequent additional 12-month loan of $50,000 was provided. Both loan applications were approved and funded within 2 days of the application submission.
Thanks for watching, and if you have customers, you feel could benefit from a Banjo working capital loan, please do not hesitate to call me. Likewise please keep an eye out for our soon to be released Asset Finance product.
For more please follow us on LinkedIn at Banjo Loans.
Many SMEs didn’t need a crystal ball to predict that inflation was coming, and are using different strategies to manage it, according to Banjo’s recent SME Business Compass report.
With inflation now running at 5.1%, a reversal of the deflationary environment we’ve been in for the last few years has been looming on the horizon for some time.
In response, the RBA raised interest rates from 0.10% to 0.35% in May for the first time since November 2010, and many mortgage holders are no doubt starting to feel the pinch as the banks follow suit.
According to the Australian Financial Review, the Reserve Bank has ratcheted up its central forecast for headline inflation this year to about 6 per cent, although it expects this will ebb to around 3 per cent by 2024.
The National Australia Bank has been quoted as saying it expects the Reserve Bank to lift the cash rate to 1.25 per cent by the end of the year, and that it will peak at 2.5 per cent by 2024.
Before we feel too sorry for ourselves, this situation is not unique to Australia. According to Trading Economics, our inflation rate is currently lower than many first world economies, including the US (8.5%), UK (7%), Germany (7.4%) and New Zealand (6.9%). The US Federal Reserve has been hiking up interest rates since March this year, and the Bank of England has been doing so since late 2021.
The global reasons for these inflationary pressures include the pandemic, and lately, the war in Ukraine. These twin demons have, among other things, severely disrupted the supply chain and put oil prices into the stratosphere. From a local perspective, the early autumn floods were also a contributing factor.
As noted above, many SME owners have seen this coming. At the time Banjo surveyed businesses in February and March this year, over half (55%) were concerned that inflation will be a barrier to growth within the coming year. To mitigate the impacts of inflation, the broad spectrum of businesses surveyed are responding by increasing prices (42%) or reducing supply costs (37%).
However, it’s interesting to drill down into the some of the different sectors. Businesses in the retail industry (70%) are the most concerned about inflation, higher than the overall market (55%).
The anxiety level varies by industry, as do the plans for mitigating the effects of inflation. Looking at four key SME industries that have been hard-hit by the pandemic – retail, hospitality, construction and manufacturing – there were some marked differences (see graph below).
The highest level of concern was felt by SMEs in retail, who also felt the least able to increase prices, but most likely of the four to cut costs.
Hospitality SMEs were most likely to increase prices (68%) than the other 3, and also compared to the wider market, 42% of whom were prepared to raise prices.
Construction and Manufacturing were roughly on par in terms of their inclination to raise prices and lower costs.
While consumers in some sectors can be more price-sensitive than others, in a period of high inflation, many businesses can’t afford to sacrifice margin in the face of rising costs. Talk to your accountant, bookkeeper or lender about how your business can best meet the challenge of the current inflation environment.
A strong theme is emerging from two consecutive years of Banjo’s annual SME Compass research among the leaders of over 500 SMEs* across Australia.
A substantial number of the SMEs surveyed increased investment in their businesses in response to the pandemic, and it seems to be paying off for them. The research found that the businesses that kept investing, and usually borrowing to invest, are consistently growing and meeting or exceeding their targets.
This seems to have contributed to the health of the sector post-COVID, with a lot more Australian SMEs (55%) achieving or exceeding their revenue targets in 2021 than the previous year (45%).
The biggest increases in investment were in new technology (61% in 2022 vs 51% 2021) and marketing (50% vs 41%). Acquiring real assets and moving all or part of the business online were also high up the list.
SMEs who invested in new technology, purchased new assets and increased headcount were most likely to achieve success by exceeding their revenue targets. Thirty per cent outperformed their targets in the last year, up from 25% the previous year.
This may be one of the key reasons Australian SMEs are coming out of two years of the pandemic with a positive outlook and a continued eagerness to invest in their business. With 69% expecting their revenue to grow over the next 12 months, and 83% confident about the future of their business, there’s high optimism for the year ahead.
Those who are anticipating growth say they’ll be investing in their business in 2022 by improving existing products, investing in new technology and spending more on marketing than last year.
Forty seven per cent of businesses are planning growth through acquisition – up from 42% in 2021. This year, a greater proportion of SMEs (45%) are using acquisitions to add value to customers by strategically enhancing their products’ “stickiness” compared to last year (33%). Acquisitions are also increasingly being viewed by respondents as a way to grow product offering, revenue and profitability.
Despite the upbeat outlook and strong progress, there are some roadblocks. Many SMEs are still frustrated by the traditional bank borrowing process.
A majority (62%) of SMEs continue to face challenges when trying to secure funding in this way. The glacial pace of traditional bank procedures was the main frustration in 2022. With 40% of SMEs turning to the major banks as their first funding option, this suggests many are not fully informed about the alternative faster and more efficient loan options available to them.
