For many small and medium sized enterprises (SME) in Australia, growth presents both opportunity and risk.
The faster and more you scale your business, the greater the pressure on your cash flow. As sales increase, new customers engage your business and operations expand, your expenses similarly grow. When the cash coming into your business does not match the level of cash going out of your business, even temporarily, this can place significant stress on your cash flow.
This is where ScotPac’s business line of credit solution comes in.
Why is a Business Line of Credit important?
Whether it is the increase in payroll, inventory, or supplier costs, business expenditure often rises during periods of rapid growth before the revenue arrives.
This conundrum is called the Growth Paradox.
And it is where a line of credit can make a difference by providing access to flexible and on-demand working capital. For businesses who are growing fast, a line of credit provides liquidity and agility to manage upwards trajectories.
Why is Rapid Growth a Problem for Cash Flow?
Before we dive into the solution, it is important to appreciate the Growth Paradox.
For many SME owners, growing too fast doesn’t seem to be a problem. The more your business grow the more revenue it brings in.
However, every business owner who has scaled rapidly knows the reality of the paradox.
- Cash flow management issues are caused by timing, not lack of volume.
- There is not a lack of revenue, there is misaligned timing.
Why is there misalignment between cash in-flow and out-flow?
When a business commits to larger customer orders or scales operations, their expenses increase immediately.
You need more stock, more product, more operations and more staff.
However, your client payments are still subject to existing payment terms. This means their invoices may not be settled for 30, 60, or even 90 days.
During this period, your business is required to continue funding its scaled-up operations before the revenue hits the account.
This creates a working capital gap.
As a business owner, you need to stretch your cash reserves or face having to delay payments to suppliers or payroll to staff, neither of which are viable solutions.
What causes cash flow management problems?
There are a few typical causes of cash flow strain:
Increased Payroll
New hires are often essential to meet demand. However, the increase in wages occurs before clients settle their invoices.
Inventory requirements
Most manufacturers and wholesalers need to buy stock in bulk, often upfront, and this can place undue pressure on cash flow.
Long receivables
Extended customer payment terms delay the receiving of accounts receivable and therefore make cash flow management challenging.
Rising overheads
The cost of rent, logistics, utilities, operations and insurance all tend to scale upwards with growth.
In summary, the Growth Paradox is that the faster your business grows, the more pressure on your cash flow.
How does a Business Line of Credit help during high growth?
A business line of credit helps align your need for working capital with your SME’s growth trajectory.
What is a business line of credit?
A line of credit is a revolving pool of funds giving you flexibility with your cash flow management.
- There is no need to apply for separate loans.
- Access cash whenever you need it and pay it back accordingly.
- Then redraw the cash as needed in the future.
What are the key benefits of a line of credit for growing SMEs?
- Instant access to cash
- Available funds to cover urgent operational costs
- Only pay interest on what you use
- There is no dilution of ownership through outside investor funding
- Maintain reliable payment schedules to protect supplier relationships
- Respond quickly to new contracts or market growth opportunities.
With a tailored line of credit, your business can significantly mitigate the financial risks of rapid growth.
- Take advantage of market opportunities to grow
- Avoid disruptions to ongoing operations
- No need to use personal funds
- No damage to your credit standing or reputation
A business line of credit ensures working capital is always available when needed without unnecessary financing costs or borrowing stress.
When Is the Right Time to Apply for a Business Line of Credit?
As a growing SME, timing your business line of credit application is important.
Waiting too long can cause cash flow issues.
We recommend starting to speak to a ScotPac lending specialist while your business is healthy and cash flow is still predictable.
Some early indicators that it may be time to start discussions about a line of credit are:
- You have just won multiple or large new contracts or clients.
- Seasonal demand is rising faster than your working capital cycle.
- Supplier terms are tightening and customer payment terms remain the same.
- You want to expand into new premises or hire new staff
Why Choose ScotPac for Your Business Line of Credit?
For over 35 years, ScotPac has been helping SMEs sustainably grow their business.
As Australia’s largest non-bank lender to SMEs, our team understands the challenges of rapid growth for small businesses better than most. Our Business Line of Credit ensures accessible and revolving funds suited to your specific needs.
Why choose ScotPac?
- Enjoy flexible limits tailored to your business cycle.
- Benefit from fast approval process and transparent repayment terms.
- Build a trusting relationship with our local lending specialists.
- Access our wide suite of complementary products.
Whether you’re scaling operations across Australia or looking to rapidly expand in the future, ScotPac’s business funding solutions are designed to support your growth at every stage of the journey.
