SME frustration mounts amid cash flow storm

Over eight out of 10 small businesses have nominated loan conditions as their biggest frustration, according to the latest SME Growth Index by ScotPac.

The survey of 1,252 small businesses also found that being forced to provide property security was another major pain point, with 79.8 per cent nominating it as a barrier to funding.

The findings come after the Reserve Bank of Australia found that there was little demand for new SME loans despite interest rates declining to historically low levels.

The RBA’s Small Business Finance Advisory Panel noted that small businesses continue to report difficulty in accessing finance because of onerous standards set by the banks, and the need to provide collateral or personal guarantees to secure finance.

According to the central bank, over 90 per cent of SME loans are secured and about half of small-business loans are residentially secured. About 60 per cent of loans extended through the government’s SME guarantee scheme have a personal guarantee, despite the intention to provide unsecured credit.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, believes the combination of government support measures being withdrawn, rent relief ending, ongoing border closures, and challenging access to finance will leave many businesses reeling from a cash flow perspective.

“Even in the best of times, small businesses have struggled to secure finance,” Ms Carnell said.

“Taking into account the enormous challenges they are now facing, the fallout of insufficient working capital could be devastating, not only for small business owners and their staff, but for the broader economy.”

ScotPac chief executive Jon Sutton believes it is time for small business owners to have tough conversations with their advisers.

“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,” Mr Sutton said.

“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 cash flow issues that can be crippling even in good times, let alone during a recession.

“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.”

[Related: Government urged to establish HECS-style SME loans]