A new report suggests that small-business owners are seeking new funding opportunities, going as far as considering making a switch away form their current lenders.
According to the latest SME Growth Index, conducted by East & Partners on behalf of SME funder ScotPac, 62 per cent of small businesses plan to reassess the style of business funding they use.
The research indicated that some owners already changed their funding behaviour during 2020 in response to the pandemic, and others are looking to change this year as 23 per cent have said they will reassess their current funders.
It also noted that borrowing from non-bank lenders reached an all-time high at 27.4 per cent, with SMEs now almost twice as likely to go to a non-bank for their funding instead of their main relationship bank. However, 24 per cent said they will pull back on their borrowings this year while 18 per cent will look to increase.
On the other hand, main bank funding of new SME investment fell to its lowest at 17.4 per cent, down from 22.6 per cent in the second half of 2018.
ScotPac CEO Jon Sutton noted that small businesses who nominated non-banks as their primary funders said they had significantly fewer concerns about loan conditions, flexibility and ease of dealing with their funder.
“It’s imperative for small business to plan their way out of the recession, to plan for the end of JobKeeper, and not just rely on the whims of the market for their survival,” Sutton said.
Sutton also pointed out that only around half the SMEs polled have plans to fund growth through to April 2021 at 650 out of the 1252 businesses polled, a significant drop from 752 in the first half of 2020.
“The fact that fewer SMEs are looking to invest in their business should be a concern for the sector, especially when it would be best practice for larger turnover SMEs to be making funding decisions much further ahead than six months,” Sutton said. “Nine out of 10 of the SMEs planning to invest will fund business investment using their own funds or equity – this reliance on equity to grow business has been a constant over the Index history.”
A more pressing concern for Sutton is that 40.6 per cent of smaller SMEs (in the $1-5m revenue bracket) have no idea how they are going to fund their business for the next six months.
“SME Growth Index data clearly shows the impact of the Federal Government’s stimulus initiatives in keeping the small-business sector going – but where will SMEs stand in April 2021 once JobKeeper ends? It’s critical for small business, their advisors and for others with influence on the sector to be prepared,” Sutton said.
“Plan ahead on business funding and cashflow projections to give yourselves the best chance of success,” he concluded.
