One-third of SMEs fear they would not survive a six-month recession


New research suggests a recession would be a disaster for the SME sector, with 34 per cent of Aussie SMEs saying that they wouldn’t survive more than six months of economic downturn, and 14 per cent believing they’d be unable to survive a recession at all.

The findings come from a survey of an independent panel of 253 Australian SME owners, commissioned by Small Business Loans Australia, and show that only 39 per cent of the surveyed SME owners would have made it through the previous Australian recession in 1990.

The research indicates business at the larger end of the SME scale are less resilient than smaller ones, with 31 per cent of businesses with 51-200 employees saying they could not survive more than six months of a recession, compared with 26 per cent of businesses with 11-50 employees and 16 per cent of businesses with 1-10 employees.

“The survey results are concerning,” Alon Rajic, founder and managing director of Small Business Loans Australia, said. “Many Australian businesses have had to endure a tough two years of decreased margins and cashflow, due to operational limitations, lockdowns and lower consumer confidence. As a result, many SMEs are heading into a recession without a savings cushion or plan B. The sector is extremely resilient and my hope is that businesses have learnt from the pandemic to have some safeguards prepared to see the other side of this period.

“Recessions can affect businesses of all sizes, however, typically larger companies can have an extra financial buffer to fall back on, as it is normally easier for them to secure financing,” Rajic added. “It is concerning to see established businesses have a gloomy outlook on their ability to survive a recession.”

Rajic is encouraging SMEs to implement preventative financial practices now. “Renegotiate vendor agreements and re-examine your accounting books to cut costs where possible,” he advised. “If SMEs are paying off business loans and have been affected by increased rate rises, consider consolidating debts and refinancing loans to secure a lower rate. Comparison services make good online research tools, and can help SMEs find an appropriate loan that will allow them to fix lower interest rates.”

The research also noted that 55 per cent of Aussie businesses are more concerned with the impacts of a recession, while 45 per cent worry more about the continued rising inflation.

“SMEs are the backbone of the Australian economy, and it is concerning that they continue to face many external factors, including a recession, that threaten the survival of their businesses,” Rajic said. “Ultimately, economic downturn is predicted but not guaranteed and targeted government stimulus and investment in population and export growth could pull our SME market safely through this period of uncertainty. Businesses who proactively make changes and put practices and safeguards in place will also be able to survive and thrive beyond this tough period.”