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According to National Australia Bank’s (NAB) Business Survey, which has tracked confidence and conditions for more than 20 years, business conditions have fallen into negative territory for the first time in five years. Outside of the pandemic, conditions have not been as challenging for more than 10 years.
At the same time, however, business lending demand has remained resilient, with banks adding a record $20 billion to their business loan books in June, taking the total to $1.26 trillion, according to the Australian Prudential Regulation Authority.
Banks such as the Commonwealth Bank of Australia, Australia New Zealand Banking Group (ANZ), NAB, and Judo Bank have also recorded strong growth in their business lending books.
According to Accendo Finance director Trent Carter, that does not necessarily mean businesses are simply pushing ahead with traditional expansion plans.
“If the profit needs to stay the same, but the traditional way of doing business in your own business is being disrupted, how are you going to make the same amount of money?” he said and spoke on Broker Daily’s Finance Specialist podcast.
“Good operators are looking at how they can make more money out of less. Fundamentally, it’s that productivity element which is what their borrowing should be targeting.”
Capability over capacity
A recent study from Banjo Loans found that changes are showing up in where SMEs are directing their investment.
The study found 68 per cent of SMEs had achieved their revenue targets over the previous 12 months, while 72 per cent expected to meet or exceed their targets over the year ahead.
However, the areas businesses are prioritising for growth suggest they are increasingly focused on building capability rather than simply increasing capacity.
According to the study, 28 per cent of businesses were prioritising technology and AI, 23 per cent were investing in marketing, and 20 per cent were looking to launch new products, while significantly fewer were planning to increase headcount or purchase major equipment.
Carter said this reflected a focus on productivity and scalability.
“You know, really that’s the key to productivity. It’s the key to the scalability of a business. So if you want a scalable business, it’s how you can actually sell more of your product or service and generate more profit from less,” Carter said.
Carter added that AI was becoming a key tool for boosting productivity, with businesses increasingly using the technology to automate tasks and conduct research.
“I’m seeing broadly out there. A lot of people are getting their head right into this AI space in their businesses and they’re automating things. They’re doing research, market research on their own marketing and products and things that they can sell into their own existing client base and new markets they can open up,” Carter said.
“If there are repetitive tasks in my business, or research or things that would usually take more labour, but can now be done efficiently by a computer, then perhaps the human involvement is reviewing the output rather than the creation of the task.
“That’s a more efficient use of my labour. And then they’re deploying their human capital into client relationships, genuine problem solving.”
Carter said businesses were also moving beyond using AI as a research tool, with some looking at how AI agents could perform sequences of repetitive tasks.
“I think really smart businesses are using AI agents not just as a research tool, but how can I actually get this thing doing task A, then task B, then task C in my business?” Carter said.
“Because it’s repetitive, it’s easy. It’s like having a manufacturing robot in your business when you’re not necessarily a manufacturer, you’re a service business, for example.”
A new conversation for brokers
Carter said that the new path many SMEs are now on provides brokers with an opportunity to have different conversations with their clients.
Indeed, brokers have told Broker Daily that their role in business lending has shifted in recent months, with many taking a more proactive approach and discussing solutions with businesses before they come under financial pressure.
“Ask open questions,” Carter said.
“One thing I know about business owners is once you get them talking, they love talking about what’s going on. So let them talk, because that’s your biggest opportunity that you’ve got.
“Don’t assume that you’re walking in there to sell them a product. They’re going to tell you what they need and you’re just going to find the solution for it.”
Carter said those conversations could reveal changes businesses were making to their operations, including diversification, cost savings, and efficiencies.
“They’re going to tell you the different areas and specialties and things that they’re bringing in and how they’re diversifying or creating cost savings and efficiencies by using technology and doing these types of things,” Carter said.
[Related: Younger buyers go big on deposits despite affordability pressures]
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