Declining property market and cashflow issues dampen SME growth

There is a growing prosperity gap among SMEs, according to the latest Scottish Pacific SME Growth Index. While more SMEs are forecasting positive growth, those performing poorly are in significantly worse shape than they were four years ago. Cashflow is being seen as an increasing problem for the sector, and business owners are really putting in the hard yards (on average, spending 66 hours a week working on or in their business).

The Index, produced in conjunction with East & Partners, provides a national snapshot of the thoughts of 1252 businesses with $1-20M revenues, across all states and major industries. It reveals that more businesses are in growth mode than at any time since March 2016. Scottish Pacific senior executive Wayne Smith said one in two (51 per cent) are forecasting positive revenue growth for the next six months.

“The average projected revenue increase of 4.5 per cent is the most positive sentiment since 2016 and reflects a promising rebound in underlying business confidence within the SME sector,” Smith said.

However, those that are struggling are in  deeper hole than has been the case for some time.

“Many business owners are cash-strapped, time-poor and confused about the options available to them to fund their growth,” Smith said. “With a declining property market and banks exercising caution, the concern is that a lack of credit could hamper growth prospects. Business owners will need to consider funding alternatives to traditional property secured lending. Those SMEs who find alternative ways to fund growth and master cash flow management will have a clear advantage over their competitors.”

Continuing the trend of SMEs looking beyond banks to fund growth, 96 per cent could name a key reason to borrow from an alternative lender, with fast credit approval and reduced compliance the main drawcards. Meanwhile, almost one in 10 business owners (eight per cent) say revelations from the Banking Royal Commission will prompt them to seek out non-bank alternatives.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said that the Index identifies the issues most raised with ASBFEO by SMEs across the country.

“Extended payment times impact business cashflow, which is critical to SME day-to-day operation, Ms Carnell said.

“Reduced cashflow impacts the ability to pay staff, superannuation and the quarterly BAS, and an overly complex workplace relations system inhibits employment, which in turn inhibits growth. The Index also points out SMEs are looking at alternatives to banks to access finance, including invoice finance, fintechs, government grants, and crowdfunding. We’ve done considerable work in this space, recently releasing our Affordable Capital for SME Growth report and Borrowing from fintech lenders guide.”

By far the most common way for SMEs to fund growth is to use their own funds (89 per cent), ahead of borrowing from their primary bank (23 per cent), using alternative lenders (15 per cent), taking on new equity (13 per cent) and borrowing from secondary banks (10 per cent).

“It’s crucial to have reliable working capital, yet nine out of 10 SMEs reach into their own pockets to fund growth rather than use options that help them retain working capital within their business,” Smith said. “Why are so many SMEs using inflexible, debt such as personal credit cards instead of more sustainable funding solutions that would allow them to grow without such intense cashflow pressures?”

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