SMEs turn to alternative funding to fuel post-pandemic growth

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The latest annual SME Compass Report by fintech SME lender Banjo Loans reveals that Australian SMEs have a big appetite for borrowing to fund growth, but have been struggling to find such funding.

The report highlights that, due to this struggle, many SMEs are leaning towards alternative, non-bank funding options that don’t tie up their personal assets.

Banjo Loans CEO Guy Callaghan said that while small business is seemingly back on track, SMEs still need better funding options to continue to grow and navigate obstacles like supply chain interruptions and recruitment struggles.

“Australian SMEs are coming out of two years of the pandemic with an upbeat outlook and an eagerness to invest in their business,” Callaghan said. “More companies have acquisitions in their sights, yet many are frustrated by the traditional borrowing process, and not fully informed about the alternative options available to them.

“With 40 per cent of SMEs still turning to the major banks as their first funding option, this suggests many are yet to understand there are faster and more efficient funding alternatives, that won’t tie up their assets,” Callaghan added.

According to the report, 62 per cent of businesses are facing challenges securing funding and the slow pace of big bank processes is the main frustration, as cited by 23 per cent of the businesses facing funding struggles.

“SMEs repeatedly tell us traditional banks just take far too long, and the opportunity cost of not being able to get funding in time can restrict businesses’ growth,” Callaghan said. “This is why we see so many respondents (20 per cent) saying they reluctantly end up drawing investment from their own personal finances.”

The report reveals that a further 33 per cent of SMEs will leverage funding from bank loans, while 17 per cent will use credit facilities, like overdrafts and credit cards. Secured business loans and term loans are the most common financial products. 

“What we also see in the research is a desire to move away from secured loans, with women business owners in particular much less likely to offer up personal assets as security than men,” Callaghan said.

The report noted that supply chain issues – mostly delays in shipping – impacted 44 per cent of businesses over the past 12 months, with businesses now bringing forward stock in response. One in three are struggling with recruitment while more than 60 per cent looking to hire.

“Funding will play a role in helping small business navigate these headwinds,” Callaghan said. “With rising interest rates, debt that can be supplied quickly so that businesses can leverage the growth it powers to pay it down faster, that’s a much healthier picture.”