More finance support needed for SMEs — study

by Gerv Tacadena07 Jun 2021

There is a growing need for small- and medium-sized enterprises to be educated about how they can secure funding outside the traditional methods, according to the latest study by Apricity Finance.

The study showed that since the onset of the pandemic in March last year, only 12% of small businesses have applied for finance. They are part of the 39% of all SMEs who said they had either sought finance or are planning to in the next two years.

Around 45% of those who sought finance said they need enough funding to stay afloat amid the current market environment. A similar proportion said they plan to use their funding to lay strong growth foundations in the coming years.

Linden Toll, CEO of Apricity Finance, said the ability to access a secure stream of funding is vital for small businesses to sustain a stable recovery from the downturn brought by the pandemic.

"Small business is the essential driver and engine room of the Australian economy, so assessing where these businesses can best use support, whether from the Budget and government policy or through alternative funding options, is key to enabling their growth and good health," he said.

However, it seems like some small businesses are restricted to traditional sources of funding. According to the study, 22% of the sector were not aware of alternative finance sources outside other traditional lenders such as smaller banks, credit unions, and building societies.

Furthermore, it is common for these small businesses to sacrifice their properties to secure financing. The study showed that three in five have used or would be willing to use their family or private home for security. This reflects a continued perception that accessing home equity is the easiest way to secure finance, Toll said.

“Couple this with new rules enabling access to higher amounts of super for homeownership and we may be looking at a situation where Australian small business owners are putting both their present and future personal security on the line to fund their business, despite this being far from the only option," he said.

Toll believes it is vital for institutions to educate small businesses and ensure that they are made aware of the options available.

"We were interested to see that awareness of alternative finance is higher among experienced businesses, suggesting a knowledge gap among newer players who may be missing out on opportunities," he said.

It is also crucial for the government to do its part in boosting the small business sector, which contributes significantly to the overall economy.

In fact, around 48% of small businesses said greater stimulus across the whole economy would help them in their recovery. Around the same share of SMEs said more tax relief would also contribute substantially.

"The boost in stimulus for the infrastructure sector, and the extension of the asset write off is good news for many SMEs," Toll said.

"There was a lot of initial excitement about the infrastructure stimulus in last year’s Budget, but the very high surety bonds and bank guarantees required to participate in most projects formed an instant barrier to entry. This issue needs to be addressed if the SME sector is going to benefit from these new infrastructure projects.”