Loan rejections resulting in cash flow crisis for SMEs, new research shows

According to the SME Growth Index, the percentage of SMEs reporting significantly worse cash flow has doubled since March 2018, with 7.3 per cent saying it is significantly worse and 12.3 per cent saying it is worse than the previous year.

The research, conducted by banking analyst East & Partners, revealed that more than one in five business owners cite being rejected from a lending product as the main reason for their cash flow issues.

This is a troubling statistic according to the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell.

“Australian small businesses are in the midst of a cash flow crisis and the SME Growth Index indicates the situation is getting worse,” Ms Carnell said.

“Small businesses are telling us time and time again that a lack of access to funding is their biggest barrier to growth. This has major implications for the sector as a whole as well as the economy more broadly.”

Interestingly, the index found that only one in 10 SMEs said they had no cash flow concerns in the past year.

“This highlights why it is so important for small businesses to be paid on time,” added Ms Carnell.

East & Partners also found that a quarter of small businesses (27.8 per cent) have difficulty meeting tax payments on time – up by around 12 per cent from March 2018.

Moreover, the research suggested that the ATO continues to be viewed by many SMEs as a sort of “lender of last resort”, with small businesses almost twice as likely to have a debt with the ATO compared to other taxpayers.

Australian National Audit Office statistics indicate SME tax debt accounts for 63 per cent of overall tax debt, totalling $15 billion as of June 2018.

SMEs turning back on banks 

For the first time in five years of the SME Growth Index, SMEs say they are more likely to fund growth using a non-bank lender rather than their main bank. 

While in 2014, 38 per cent of SMEs preferred their main bank for growth funding this has now halved to 18.3 per cent, with 18.7 per cent of SMEs telling East & Partners they plan to fund the next six months’ growth using a non-bank.  

Only 2.6 per cent of SMEs would not consider using a non-bank lender, down from 4 per cent last year, while almost one in 10 SMEs don’t know how they will fund investment and are open to ideas. 

However, the research revealed that the dominant way to fund growth continues to be owners dipping into their own funds, the choice for 83 per cent of SMEs.

The key reasons for SMEs turning to non-bank lenders, according to SME Growth Index findings, are to avoid property security and using non-property assets or personal guarantees to fund their business.