Tough times hit regional businesses - Prospa

Australia Post closures affect SMEs

Tough times hit regional businesses - Prospa

Small regional businesses are doing it tough with a third rating their overall business health as poor, according to new research.

SME non-bank lender Prospa revealed findings from the latest SME Sentiment Report, conducted by YouGov and commissioned by Prospa, which surveyed around 500 small business owners across Australia.

The report highlights growing concerns from the small business community around their business viability as they head into the busy holiday period, and the financial gap between metropolitan and regional businesses due to economic pressures.

According to the SME Sentiment Report, nearly nine in 10 (86%) Australian small businesses are experiencing mounting worries with the top three concerns being the rising cost of goods or services (58%), rising cost of utilities (48%) and lower than expected consumer spending (36%).

Beau Bertoli, co-founder and chief revenue officer at Prospa (pictured above left) said the data underscored the disproportionate impact that adverse business conditions were having on businesses based outside of major metro areas, particularly concerning stark increases to goods and services costs.

“On top of ongoing labour shortages and soaring energy bills, the upcoming closure of postal branches in some regional areas could add to inflationary pressures,” Bertoli said. “As a result, nearly nine in 10 regional small businesses have shared with us that they have concerns going into the holiday period.” 

SMEs outside of major capital cities bear the brunt 

According to the research, small businesses in regional areas will be disproportionally harder hit following news that Australia Post plans to cut up to a third of its postal outlets across the country over the next 12 months, combined with the added pressure of rapidly rising goods and services costs.

The data shows regional businesses are more likely than capital city-based businesses to say they are worried about the rising cost of goods or services (73% compared to 64%) and over two in five (43%) regional businesses say they don’t feel optimistic about the economic outlook for the next 12 months.

When comparing outlook between metro and regional businesses, three quarters (74%) of capital Brisbane-based businesses feel extremely or somewhat optimistic about the economic outlook for the next 12 months, while under half (47%) of regional businesses in Queensland feel the same. 

Lack of access to or slow funding is stunting SMEs’ growth 

As inflation figures continue to hang heavy over small businesses and as late payment times averaged over three weeks in September, the need for financial support is growing.

While over half (53%) of Australian small businesses have sourced business funding from a traditional bank in the past, around the same amount among these respondents (48%) say the process was slow, highlighting the need for increased education around faster and more accessible alternative finance solutions. 

Nearly a quarter of Australia’s small businesses are preparing to access funds, averaging $24,903 among those expecting to do so in the next 12 months. On a national scale, this is equal to 524,000 small businesses with a collective borrowing power of $13.0 billion on average, all being channelled into the local economy.  

The report further reveals that two in three (66 %) respondents would make changes to their business now if they had the funds. The top three changes sought are adopting new technologies to improve efficiencies and customer service (52% and 43% respectively) and adapting operations to support growth (39%).

Other priorities include hiring to bring in new skills (30%), providing training to increase skills in the team (28%), and updating operations to solve existing problems (23%).

SMEs have a lack of information about funding solutions 

“Lack of access and awareness of fast and affordable funding solutions is stunting the ability of small businesses to make necessary changes or investments to their business to grow and thrive,” Bertoli said.

“As talent shortages, inflationary pressures and supply chain delays persist in the coming months, it is vital that small businesses know the different funding options available to them to maintain a steady cash flow.” 

Roberto Sanz, director of sales and partnerships at Prospa (pictured above right), said the research shows small business owners based outside of capital cities “are disproportionally feeling the pinch compared with city-based ones”.

“There are many challenges that are being presented especially to regional SMEs from labour shortages, increases in the energy bills and fuel price increases that translate into an increase in transport costs,” Sanz said.

Sanz said coupled with supply chain interruptions, and weakened consumer sentiment lessening demand, he expected regional SMEs to turn to their “trusted broker” for advice on how to cover potential shortfalls.

He said in many ways brokers, working with lenders, would provide “the light at the end of the tunnel” for regional SMEs.

Sanz said brokers were best placed to create an awareness of funding options available to SMEs, create an appetite to seek alternative funding and assist them to access funds.

However, he said there was no doubt many of the factors impacting regional SMEs were also affecting their city counterparts including the impact of interest rate rises, the lack of awareness of alternative funding options and a lack of information around cost control and the evaluation of the measures available to them.

Prospa released the results of a small business survey in October that revealed many small to medium businesses waited months for traditional banks to approve their loans or they had abandoned the application process altogether because they didn’t have the required documentation.

Earlier this year, Prospa teamed up with Trace in a move that strengthens its commitment to transition towards net zero emissions.

Through a partnership with Trace, a Sydney-based climate tech startup, Prospa will measure, reduce and offset its carbon emissions.