Sixty three per cent of SMEs intend to fund their growth in the coming year through loan facilities such as bank loans, founder investment and credit facilities. With secured business loans and term loans the most commonly used financial products, this suggests many are yet to understand that unsecured loans are a viable option.
Other challenges have certainly been faced in 2021 and early 2022, including supply chain issues and labour skill shortages. But it seems many businesses have used strategic measures, including further investment, to overcome these.
SMEs certainly rose to the challenges of the past year, and are displaying the optimism, business savvy and flexibility needed to help them navigate whatever 2022 throws at them
*the respondents were from a broad cross-section of businesses, none of whom were Banjo clients.
The Australian economy is currently facing some potential challenges, including inflation, wages growth and an anticipated rise in interest rates. In this edition of Business Wrap, we look at the flow-on effect to businesses and households.
Included is our conversation with the Australian Steel Institute Chief Executive, Mark Cain who explains the effects these microeconomic issues are having on his members.
Many factors can cause inflation. The most common is companies passing their increased costs of production and distribution of goods and services onto consumers. In a recent Business Wrap, we talked about how persistent disruptions to supply chains and distribution networks are having a flow-on effect on costs globally, causing a heightened level of uncertainty.
Australia is also now experiencing wages pressure – more on this below.
For more information check out the Australian Bureau of Statistics figures.
Inflation in itself is not necessarily unhealthy, but it becomes a problem when it goes on for a prolonged period and wages don’t grow at the same rate – diminishing the buying power of consumers.
With inflation rising to 3.5 per cent in the December quarter, the Reserve Bank of Australia (RBA) is keen to see wages rise as well.
Reduced immigration of skilled workers to Australia due to COVID has created a tight labour market. Employers are under pressure to increase wages to stay competitive and attract qualified talent in a limited resource pool.
Unions are starting to push for 3 per cent annual pay rises in wage negotiations. While recent data from the December quarter showed that wages were starting to rise, those increases are not keeping up with inflation. The February ABS wage price index indicates that annual wages growth is at 2.3 per cent versus the inflation rate of 3.5 per cent.
According to the ABS data, real wages have fallen by 0.8 per cent since 2019, the first time this has happened since the turn of the century.
The Australian Chamber of Commerce and Industry Chief Executive Andrew McKellar has called for improvements to Australia’s productivity and economic efficiency, stating that until that happens, “we won’t see the stable and sustainable increase to wages the community expects.”
The Productivity Commission’s 2017 recommendations for boosting productivity - which include a wide range of measures like an overhaul of intellectual property laws, road user charges, opening up the pharmacy sector to competition, and a single effective price on carbon – are due to be revised and updated.
The RBA’s monetary policy has kept interest rates at record low levels – with the cash rate currently at 0.1%. This has arguably created a confidence that has pushed investors into riskier investments and artificially inflated stock prices and real estate. The lower rates have also punished savers who wanted to park money for a return with minimal risk.
Seven Group Holdings’ CEO Ryan Stokes said recently that the low-inflation environment a generation of investors has got used to, is on its way out.
During the COVID-19 pandemic, the RBA injected money into the economy, through the purchase of government bonds, a practice known as quantitative easing. At its February 1, 2022, meeting, the RBA announced it would stop pursuing this strategy by February 10, 2022. This means a rise in interest rates could occur in the not-too-distant future.
However, as mentioned earlier, the RBA makes the point that we’ll need to see wages growth above 3.0 per cent before there’s any substantial rise in interest rates.
Economists have had to grapple with one challenge: the Australian dollar (AUD) has barely reacted to the broad price surge in energy commodities over the past six months. Will this continue?
The medium-term forecasts for the AUD have been downgraded, as local economists expect the US Federal Reserve to raise interest rates well before the RBA.
The Australian Financial Review’s quarterly survey of 29 economists predicts the AUD will appreciate to merely US73¢ by June 2022, slightly down from US74¢ expected in the September 2021 quarter survey.
This affects the economy as higher interest rates increase the value of the AUD. Assuming the AUD appreciates (ie, the exchange rate increases), the relative price of domestic goods and services will increase. At the same time, the relative cost of foreign goods and services will fall. Economically, as we export more relative to imports, our net exports increase, and our terms of trade will be higher.
The Roy Morgan Business Confidence survey reported that Australian businesses were mainly pessimistic about future economic conditions plunging by 18.7pts (-15.6%) to 101.5 in January 2022.
A survey conducted by ANZ and Roy Morgan shows a similar trend was observed in consumer sentiment. With a sharp drop of 7.6 per cent in consumer confidence in early January 2022 down to 97.9, representing its lowest level since October 2020.
In New South Wales and Victoria, extended COVID-19 lockdown periods contributed to a sharp decline in business confidence in the first quarter of 2021-22, as State Government restrictions curtailed business operations. However, business confidence is expected to recover strongly over the remainder of FY 2022, as lockdowns in most States end.
