Can I Get A Business Loan To Hire Staff? The ABS Calls It Working Capital And It Is 4.9 Per Cent

Yes, and it has a name. The ABS classifies a loan for everyday operations, in its words “such as accounts payable and wages”, as working capital, and it counts the figure every quarter. In the September quarter small businesses took $781.2 million of it. They borrowed $15.9 billion in total.

So the product exists. It was 4.9 per cent of what small businesses borrowed last quarter, and smaller than it was a year earlier, in a quarter when total borrowing grew.

Outstaffer sells an alternative to funding capacity at all, so take this as disclosure: we put a person on your team as a monthly cost rather than a borrowing decision.

What the ABS counts as a business loan to hire staff

Today’s Lending Indicators release charts two business purposes and most coverage stops there. The tables underneath carry seven, split by business size. Table 30 is the one that matters, because it covers small businesses only.

What does working capital mean here?

The ABS glossary defines it as a loan used to finance everyday operations of the business, such as accounts payable and wages. It is the only purpose the ABS defines by naming wages. Small means the lender’s exposure is under $1 million and turnover is under $50 million.

Small businesses borrowed $15.9 billion, and 4.9 per cent of it could reach a wage

New fixed term commitments to small businesses, September quarter:

• Purchase of property $7.43 billion
• Plant and equipment $5.40 billion
• General business purposes $1.20 billion
• Working capital $781.2 million
• Construction $779.9 million
• Acquisitions $321.0 million
• Wholesale finance $30.1 million

Where did the rest go?

Property and plant together take $12.8 billion of the $15.9 billion, a touch over 80 per cent. The purpose that funds people is fourth, behind a catch-all called general business purposes.

The arithmetic, and the two purposes that grew

Compare the September quarter with the same quarter last year, which is how you read an original series. Of the seven purposes, two grew. Purchase of property went from $6,578.3m to $7,431.9m, up 13.0 per cent. Plant and equipment went from $5,261.4m to $5,400.8m, up 2.6 per cent.

They are also the two largest.

The other five fell. Working capital from $828.3m to $781.2m, down 5.7 per cent. Construction down 3.8, general business purposes down 17.4, wholesale finance down 17.5, acquisitions down 26.6. Total commitments excluding refinancing still rose 3.5 per cent, from $15,405.3m to $15,944.3m, because property is large enough to carry everything else.

So the growth sits at the top of the table. The pool that can reach a wage got $47.1 million smaller while the pool for property grew $853.6 million, which is why the funding question usually resolves into whether a licence or a person is the cheaper way to buy capacity.

The honest counter is that this table cannot see an overdraft

Table 30 is fixed term loans. Revolving credit, which is where overdrafts live, is a separate category in the same collection, and other forms of finance such as invoice finance may not appear here at all. Some wage funding will sit on exactly those instruments, so the figures above understate how often credit touches a payroll.

One quarter is also one quarter, and the series is original rather than seasonally adjusted. The year-on-year comparison is the honest read. Rates are the other half, and the duration of the current cash rate matters more than its level.

Related reading

• How much working capital does a new hire need
• How many businesses in my industry are failing

What I would do before asking a bank to fund a hire

Ask for working capital by name, because that is the word on the form. Then price it as timing rather than financing: work out the month the hire turns cash positive and fund the gap deliberately.

Then price the version that needs no facility at all. Run one role through a structure that is a monthly cost rather than a borrowing decision, or keep funding growth out of cash and call it discipline.

Here is the argument I want. If the purpose that pays people shrank while the two biggest purposes grew, is that credit reading the risk correctly, or every business deciding the same thing at once?