New Year debt hangover puts SMEs in danger zone

Online SME lender OnDeck is urging small-business owners not to pin their hopes on the support of family members or turn to personal credit cards this January to meet the cashflow needs of their small business.

Research by OnDeck confirmed that 58 per cent of Australia’s 2.3 million SMEs may have experienced disruption as a result of the Christmas/New Year holiday period. After investing heavily in pre-Christmas stock, January can see SMEs juggling increased staff leave costs coupled with quieter trading conditions especially as the recent bushfires and prolonged drought are having a negative impact on consumer confidence.

However, small-business owners planning to rely on bank finance to navigate a January cash squeeze such as debt could be disappointed. OnDeck research shows that almost one in four SMEs that have applied for business finance with a bank have been rejected. Of these, one in three (33 per cent) have reached out to family and friends for funding, and a further 32 per cent have resorted to their personal credit card to fund business needs.

Cameron Poolman, CEO of OnDeck Australia, said, “We know that many small-business owners turn to family and friends or personal credit cards when they’re rejected for finance by mainstream banks. However, they may find that both avenues are fruitless at this time of year. For many Australians, the New Year sees a tighter focus on their personal finances as they recover from higher spending throughout the festive season.”

Australians spent an estimated $28 billion on credit cards in December, and 37 per cent of cardholders, equivalent to 7.2 million people, expect to still be repaying their Christmas debt through 2020.

Alternative funding options are available. OnDeck’s research confirms that one in three (33 per cent) SME owners believe the lending options available to small businesses are expanding. One in five (22 per cent) would consider using an online SME lender.

“We know that access to capital is the single biggest factor holding small business back in Australia. SME owners who partner with online lenders… may be able to source the funds they need to take advantage of timely opportunities for business growth. This also helps to preserve the important line between business assets and liabilities, and personal financial resources,” Poolman concluded.

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