As SMEs begin to take stock of 2020 and the effects COVID has had on businesses all across Australia, there will be few business owners considering 2021 as a viable time to take on a business loan. However, business finance has remained a valuable support system for SMEs through the pandemic, and this year is no different. 

The pandemic of 2020 affected businesses in all corners of Australia, and SMEs may have felt hit hardest due to their reliance on cash flow and consistency in revenues. Traditionally, SMEs may have had little concern with taking out an unsecured business loan; growth, profits, and the hurdles to both were easier to track and predict before all industries found themselves in a state of instability and day-by-day change.

Many businesses will have taken the opportunity to seek assistance from the government during this time, with increases to the Instant Asset Write-off Threshold and a number of government grants being made available to assist businesses in riding out the difficulties faced during 2020. However, as we near the end of the 2020-2021 financial year, business owners will be required to adapt and find new ways to access cash flow. 

Below, I’m going to cover three options for flexible business finance that SMEs may find useful in managing cash flow and maintaining positive revenues in 2021:

  • Business overdrafts
  • Business lines of credit
  • Invoice factoring

Business Overdrafts

Business overdrafts are a common form of flexible business finance. Overdrafts can range from $5,000 up to $5 million and can be secured by property or unsecured at higher rates and are now being offered by innovative fintech companies, not just the big banks.

A business applies for an overdraft with a lender, who then makes an amount of credit available based on the serviceability presented by the business. The funds can then be accessed when there are insufficient funds in your business banking account, which means that, unlike a business loan, you won’t be paying interest on funds your business isn’t using. 

A business will pay interest on any amount overdrawn, and will repay the borrowed amount through scheduled weekly or monthly repayments, depending on how the business operates and its gross revenue.

Benefits of a business overdraft:

  • Only pay interest on the funds you draw
  • Draw funds as and when you need them
  • Can be used for any business purpose

Line of Credit

A business line of credit is similar to an overdraft and another common source of flexible finance for SMEs. Like overdrafts, a line of credit will be assessed based on your business turnover, and can range from the low thousands up to millions. Generally, a business line of credit will be available from lenders between $5,000 and $250,000. 

The main difference between a business line of credit and an overdraft is how it is structured. There are two ways a line of credit can be offered; as either a single-use facility or a revolving facility:

  1. A single-use facility line of credit allows you to draw down in instalments and repay in regular instalments much like a normal loan. 
  2. A revolving facility line of credit allows you to draw down, repay, and reuse the funds as often as you like within the term of the facility.

The main cost difference for a business is that a line of credit will require an ongoing fee. This is the amount a business is required to pay a lender to keep their credit ‘available’ to the business in case they need it. 

Like an overdraft, interest is only charged on the amount drawn down from a line of credit, and will be charged monthly and calculated daily, similar to how a business credit card works.

Yanir Yakutiel, CEO of Lumi, a leading fintech business lender says “in these less-certain times, business owners need the flexibility of having cash at hand.”

Benefits of a business line of credit:

  • Flexible renewal options
  • Access to cash as it is needed
  • A business only pays interest on the withdrawn amount.

Invoice Factoring

Finally, we have Invoice Factoring, which is a unique form of business finance that is often not utilised to its full potential by businesses that would find its flexibility and benefits far more aligned with their revenue structure than traditional forms of business finance. 

Invoice Factoring may initially seem complex, but can serve as an excellent way to maintain cash flow for the right kind of business. Invoice Factoring is not a form of business debt, and you won’t be required to take a lump sum and make set repayments to a lender. 

Instead, a business sells its outstanding customer invoices to what is known as a factoring company; a third party that will provide an upfront payment of invoices (to a set amount) and collect the payment from the customer on your behalf. You’ll then be paid the remainder of the invoice’s value, minus a factor fee (around 3%)

Factoring companies may provide anywhere between 70 and 95 per cent of an invoice’s value, and choosing a suitable factor and arrangement is just as vital as when seeking out any other form of business finance. Specifically, there are two crucial aspects to factoring that you should be aware of before applying:

  • Factoring can be either ‘spot’ factoring or ‘full-ledger’ factoring. Spot factoring is the most flexible of these two, as it allows you to select which invoices you want to sell and when. 
  • Factoring can be either ‘recourse or ‘non-recourse’ factoring. Non-recourse factoring is the most beneficial to a business looking to remove the stress of chasing customer payments, as the factoring company takes on any risk of non-payment by the customer.

The best part of invoice factoring for SMEs may be its eligibility and assessment criteria; factoring companies will assess the creditworthiness of your customers, not your business. This can make it a viable form of flexible finance for new businesses, or SMEs that do not meet the often-strict qualifying criteria of traditional business finance. 

Benefits of invoice factoring:

  • Upfront payments to a set value of the invoice
  • No repayments or interest
  • Flexible in choosing which invoices you want to sell
  • Better forecasting of payment schedules


The world has undoubtedly changed and SMEs, in particular, will need to adapt to these changes and find flexible forms of business finance to maintain business stability. Across all platforms of the business-lending world, we’re seeing a shake-up in how lenders choose to offer finance SMEs, and how business owners can match their needs to suitable loans. 

Shaun McGowan, CEO of, says that “invoice financing is definitely becoming a more popular option for SMEs as business owners have become increasingly aware of the ability to get access to funding via outstanding payments, and I’m one to agree. Ultimately, the best form of business finance is the one that suits your business needs and offers the cash flow you need, when you need it.”