SME Squid Games – why small-business lenders must be as agile as their borrowers

lending, loan, lenders

There have been times during the last two years where it has felt like Australian small businesses have been playing one long game of “whack a mole”.

As 2021 drew to a close, things were definitely looking up. Interstate and international borders were coming down and staying down (WA the exception), retailers were preparing to satisfy the massive pent up consumer demand that had been brewing through extended lockdowns in New South Wales and Victoria, and we all thought we were getting the hang of this “living with COVID” business.

Business confidence was understandably on the up too, so much so that December 2021 saw the largest growth in business credit demand since 2008, with SMEs around Australia borrowing to purchase tools and equipment, restock on inventory, and invest in the digitalisation of their businesses.

Then of course came Omicron, and the shadow lockdowns (Clayton’s lockdowns for those old enough to remember “the drink you have when you’re not having a drink”).

As Omicron swept the Eastern seaboard, worker shortages surged as people were forced into isolation. This was on top of the shortages we were already experiencing due to the international travel restrictions. Hastily scribbled signs on shop windows, reading “closed due to staff shortage”, became commonplace.

But whilst a little “glass half empty” sentiment is understandable, I genuinely believe our SME sector will emerge from this malaise stronger than ever.

A bit like the Netflix smash hit Squid Games, the small businesses who have emerged from this period are those who have been quickest on their feet. They have been agile, innovative, and adaptive, adjusting their operating hours, their channels, their product offering, even their entire business models, to the new normal.

Australians are entrepreneurial and resilient lot. June 2021 data showed that whilst 277,000 small businesses closed permanently over the previous year, 365,000 new ones had opened their doors.

At the time of writing, the macro data is reinforcing just how strong our SME sector is, with SME loan delinquency rates down and the RBA signalling a reset in its thinking on interest rates, such is the strength of the local economy.

But for the momentum to continue, SME lenders must step up to the plate and show the same agility, innovation, and flexibility that SMEs themselves have demonstrated.

I read recently that 72 per cent of small businesses said that they couldn’t rely on banks for their growing finance needs due to time-consuming application processes, and long lead time in accessing funds.

Publicly available research released at the end of last year suggested nearly 40 per cent of SMEs needed to borrow to accelerate their recovery and growth, and the average amount needed was around $50,000. We aren’t exactly talking sheep stations here, and the businesses that have survived the pandemic are obviously doing something right, which makes their difficulties in accessing finance through traditional channels all the more surprising.

My advice to all those SMEs seeking finance is to consider non-traditional lenders.

Whilst a 2021 study by Apricity Finance showed awareness of the sector was alarmingly low, the sector is growing in size and voice. It’s ultra-competitive, meaning SMEs seeking finance probably have a stronger hand than they realise.

We aren’t out of the woods yet, but I’m confident in the ability of our growing SME sector to drive Australia’s recovery, and I’m equally confident that our alternative business finance providers can be the power behind their growth.

Here’s to a big 2022!