SMEs puts funders on notice: pandemic aftermath has them looking for new business funding options
(11 February 2021 - Australia) As the end of JobKeeper approaches, 62% of SMEs say they’ll reassess their style of business funding as they look to recover or take advantage of new opportunities
Small business funders are on notice to ensure they have funding options that address business owners’ needs as they look to recover in 2021, according to national small business research.
The SME Growth Index is conducted twice a year by East & Partners on behalf of ScotPac, Australia’s largest non-bank SME funder. The most recent round of research found SMEs are flagging their intentions to look at how they fund their businesses.
ScotPac CEO Jon Sutton said SMEs indicate they are willing to work with multiple funders (increasingly non-bank lenders) and are open to changing their existing funder.
Mr Sutton said SME Growth Index results indicate some owners already changed their funding behaviour during 2020 in response to the pandemic, and others are looking to change:
One in 12 SMEs already added non-bank funding facilities in 2020 to deal with the impact of the COVID-19 shutdown
A further one in eight small businesses plan to add non-bank funding facilities to cope with their cash flow needs in 2021.
Key SME funding findings
The ScotPac SME Growth Index results point to a significant shakeup within Australia’s small business funding sector, based on national polling of 1252 SMEs:
62% of small businesses plan to reassess the style of business funding they use
One in four (23%) say they’ll reassess their actual funder. This was more marked in the $5-20m revenue category (32% looking to reassess provider) compared to 15% of $1-5m SMEs
Borrowing from non-bank lenders reached an all-time high, with SMEs now almost twice as likely to go to a non-bank to fund new investment than to go to their main relationship bank
Small businesses say they are more likely to pull back on rather than increase borrowings in 2021: 24% will ‘throttle back’ borrowings, with 18% looking to increase.
Mr Sutton said small businesses who nominated non-banks as their primary funders said they had significantly fewer concerns about loan conditions, flexibility and ease of dealing with their funder.
“Those small businesses who have in place a clear strategy and who have secured appropriate funding will put themselves in the strongest position to come out of 2021 in tact,” Mr Sutton said.
“It’s imperative for small business to plan their way out of the recession, to plan for the end of JobKeeper, and not just rely on the whims of the market for their survival.”
Trend to non-bank lenders
Intention to fund new growth using a non-bank reached an all-time high of 27.4%, as SMEs actively diversified their funding base to navigate the aftermath of COVID-19.
Main bank funding of new SME investment is now at its lowest (17.4%, down from 22.6% in H2 2018 and from the high of 38.4% in the first round of the Index in 2014).
Within the cohort of businesses that are growing rather than declining, the popularity of non-bank funding has doubled since 2018 when 11.9% planned to fund growth using non-banks (this figure is 22.6%).
Fewer SMEs looking to invest
Mr Sutton said only around half the SMEs polled have plans to fund growth through to April 2021 (650 out of the 1252 businesses polled).
This is a significant drop from H1 2020, when 752 SMEs planned to invest in business growth. It falls short of the record low of H2 2016, when only 614 SMEs planned to invest.
“The fact that fewer SMEs are looking to invest in their business should be a concern for the sector, especially when it would be best practice for larger turnover SMEs to be making funding decisions much further ahead than six months,” he said.
“Nine out of 10 of the SMEs planning to invest will fund business investment using their own funds or equity – this reliance on equity to grow business has been a constant over the Index history.
“The next most popular ways for SMEs to fund new business investment were to use non-bank lenders (27.4% of respondents) and to source new equity to fund business demands (21.4%).”
Mr Sutton said a key concern is that 40.6% of smaller SMEs (in the $1-5m revenue bracket) have no idea how they are going to fund their business for the next six months.
“SME Growth Index data clearly shows the impact of the Federal Government’s stimulus initiatives in keeping the small business sector going – but where will SMEs stand in April 2021 once JobKeeper ends?
“It’s critical for small business, their advisors and for others with influence on the sector to be prepared. Plan ahead on business funding and cash flow projections to give yourselves the best chance of success,” he said.
About the SME Growth Index
Twice yearly since 2014, East & Partners on behalf of ScotPac interviews a representative sample of Australian SMEs - the owners, CEOs or senior financial staff of 1252 businesses across a range of industries and all states, with annual revenues of $A1-20 million. This round, the interviews took place over four weeks, ending October 9 2020.
ScotPac is Australia and New Zealand’s largest non-bank SME lender, and for more than 30 years has helped thousands of business owners with the working capital they need to succeed. ScotPac lends to small, medium and large businesses from start-ups to enterprises with revenues of more than $1 billion.
For more information contact:
Kathryn Britt
Director, Cicero Communications
kathryn@cicero.net.au
0414 661 616
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