Small businesses name their main 2020 funding frustrations

Nine out of 10 Australian small businesses express frustration about finding and maintaining funding for their enterprises, the latest SME Growth Index data highlights.

Small business research, conducted twice a year by East & Partners on behalf of ScotPac , Australia’s largest non-bank SME funder, points to loan conditions as the biggest pain point for small business owners, especially for those SMEs with bank funding.

ScotPac CEO Jon Sutton said of the 1252 small businesses surveyed, 84% were frustrated about the loan conditions imposed on them.

“Loan conditions has always been the main source of annoyance when we’ve asked SMEs about their funding frustrations, and during the pandemic it has been no different,” Mr Sutton said.

“The research found small businesses with non-banks as their primary funders had significantly fewer concerns about loan conditions, flexibility and ease of dealing with their funder during 2020.”

Top SME funding frustrations

Perennial SME funding pain points remain the biggest concern for small businesses.

• The top three frustrations were loan conditions (84%), having to provide property security (80%) and lack of flexibility (74%). All three frustrations were greater for SMEs than when last polled 18 months ago.
  Covid-specific response options were added to the research, highlighting very clear frustrations:
• Two thirds of SMEs (64.5%) were worried about the lack of a clear recovery path.
• Almost half (47%) had difficulty accessing government guaranteed loans during Covid-19.

Nearly a quarter (23%) were frustrated about online lenders charging high interest rates.

The SME frustration with the biggest proportional increase this year was that funders were hard to deal with (an issue for 56% of small businesses, compared to 47% 18 months ago), Mr Sutton said.

More than a quarter of small businesses (26.6%) don’t feel secure with their lender, pinpointing the need for clear communication and good ongoing relationships with funders.

“There was also a significant increase during the 2020 pandemic year of SMEs showing frustration that their funders can’t meet all their needs (22%, up from 16%).”

Those SMEs using non-bank borrowing rather than bank finance report fewer frustrations about:

• Loan conditions (91% of bank borrowers frustrated; only 7% of non-bank borrowers)
• Providing property security (93% versus 67%)
• Lack of flexibility (97% against 51%)
• Funder is too hard to deal with (72% against 39%)

Paying down debt an SME priority
The SME Growth Index found that SMEs top priority for 2021 is to pay down their debt.

The irony is that many of the federal stimulus measures which helped prop up the national economy required SMEs to take on more debt, Mr Sutton said.

“Historic Index data shows a very large proportion of small businesses use easy access debt (such as personal credit cards or their own funds) to access working capital for their enterprises,” he said.

“2021 is the right time, hopefully with the worst of the business shutdowns behind us, for SME owners to make the tough decisions about their business and find better ways to fund their operations.

“2021 is not a time to kick the can further down the road: it’s really crucial for business owners to find ways to unlock capital to ease cashflow issues that can be crippling even in good times let alone during a recession.”

Mr Sutton encouraged small business owners to have the tough conversations with their advisors – sooner rather than later.

“Don’t wait until JobKeeper is off the table for you or your suppliers, get on the front foot with finding the right funding and make decisions before it’s forced on you,” he said.

*About the SME Growth Index Twice yearly since 2014, East & Partners on behalf of ScotPac interviews a representative sample of Australian SMEs – the owners, CEOs or senior financial staff of 1252 businesses across a range of industries and all states, with annual revenues of $A1-20 million. This round, the interviews took place over four weeks, ending October 9 2020.