tl;dr: SMEs facing increased working‑capital requirements under Payday Super can choose from a range of finance solutions: overdrafts, invoice finance, term loans, payroll funding and even private credit. Banks generally offer lower rates but have strict approval criteria and slower processing. Non‑bank lenders provide speed and flexibility at higher cost. The optimal mix depends on your industry, cashflow profile and risk appetite. Early planning is essential because lenders consider your tax and super compliance history when assessing applications.
1. Bank overdrafts and working‑capital lines
Pros: Lower interest rates, ongoing access to funds, interest charged only on drawn amounts.
Cons: Banks require property or other security, detailed financial statements and good credit history. Approval times are slow (weeks or months). Overdraft limits may not cover large payrolls.
Use when: Your business has stable revenue, property security and time to wait for approval. A bank overdraft can cover regular super payments and be repaid when invoices settle.
2. Invoice finance (factoring)
Pros: Converts unpaid invoices into cash. Fees are charged instead of interest. Faster approval than bank loans, often within days.
Cons: Only works for businesses that invoice other businesses. Costs vary depending on the quality of debtors and invoice size. Some customers may need to acknowledge assignment of invoices.
Use when: You have reliable corporate customers with long payment terms. Invoice finance bridges the gap between payroll outflows and customer payments.
3. Payroll funding and payday lending services
Specialist non‑bank lenders offer funding facilities specifically for wages and super. Approvals can be extremely fast (24–48 hours). Interest rates and fees are higher than bank loans, but these facilities can be used as a contingency for unexpected cashflow gaps. They are often unsecured, though a personal guarantee may be required.
4. Short‑term secured loans
Businesses can borrow against property or equipment to fund working‑capital gaps. Terms range from a few months to five years. Interest rates are lower than unsecured loans because the lender has collateral. Approval still takes time and requires valuations.
5. Unsecured business loans
Non‑bank lenders provide unsecured business loans with minimal documentation and fast approval. Interest rates are higher to compensate for risk. Loan terms are usually shorter (six to 24 months), which may suit a one‑off cashflow adjustment. Lenders assess cashflow, bank statements and credit history.
6. Lines of credit and credit cards
Revolving lines of credit provide flexibility to draw and repay funds as needed. Interest is charged only on the outstanding balance. Credit cards can also provide short‑term liquidity but may carry very high interest rates if not repaid quickly.
7. Equity financing
Some SMEs may opt to raise capital from investors to fund growth and working‑capital needs. Equity financing dilutes ownership but does not require repayment. It’s typically more suitable for businesses with high growth potential.
Preparing your funding application
- Maintain compliant records: Lenders want to see that you lodge BAS, payroll and super on time. Payment plans with the ATO are acceptable, but missed or overdue obligations raise red flags.
- Prepare financial statements: Have up‑to‑date profit‑and‑loss statements, balance sheets, aged receivables and payables. Banks require detailed documentation; non‑banks may rely on bank statements and cashflow forecasts.
- Consider your security: Decide whether you are willing to offer property or equipment as collateral. Secured loans have lower rates; unsecured loans and invoice finance rely on your cashflow and debtor quality.
- Compare offers: Use brokers or comparison sites to assess interest rates, fees and terms. The RBA notes increased competition among lenders and more flexible options for SMEs.
FAQs
Can I get a loan if I have ATO debt? Yes, but lenders will scrutinise your circumstances. A payment plan or evidence that you are addressing tax debts improves your chances. Our separate article on Can you get a business loan with ATO debt? (below) explains this in detail.
Are non‑bank lenders regulated? Yes. Non‑bank lenders are regulated by the Australian Securities and Investments Commission (ASIC) but do not hold an authorised deposit‑taking institution licence. They source funds from private investors and wholesale markets.
Will a funding facility affect my credit score? Like any loan, repayment history impacts your credit. Choosing a product you can service and repaying on time is crucial.
Definitions
- Overdraft: A bank facility allowing account holders to draw more than the balance up to a limit; interest charged only on the drawn amount.
- Invoice finance: Financing that advances cash against outstanding invoices; not a traditional loan.
- Payroll funding: Short‑term finance designed specifically to fund payroll and super obligations.
External links
- [RBA – SME finance trends].
- [Money.com.au – Tax debt loans].
- [Dark Horse Financial – Banks vs Non‑Bank Lenders].
- GPS Finance Payday Super Calculator.
For tailored working-capital finance and funding solutions, contact our brokers and discuss partnership opportunities with GPS Finance Group.