Nearly half (44 per cent) of Gen Y small businesses have applied for finance in the last year and more than a third (39 per cent) of those applications were declined, according to the latest findings from the MYOB Business Monitor.
The report, which explores the state of play of 1,000 Australian small businesses, found Gen Y businesses were more likely to apply for finance, compared to 23 per cent of Gen X small-business owners and 15 per cent of the Baby Boomer generation. This trend looks set to continue in the next 12 months, with 36 per cent of Gen Y-run small businesses expected to apply for finance, versus 16 per cent of Gen Xers and 8 per cent of Baby Boomers.
MYOB CEO Tim Reed considers the rate of success of finance applications for Gen Y small business a warning shot to the way financial access is provided to the small business community as a whole.
“Australia’s youngest small business owners struggle to get access to finance because they’re less likely to own their own home. Many of us have believed tying business loans to home ownership has been a problem with the lending system that has existed for years, but for the first time we’re now seeing the generational impact,” he said.
He added, “Small business shouldn’t have to put up their own property as collateral to drive their business forward. We believe the birth of a new generation of small business financiers, as well as the bipartisan support for the Federal Government’s Australian Securitisation Fund, is in response to this market need.”
In addition, the report may also suggest Gen Y small businesses are bearing the brunt of consequences from the Hayne Royal Commission. “Recent data from the Reserve Bank of Australia demonstrates growth in bank loans of between $100,000 and $500,000 has been in negative for the last three quarters, which further compacts the frustrations of small business operators,” said Reed.
While access to finance is a sticking point for Gen Y small business, they maintain a positive outlook. Thirty-one per cent of Gen Y respondents said the economy will improve in the next 12 months, while just 28 per cent of small business nationwide expect this.
Revenue is another area where Gen Y feels buoyant, with 37 per cent reporting revenue went up in the last 12 months (versus 25 per cent at national average) and 38 per cent stating revenue will be up in the year to come (versus 28 per cent). Nationwide, the 12 months ahead look less rosy than six months ago, with expectations for an increased revenue forecast reducing five points from 33 per cent in October 2018 to 28 per cent.
When asked why revenue had increased in the last 12 months, most replied there had been an increase in customer demand (28 per cent), followed by the current economic climate and development of better relationships with customers (jointly 14 per cent). For those who had stated revenue had decreased during the last 12 months, one third (33 per cent) said the reason was the current economic climate, while 21 per cent put it down to decreased customer demand.
“It’s interesting to see that the economy has worked in favour for some in the last 12 months, but most feel it’s been the reason for a decline if that’s what they’ve experienced,” said Reed. “The research tells us there’s a lot for small business to feel optimistic about in the coming year, but it’s worrying to see cashflow such a creeping concern for the community. If cashflow causes problems, the wheels can fall off very quickly in other areas, so making sure businesses can get paid on time should continue to be an absolute priority for all.”