SMEs struggle to finance growth, navigate headwinds

Australia’s SMEs increasingly seek funding options unshackled from their personal assets as they navigate post-pandemic supply chain and recruitment challenges, the annual SME Compass Report finds.

The report conducted by fintech SME lender Banjo Loans, found small businesses have a huge appetite for borrowing to fund growth but struggle to get their hands on it.

Banjo Loans CEO Guy Callaghan said small businesses were back on track and powering Australia but they needed better funding options to grow and navigate obstacles like supply chain interruptions and the talent drought.

With 62 per cent of businesses facing challenges securing funding, the slow pace of big bank processes was cited as the main frustration (23 per cent).

“Australian SMEs are coming out of two years of the pandemic with an upbeat outlook and an eagerness to invest in their business,” he said.

“More companies have acquisitions in their sights, yet many are frustrated by the traditional borrowing process, and not fully informed about the alternative options available to them.”

“With 40 per cent of SMEs still turning to the major banks as their first funding option, this suggests many are yet to understand there are faster and more efficient funding alternatives, that won’t tie up their assets.”

Mr Callaghan said to overcome lending challenges, SMEs were increasingly relying on the advice of accountants, traditional banks, advisers and brokers. 

"More than 36 per cent of respondents say their accountant assisted their organisation in evaluating and securing finance," he said.

Mr Callaghan said SMEs faced a raft of challenges as the end of the financial year approached.

He said supply chain issues – mostly delays in shipping – had impacted 44 per cent of businesses over the past 12 months and many were bringing forward stock in response.

One in three were struggling with recruitment with more than 60 per cent looking to hire.

Growth through acquisition was also on the cards for 47 per cent of SMEs – up from 42 per cent in 2021. Significantly more SMEs were using acquisitions to add value to customers (45 per cent) than last year (33 per cent).  

“Funding will play a role in helping small businesses navigate these headwinds,” Mr Callaghan said.

“With rising interest rates, debt that can be supplied quickly so that businesses can leverage the growth it powers to pay it down faster, that’s a much healthier picture.”

Mr Callagahan said SMEs repeatedly found traditional banks take far too long, and the opportunity cost of not being able to get funding in time could restrict growth.  

“This is why we see so many respondents (20 per cent) saying they reluctantly end up drawing investment from their own personal finances,” he said.

“In the next 12 months, 63 per cent of SMEs intend to leverage funding to drive growth. Many will seek bank loans (33 per cent), some will use founders’ cash (20 per cent), others credit (17 per cent).

“Half of those will be tapping into founders’ personal savings (27 per cent taking out mortgage against a personal property, and 28 per cent from other personal investment)

“What we also see in the research is a desire to move away from secured loans, with women business owners in particular much less likely to offer up personal assets as security than men.”