New research reveals that small businesses in Australia are continuing to have difficulties accessing affordable finance options, despite the pressing need for them to get such access.
In a new paper prepared, by fintech provider Taulia, multiple challenges facing Australian small businesses regarding access to finance are uncovered. Chief among them are:
- The long-term challenge in accessing finance, particularly from traditional banking sources.
- The lack of resources within small businesses that mean they struggle to understand liquidity risk and cashflow.
- Small businesses often have interest rates more than 10 per cent higher than large businesses in relation to the Reserve Bank of Australia’s cash rate.
- Misunderstanding about the benefits of alternative finance – a cheaper, more accessible form of finance commonly used for funding by SMEs in the UK and Europe.
- Traditional bank supply chain finance programmes lack the technology platforms capable of accommodating large numbers of finance applications from small companies.
The research also highlights the fact that although small businesses are considered to be the driving force behind Australia’s economy, accounting for 35 per cent of GDP and 44 per cent of employment, the Reserve Bank of Australia report that that lending to these smaller firms has been relatively flat since January 2019.
“Access to credit for businesses of all sizes is critical to future economic growth in Australia,” Steve Scott, Head of Asia Pacific at Taulia, said. “This is particularly acute for small businesses, who have borne the brunt of a deeply challenging 18 months, following the onslaught of the global pandemic.
“One route for smaller businesses to have greater access to low-cost finance is participating in early payment programmes, but these have not yet been widely adopted due to misunderstanding and nascent supporting regulations,” Scott added. “Helping small businesses to understand and access forms of alternative, cheaper finance, such as supply chain finance, should be placed high on the priority list for Australia’s business landscape.”
Despite the problems highlighted, the report lauded the Australian government for focusing on support measures for the growth of small businesses during the pandemic, introducing policies such as reporting requirements to improve transparency and proposed regulations to limit payment terms for small businesses to 30 days to improve small business cashflow.
“The Government’s regulatory initiatives will go a long way to further improving understanding and transparency while contributing to changing businesses’ behaviour in accessing different forms of finance,” Scott said. “While supply chain finance will not solve all the problems that small businesses face, it is clearly one of the most efficient forms of cashflow finance and should work alongside more traditional forms of finance to support small business growth.
“Technology-driven supply chain finance solutions, implemented responsibly with the long-term in mind, will also help to foster the growth of Australian businesses, small and large,” Scott concluded.
