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Scaling globally: finance for SMEs

With global opportunities enabling businesses to grow faster and diversify, it’s no surprise that Australian small and medium-sized enterprises (SMEs) are taking advantage of the increasingly connected global marketplace. 

However, taking on global opportunities also comes with a new range of challenges. Michael Reznikov and Krystal Doyle, two of our SME export finance specialists at Export Finance Australia, have shared their insights into overcoming three challenges businesses face when scaling.  

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1. Finding finance to scale globally

When scaling, SMEs typically come from a smaller financial base. Michael explained that trying to finance a larger amount of upcoming business often means that businesses are constantly chasing finance.

For many Australian businesses, speaking with their bank is often the first step, but they are surprised that they cannot support their international opportunities.  

“It might be a large reputable contract, but banks won't always support them when it comes to international contracts,” Krystal said. “This comes up a lot.”  

This challenge often arises when SMEs need finance to complement their domestic business and enable global growth at the same time. This is where Export Finance Australia is best placed to support.  

“Even strong-performing businesses are sometimes unable to obtain the finance support they require from a traditional lender,” Krystal added. “We could complement what they already have from the domestic bank.” 

“We can help SMEs by doing an assessment to understand what the business needs to deliver,” Michael said. “We look at capability to deliver on future contracts rather than just the historic numbers.”  

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2. Meeting contractual obligations  

When a business has been awarded or is tendering for a project, it is common for international buyers to ask for a bond or guarantee as security. 

“Performance or advanced payment bonds are often required for contracts or projects overseas,” Krystal highlighted.  

In certain industries, such as engineering and manufacturing, buyers want a guarantee that SMEs will be able to deliver on their contracts. In some markets like the US, the guarantee can be for the entire value of the contract. If a business’s bank can support it, they commonly ask for 100 per cent cash cover to provide a bond. 

“For a lot of businesses, that means that they would have to decline even putting in a tender if they don't have the finance to deliver,” Krystal said.  

“When every client is asking for a guarantee, SMEs reach a natural ceiling as their cash is tied up in those guarantees,” Michael added. “This limits their growth.” 

“At Export Finance Australia, we get comfortable about a business’s ability to deliver, and can issue guarantees with much less cash security. This can help businesses grow much more quickly than they could have without our support.”  

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3. Managing cash flow to deliver at scale  

A guarantee with minimal cash cover can significantly free up an SME’s working capital, but additional costs associated with larger contracts and longer payment cycles can still strain cash flow. 

“For many SMEs, there will be upfront investments required to take on contracts,” Krystal said. “This might include new plant and equipment, paying for additional staff or relocating staff. If they're working on a contract for 12 months, for example, they may only have 10% of the overall value of that contract paid upfront.” 

“If a business needs to manufacture a lot more inventory than they usually would to fulfil an order, they will need a lot more working capital.” 

Michael highlighted that our guarantees and working capital solutions work hand in hand. “Not having to tie up so much cash in a guarantee frees up some working capital, but it's not always enough, particularly if a business is trying to grow and is working on multiple contracts simultaneously.” A loan such as an Export Line of Credit is a complementary solution that our customers often utilise in addition to guarantees to help finance their export business.  

At Export Finance Australia, we want to see more businesses say 'yes' to these opportunities. With the right support and finance, SMEs can overcome these challenges and take advantage of the opportunities to expand globally.