SMEs struggle to secure funds from banks – survey

They also lack confidence with loan applications

SMEs struggle to secure funds from banks – survey

An alarming number of small and medium businesses have no financial lifeline at all, according to new data.

A new survey commissioned by Small Business Loans Australia of 210 business owners or senior decision-makers across the full SME spectrum – micro, small, medium-sized, as well as larger businesses – found that a staggering 50% of SMEs face daunting obstacles when attempting to access business loans from banks. 

This point was further highlighted by the latest figures from ABS and ABA, which showed a decline in the value of small business loans – from $4.81 billion in June 2021 to $4.79bn in June 2022.  

Survey findings showed that a considerable number of SMEs have plans around their financing this year, with significantly more of them opting for secured financing (75%) over unsecured options (50%).

Last year, 40% of SMEs turned to banks to secure funding, but half encountered barriers during the process, including excessive timeframes for loan approval (19%), difficulty obtaining a favourable interest rate (17%), and inability to provide required property or personal assets as security (15%). 

Businesses have been facing significant constraints on accessing credit since 2020, with banks attributing this challenge to stringent lending standards. This is particularly so for SMEs, with 17% of the respondents saying this created additional difficulties to their loan applications.

SMEs lack confidence with loan applications 

Australian SMEs’ negative perceptions about accessing finance have increased between 2014 and 2016 and have remained consistently low over the years.

Recent research commissioned by the Australian government shone a light on SMEs’ net negative perception regarding their ability to access finance. Their concerns hold merit, though, as small businesses have a relatively higher risk and are roughly three times more likely to default on a loan than their larger counterparts – this despite loan approval figures showing that around 75% of all small business loans were approved in Australia. 

Amid the tough economic environment, a number of SMEs will have to rely on business lending as their cash flow diminishes. The rapidly rising inflation has been found to be the most pressing concern among SME directors, with roughly 11% of the respondents expressing concerns about their existing obligations, while a massive 76% believed that surging interest rates and inflation would impact their cash flow. Among the challenges anticipated, 30% expected difficulties in collecting customer payments, 26% anticipated struggles in attracting sales, and 20% believed that both factors would affect their cash flow, Small Business Loans Australia found. 

The Small Business Loans Australia survey also found that micro-businesses, with 10 or fewer staff, were the least likely to consider applying for a business loan to address their cash flow issues, with only 32% expressing such intention. In contrast, 66% of larger SMEs (51-200 employees) and 75%of small SMEs (11-50 employees) would consider seeking finance as a solution to their cashflow issues. 

“The Australian government should take action such as reviewing lending criteria or mandating maximum approval timelines to address these factors and actively work towards enhancing the accessibility of SME finance within responsible lending practices,” said Alon Rajic (pictured above), founder and managing director of Small Business Loans Australia. “Currently, we find ourselves trapped in a situation where traditional lending standards are being enforced even more strictly amidst economic uncertainty.” 

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