Facing business debt post-COVID

This is the second of a four-part interview series with Mick Hall, Partner at debt advisory and banking advisory business Velvet Pig. In this article, Mick shares his observations of the unique debt challenges facing small and medium-sized enterprise (SME) owners in a post-COVID world.

COVID-19 has had a significant impact on the way we do business. Many SME owners have been forced to abandon business-as-usual and react to the short-term challenges of managing their business including cash flow, profitability and resourcing. But, with Government support measures winding up, now is the time to be thinking about the medium to long term challenges of running the business in the post-COVID environment. 

Unfortunately, despite being in a recession and a global pandemic, businesses and their executives are not immune to performance management. Banks will still expect to see regular forecasting, accurate financial reporting, a well-articulated business plan and, as we mentioned in our last article, a scenario analysis. 

What are the challenges for SME owners?

Come October, many owners will be faced with the reality that they have increased their debt. This will be due to: 

• Delayed payments to creditors (which, at some point, will need to be met or negotiated).
• Rental debt that will be payable in addition to routine rental payments going forward.
• Outstanding tax liabilities with the ATO. 

SME owners should firmly understand their current and future financial position now, to avoid the risk of personal liability associated with insolvent trading. However, many owners are feeling working capital pressures–on both the supply and demand sides. On the demand side, speeding up the time between sending invoices and receiving cash is creating pressure for buyers as they experience their own cash flow issues. On the supply side, supply chains are affected as imports slow and domestic businesses direct resources into other areas.

Business owners need to understand the potential impact of these pressures from a financial standpoint, and if they have breached their financial covenants. If you’re a business owner who’s looking for new levels of banking support, it’s going to be harder to seek funding from providers outside of your existing bank or provider. This is because banks are exercising a heightened level of caution to refinance or new monies. As such, we recommend working to grow your relationship with your existing business banking partner to get the most out of your financial situation.

In our next article, Mick shares his insights on how banks assess funding applications including credit risk grading. In the meantime, if you’d like to discuss your financial business plan or need help with your accounting or taxation, please call 1300 656 141 or leave your details on our contact page. We’d love to support you. 

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About Velvet Pig

Velvet Pig is a debt advisory and banking advisory business. Its team has spent more than 50 years in banking, primarily working in institutional and corporate finance. Contact Mick on +61 481 034 939 or mick.hall@velvetpig.com.au 

About BridgePoint Group
BridgePoint Group, led by managing director Neil Parker, is an advisory group that provides expert advice to SMEs across the areas of accounting, taxation, legals, strategy, growth, superannuation and corporate advisory. 

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