Uncertainty pushes SMEs into considering their viability

uncertainty

New research reveals that almost one in three SMEs are considering closing or selling their business within the next six months due to the impact of the COVID-19 if conditions do not improve within the next five months.

The latest Scottish Pacific SME Growth Index, a twice-a-year survey of small businesses across Australia, found that the smaller the business, the more severe the impact of the pandemic is on their survival, with two out of every five smaller-sized SMEs (with $1-5m annual turnover) saying that they will look to sell or close by April 2021 if conditions don’t significantly improve. Almost one in four larger SMEs (those with $5-20m turnover) are harbouring the same intentions.

Among the SMEs considering drastic action if circumstances don’t change, 17.9 per cent are considering selling while 13.3 per cent considering closing.

Scottish Pacific CEO, Jon Sutton, said that the results serve as a warning rather than “doom and gloom” for the SME sector.

“Victoria is now out of lockdown and small-business owners may be more optimistic than last month,” Sutton said. “However, these findings serve as a warning of the precarious position for many SMEs if another lockdown occurs or significant border closures remain in place. The research shows just how much so many within the small-business sector have been hurting.”

The survey also shows that, despite the pandemic, there has been no significant change in demand among SMEs for borrowing due to the pandemic. Only one in five SMEs have had to increase their short-term funding needs while one in 10 had decreased borrowing demand.

It also noted though that one in 12 SMEs turned to non-bank funding facilities to address the impact of the shutdown on their supply chain and revenue, with a further one in eight saying they will add such facilities once their government stimulus ends.

This is the sign of a significant shakeup within Australia’s small-business funding sector, and nearly two-thirds of SMEs are planning to reassess the way they fund their business.

However, the research also reveals that 41 per cent of smaller SMEs have no idea how they will fund their business for the next six months, being either unsure how they will adapt or unable to plan that far ahead.

“Given more than a quarter of SME respondents were covered by the [government] stimulus, it’s important to consider what impact its withdrawal will have between now and April 2021,” Sutton said. “April 2021 is the targeted end date for the stimulus measures.

“This is an issue that small-business owners should take seriously. The financial aftermath of the COVID crisis is a call to action for SMEs to make the hard decisions about their business – how viable it is, what happens when ATO debts are enforced and other debts fall due, how to deal with the end of JobKeeper, and the best way to fund the business,” Sutton said.