Funding frustrations stymieing small-business growth

Nine out of 10 Australian small businesses have expressed frustration over their difficulties in securing funding and loan conditions for their enterprises according to research conducted by East & Partners on behalf of SME funder ScotPac.

The latest SME Growth Index survey found that of the 1252 small businesses surveyed, 84 per cent were frustrated about the loan conditions imposed on them. The said research points to loan conditions as the biggest pain point for small-business owners, especially those who have loans with the major banks.

“Loan conditions have always been the main source of annoyance when we’ve asked SMEs about their funding frustrations, and during the pandemic it has been no different,” ScotPac CEO Jon Sutton said. “The research found small businesses with non-banks as their primary funders had significantly fewer concerns about loan conditions, flexibility and ease of dealing with their funder during 2020.”

The top three frustrations expressed by small-business owners were loan conditions (84 per cent), having to provide property security (80 per cent) and lack of flexibility (74 per cent). In addition, 64.3 per cent were worried about the lack of a clear recovery path, while 45 per cent had difficulty accessing government-guaranteed loans during COVID-19. Almost a quarter, 23 per cent, were frustrated about online lenders charging high-interest rates.

Over half of those surveyed, 56 per cent, had issues with “hard to deal” funders, with 22 per cent saying their funders could not meed all their needs. Other concerns include:

  • Loan conditions (91 per cent of bank borrowers frustrated; only 7 per cent of non-bank borrowers).
  • Providing property security (93 per cent versus 67 per cent).
  • Lack of flexibility (97 per cent against 51 per cent).
  • Funder is too hard to deal with (72 per cent against 39 per cent).

The report also found that SMEs top priority for 2021 is to pay down their debt. However, Sutton noted that the federal stimulus measures which helped prop up the national economy required SMEs to take on more debt.

“Historic Index data shows a very large proportion of small businesses use easy access debt (such as personal credit cards or their own funds) to access working capital for their enterprises,” Sutton said. “2021 is the right time, hopefully with the worst of the business shutdowns behind us, for SME owners to make the tough decisions about their business and find better ways to fund their operations.

“2021 is not a time to kick the can further down the road: it’s really crucial for business owners to find ways to unlock capital to ease cashflow issues that can be crippling even in good times let alone during a recession,” Sutton added.

Sutton encouraged small-business owners to have the tough conversations with their advisors – sooner rather than later.

“Don’t wait until JobKeeper is off the table for you or your suppliers, get on the front foot with finding the right funding and make decisions before it’s forced on you,” Sutton urged.

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