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The end of the housing boom could mean major risks for SME owners with an overdraft linked to property, according to finance specialists FactorOne.
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SME owners warned of major housing risk
02 November 2015
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8 minute read
FactorOne has urged small business owners to break the link between their property and their business or risk disaster, as the housing boom shows signs of fading.
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With Sydney auction clearance rates falling (from well over 80 per cent to 60 per cent in recent weeks) and most Australian banks increasing home loan rates, many official and business observers are saying that the current boom in property prices is at an end.
For Sydney SME owners, the 40 per cent increase in property prices in the past three years has provided a funding boost where their overdraft is linked to their property.
FactorOne general manager Greg Charlwood said many SME owners have funded their businesses by continuing to increase their overdrafts, using the growing equity in their homes.
“If property prices fall, many SMEs may be squeezed as their facility limits move out of sync with the declining value of their property,” Mr Charlwood said.
“In many cases, small business owners have used the funds provided by the housing boom to support growth and other positive initiatives. These owners, using the increased overdraft for growth, should be in a good position to handle the decline in values.
“Unfortunately, in many cases, other SMEs have used these increased overdrafts to mask business losses. These are the business people who may end up in difficulty if the housing boom busts, and before that happens, they should be looking at ways to untether their business funding from their family home,” he said.
Mr Charlwood said a much more secure way for SMEs to fund a business without tying up the family home is through factoring, also known as invoice finance.
“With factoring the finance is secured by the business’ receivables, with no requirement for a mortgage over the SME owner’s home,” Mr Charlwood said.
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