Small business owners resilient in the face of COVID-19 – RedZed

Leading lender releases inaugural Self-Employed Business Index

Small business owners resilient in the face of COVID-19 – RedZed

Australia’s self-employed and small business owners have rebounded strongly despite the challenges of the COVID-19 pandemic and are generally optimistic about their futures, according to new research from RedZed.

The resilience of self-employed and small business owners is the key finding of the inaugural RedZed Self-Employed Business Index. RedZed, a leading lender to the segment, engaged with more than 500 self-employed people on the index.

According to the report, more than 90% of Australian businesses are small businesses. They account for 33% of Australia’s GDP, employ more than 40% of the country’s workforce, and pay about 12% of total company tax revenue.

Key findings of the report included:

  • 72% of business owners are confident about their futures, anf 87% draw satisfaction from their businesses
  • Only 16% of respondents believed it was easy to secure a loan from a bank. Reasons given included risk-averse lenders, too much red tape and paperwork, and issues with credit ratings or the age of the business
  • 82% of business owners under 40 years old have plans for their business to grow and expand, compared to 55% in the 40-plus age group. This is reflected in hours worked, with younger business owners working an average of 177 more hours each year than their older counterparts
  • Of those under 40 years old, 56% generated turnover of $100,000 or more last financial year, compared to 36% of those aged 40 and over
  • New South Wales business owners were most likely to have applied for a business loan from a bank (45%), but had the lowest level among the states for unsuccessful applications (16%). In Victoria, 33% of bank loan applicants were denied
  • Owners in Victoria were most likely to have experienced detrimental effects to their mental health, likely due to the state’s extended lockdowns (57%, compared to the national average of 48%)
  • 41% of business owners have previously applied for a loan. Male business owners (47%) are more likely to have applied for a loan from a major bank than female business owners (26%)

Women business owners and major banks

The report revealed some alarming discrepancies between outcomes for male and female business owners, with 31% of female applicants denied a loan, compared to just 17% of male applicants. Women (22%) were also less likely than men (30%) to feel very confident about dealing with financial and money matters. They were also less likely to agree that they try to stay informed about financial matters (72% compared to 84%).

While they were less successful on average in dealing with major bank lenders, women expressed greater net confidence about their business prospects: +62 compared to +50 for men. Net confidence was defined in the report as the difference between those saying they were confident and those saying they were worried.

Fifty-four percent of women said they got a great deal of satisfaction from owning and running a business, compared to 39% of men.

Confidence lags among metro businesses

COVID-19 lockdowns have disproportionately impacted confidence levels of metropolitan business owners when compared to their rural counterparts, the report found. Twice as many rural and regional owners said they felt very confident about their prospects over the next 12 months (36% or regional owners compared to 18% of metro owners).

Rural and regional firms also displayed greater net confidence about their business prospects for the next year at +66, compared with +53 for metro business owners. In other findings that demonstrate the pandemic’s greater impact on metro areas, 59% of rural and regional business owners derive a great deal of satisfaction from owning and running a business, compared to just 42% of metro owners.

Tim Schleiger, whose Melbourne-based Train 24/7 Fitness gyms were heavily impacted by lockdowns, said optimism is returning to the industry as the country begins to open up again.

“The fitness industry was one of the hardest hit over lockdowns, particularly in Victoria,” Schleiger told RedZed. “Uncertainty is the enemy of any small business, and we were left unable to plan, strategise or dream. It was a dark time. But now that we’re open again, that’s all changed. Being active with the business again and finally getting to plan our next moves with certainty is a great feeling. The team and I are actually excited about the future again. And it’s not just me or fellow business owners. It’s our staff and clients. Confidence is returning across the board. They’re spending more, they’re turning up to work energised – it’s invigorating. It’s been a painful couple of years, but business owners are resilient, and we’re ready to rebuild better than ever.”

Chris Calvert, executive general manager of distribution at RedZed, said the findings of the Self-Employed Business Index provided valuable insights to better understand how the self-employed handled the pandemic and the shifting market conditions faced by the sector.

“These findings point to a largely buoyant and confident business sector, despite the massive impact of the pandemic. Self-employed business owners have proven themselves to be incredibly resilient and resourceful and strong believers in their ability to make a success of it,” Calvert said. “This index reinforces what our internal data is telling us. Self-employed business owners are finding it incredibly hard to secure lending from the big banks. A range of reasons emerge for failed applications, but at RedZed we see this as a great opportunity. We look at risk differently, and we back those who back themselves with loans for the self-employed.

“COVID-19 restrictions impacted small and micro businesses in a myriad of ways, but while government support – particularly JobKeeper, the Cashflow Boost, and various state-based schemes – were well-publicised, most self-employed business owners weathered the storm using their own cash reserves and accessed their own personal superannuation accounts,” Calvert said. “COVID has forced business owners to adjust and adapt quickly. Those we spoke to have been able to navigate their way through it to this point. While JobKeeper and government support helped those who qualified to some extent, it was not an influential factor on their outlook to the future. It is their resilience and perseverance – being able to say, ‘We’re still here.’ They’re proud to still be operating, which is giving them confidence about their future business prospects.”

Calvert said that the “lack of consistency in interpreting health advice and the vastly different orders that resulted” significantly impacted businesses.

“Small businesses were smashed during lockdowns, and communities that straddled state borders were particularly hard hit,” he said. “It is a testament to the strength of the self-employed business sector that most have survived. Our own data tells us that a significant cohort of Melbourne business owners particularly feel a sense of anger towards the lockdown orders in what became the world’s most locked-down city over the past 18 months.”

Calvert said that RedZed approached lending to business owners differently than the large banks.

“RedZed doesn’t rely on computers and algorithms to make lending decisions,” he said. “We support potential and recognise that the success and creditworthiness of self-employed business owners doesn’t come from playing it safe, but from having a crack. The RedZed spirit is what sets us apart from the banks and why we continue to grow.”