Lending to medium businesses up 16% in three years

Number of SMEs, self-employed also on rise, report shows

Lending to medium businesses up 16% in three years


By Jayden Fennell

Despite challenging economic conditions, lending to medium-sized businesses has increased 16%, from $281bn in August 2019 to $326bn in August 2022, a report from the Australian Banking Association has revealed.

The ABA 2022 SME Lending Report, released on Thursday, November 24 provides a snapshot of the current economic position of the small to medium business sector in Australia. The ABS defines a medium business as employing between 20 and 199 staff.

The report also found that the number of micro businesses (self-employed people employing no staff) rose 10% to 1.55 million in the year to June 2022, while in the same period the number of small businesses (1 to 19 staff) grew 3% to 955,861. This followed  an extraordinary period of growth during the 2021 financial year, when the number of small businesses increased 15%.

The ABA’s data showed the appetite for finance had returned to the longer-term average amongst small businesses but was growing amongst medium businesses. In August, the total value of outstanding finance to small businesses was just over $142bn, returning to the medium-term average after having dropped to under $138bn in the second quarter of 2022.

In the six months to August 2022, no more than 17% of SMEs reported anticipating requiring additional finance in the following three months. The low levels of finance sought  by SMEs was in keeping with findings from previous ABA SME lending reports.

In August 2022, just 9% of SMEs reported anticipating that they would require additional finance over the next three months, which was much lower than at any time in the preceding six months.

The ABA found of those SMEs that intended to take out additional finance, the main reason was for cashflow or working capital, but fewer businesses were reporting a requirement to borrow for cashflow purposes, which suggests that cashflow problems were less of a concern than they were a year ago.

“Despite the difficult economic conditions resulting from a global pandemic and a contraction in economic activity during the 2021 and 2022 financial years, the number of SMEs operating in Australia has grown,” said ABA CEO Anna Bligh (pictured above).

“The rate of growth across all business sizes during the 2022 financial year was larger than the growth experienced in the years leading up to pandemic.”

Bligh said the report showed the experience of SMEs had been mixed during the past year as they navigated an economic landscape complicated by inflation, rising interest rates and low unemployment.

“However, business and small business confidence has not mirrored the subdued consumer confidence,” she said. “While the growth of total small business lending remains flat, data received from ABA member banks shows that the average value of loans made to small and medium businesses has been increasing.”

The report found the optimism shown by SMEs might be due to the nature of their revenues and profits throughout 2022. Despite high inflation and an increasing interest rate environment, which should be associated with constrained spending, in recent months more SMEs were reporting an increase in revenue compared to their revenue prior to the pandemic.

As of June 30, 2022, there was 2.6m businesses operating in Australia, with SMEs accounting for 98%, when measured by the number of staff employed. Despite the concerns SMEs have about recruiting staff, the ABA said this remained a lesser issue in comparison to inflation, increasing costs of fuel and energy and supply chain issues.

While around half of SMEs reported staff skill shortages to be a concern, around 80% reported increasing energy and fuel costs and nearly 70% reported supply chain delays and associated cost increases.

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