As COVID stimulus packages recede, the Australian economy has demonstrated robust domestic growth. There’s further optimism in the suggestion from business leaders that the supply chain issues will soon pass. So, while some inflation is inevitable, it is predicted to be manageable.
The Australian Steel Institute (ASI) is Australia’s peak body representing the entire steel supply chain from the manufacturing mills through to the end-users in building and construction, heavy engineering and manufacturing. Many ASI members are small to mid-sized businesses.
Banjo caught up with ASI Chief Executive Mark Cain, to hear first-hand how the current economic environment impacts the small to mid-sized steel businesses among its members.
Currently, global steel prices are at extremely high levels, and this, combined with long lead times, is causing some consternation for our members.
For example, roofing sheets needed for residential buildings usually have a lead time of 1-2 weeks. There are examples where this has blown out to 12 weeks! These new lead times have put pressure on our members, as they’ve found it difficult to source materials and schedule their work accordingly. In addition, this long lead time forces businesses to purchase enough materials to try and get ahead, which may put pressure on their working capital.
Members are also feeling the effects of the skilled labour shortage, putting pressure on wages.
Overall, the industry is performing well despite these microeconomic challenges. Infrastructure spending and building are strong across the country, so steel is in high demand, including in rural Australia where the drought has broken.
This is allowing some business owners to consider investing to meet this demand. Some are looking for short-term financing to help fund their expanded capability and to finance capital equipment.
We’re encouraging project managers to work with their supply chain to give plenty of notice of their requirements. This allows businesses to plan and meet their demands and helps to give confidence that the supply chain can deliver.
But if orders are left to the last minute, assuming that steel supplies are yet to come, businesses could be disappointed.
Many governments coming out of the pandemic are priming their economies through infrastructure spending. We’ve found that global demand has been strong, limiting the surplus capacity available to import steel into Australia.
When the Australian dollar is higher to the US dollar and steel is traded internationally in US dollars, imported steel would be more affordable. However, steel needs to be available.
As I mentioned before, the availability of skilled labour is a big challenge ASI members are facing. ASI is engaging with various governments across the country to discuss how to tackle this problem.
Discussions range from strategies to solve the lack of skilled immigration, to the development of training schemes. ASI is also working on initiatives to attract local workers to the industry. We’re running a range of promotional activities to make the steel industry even more appealing to domestic candidates. Some of the activities involve ASI members talking to high school students, and outlining the vocational opportunities available in the steel industry.
The pandemic continues to challenge the supply chain in ways we didn’t expect. The Omicron variant has resulted in large numbers of staff being required to self-isolate either because of their own, or a family member’s infection. This scene has played out around the globe and has ultimately caused major disruption to freight and warehouse logistics. With downstream adverse effects on the supply of inventory to businesses, staff shortages have also caused disruptions to cash flow in the hospitality, leisure and gym sectors.
“The economic impacts of this near-global shut down because of the pandemic have thrust supply chain into the public realm in a way we have never seen before,” says David Paulson, global vice president at Avnet Inc in this edition of the Supply Chain Navigator.
Many businesses have been and will continue to be affected by these concerns – but don’t despair. There are strategies you can use to make sure your business stays in good shape. More on this later.
According to this report from The Economist, businesses have incurred substantial financial costs (averaging 6-10% of annual revenues) and reputational costs in terms of customer complaints and damage to brand reputation.
Image source: The Business Costs of Supply Chain Disruption
It’s likely that these impacts to businesses will continue to be felt for much of 2022 and possibly beyond. These include:
Image source: The Business Costs of Supply Chain Disruption
Businesses that take a range of actions to mitigate the impacts of future disruptions can turn the adverse effects into something positive.
Some strategies businesses can implement include:
Another strategy for businesses to recover is to extract cash and cost from the supply chain by changing the supply chain cost structure and working capital profile. This can be done by focusing on inventory rationalisation, procurement spend reduction, logistics and warehouse optimisation, and manufacturing productivity as explained in this survey by Ernst & Young LLP.
Although it’s an issue that’s not going to go away any time soon, the risks to your business of supply chain difficulties can always be lessened. Start by talking to your trusted accountant or adviser. Banjo is here to help, whether it’s a chat with one of our experienced credit assessment team members to talk through potential solutions, or an injection of funds to help get over this period, you can always reach us on 1300 22 65 65.
* Lannin, Sue. “Shipping cost surge raises retail price pressures and inflation risks.”10, June. 2021. https://www.abc.net.au/news/2021-06-10/prices-consumers-shipping-ports-trade/100203086
** Walh, Liam. “'Supply worsening': 99 Bikes warns on global snags.” Financial Review. 3, jan, 2021. https://www.afr.com/companies/healthcare-and-fitness/supply-worsening-99-bikes-warns-on-global-snags-20201223-p56prh
