SMEs hiring and borrowing again as post-COVID recovery gains momentum

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After more than a year of struggling through the challenges of the global pandemic, new research suggests that Australian SMEs are getting back on track towards recovery.

According to the Banjo SME Compass Report, based on a commissioned survey of Australian SMEs by Honeycomb Strategies, almost seven in 10 SMEs expect revenue growth over the next 12 months and a similar number are looking to borrow to drive growth. In addition, 46 per cent of SMEs are looking to hire more people in 2021 after last year saw one in three that having to let some of their staff go due to financial difficulties brought on by the pandemic.

The report reveals that in the next 12 months, nearly two-thirds of SMEs intend to seek funding to drive their growth. With approximately 1.2 million SMEs in Australia, this means approximately 750-800,000 SMEs are planning to borrow to boost their business.

“At average borrowing of $7500, the sector had $146 billion of funding lines in June 2020, which declined during the pandemic to $141 billion in March 2021,” Guy Callaghan, CEO of Banjo Loans, said. “Based on our research, and the upswing we’re seeing in demand, we forecast lending to the SME sector will increase by $5 billion between now and the end of 2021.”

However, a significant proportion (59 per cent) of SMEs say that they still face challenges when looking to secure funding, particularly with onerous lender requirements and lengthy loan approval times.

“Responsible lending definitely does not have to mean a drawn-out approval process,” Callaghan said. “Lenders with the right technology can give a small business owner an answer either way, within 24 hours. There’s a lot less tolerance among SMEs for waiting weeks for an answer from a traditional bank.”

The research also noted that female business owners are much less likely than their male counterparts to borrow to fund growth, preferring to self-fund from operations. This is in large part because they are more averse to providing personal assets as security – regardless of how large or small their business is. There is also the question of where to turn for funding.

Meanwhile, the research found that 25 per cent of SMEs recorded strong revenue performance all by having implemented new technology, improved products and bought new assets or equipment in 2020. Those who leveraged debtor or supply chain finance were significantly more likely to exceed revenue targets.

There is still some aversion to digitisation in the SME sector, with only 28 per cent of SME revenue currently generated online at a time when online is now seen as a key component of tgrowth strategy. Because of this, 52 per cent are looking to increase their online sales in 2021, with 14 per cent saying that this year will mark the first time they begin to generate revenue online.