smes growth1Did you know that there are more than 2.1 million SMEs registered in Australia? Unfortunately, according to the Banjo Small Business Finance Study, 27% state ‘availability of funding’ as a major concern. And the government are beginning to cotton on, too. Small business commissioner Mark Brennan believes that accessing adequate finance is “a major barrier to most businesses in Australia.” In his experience, businesses are often forced to borrow against personal assets, using credit cards, and even sourcing money from family and friends.

But growth finance has changed dramatically in the past decade, and it’s still changing. Here we look at the impact of growth finance on SMEs, including non-standard corporate finance techniques, and the realities of finding financial support post-GFC.


Is Bank-Lending Yesterday’s Solution?

Thanks in large part to the Global Financial Crisis, traditional bank lending has taken a negative turn. According to the OECD, this is not uncommon. “Credit sources tend to dry up more rapidly for small firms than for large companies during economic downturns.” This fact often encourages a circular problem, as the growth of SMEs is essential for getting any economy back on track. Small businesses generate both employment and income, and depending on your definition of SME, they could make up anywhere from 45%-70% of private sector employment in Australia.

If banks aren’t lending as freely as they were, it explains why The Australian reports that they have only been responsible for 5% of the growth in the past 5 years, as opposed to 65% for large businesses. If the banks are closing their doors, and small business owners do not want to risk their personal assets, where can SMEs turn for financial support?


Governmental Support

The Australian government have not failed to notice the change in the financial climate, and are looking to make life easier for SMEs, with the introduction of several helping hands from the Turnbull government.

Notably, the Corporations Amendment (Crowd-Sourced Funding Bill) and the Crowd Sourced Equity Funding (CSEF) legislature means that businesses will soon be able to raise capital from the public far easier than ever before.

The government are also supporting the utilisation of CCR (Comprehensive Credit Reporting) which not only helps with data transparency, but makes the lending industry easier to manage and support businesses through.


Small Business Loans

This is good news for one popular solution to alternative business financing - small business loans. More data means more tailored lending which suits the needs of each small business, individually.

Furthermore, while banks and traditional lenders usually require assets such as property to secure a loan, small business lenders often do not have this stipulation. It is becoming increasingly common for businesses to rely on intangible assets such as technology or human capital to run their businesses and support their eligibility for a loan.

While private lenders might ask for a higher interest rate due to the riskier nature of providing for a small business or a start-up, studies have shown that almost 7 out of 10 SMEs prefer a higher interest rate to real estate security.

Other benefits of small business loans include:

  • Fewer loan conditions and less red tape
  • Faster decision making
  • The more personal nature of the loan, including having human contact

These are just some of the reasons why SMEs are increasingly seeing non-traditional methods as the answer to, as expert Christopher Sales puts it “bridging the gap between existing issues and future profitability.” If you can see that your business has a strong future, but current cashflow is a real concern, it makes a lot of sense.

In fact, according to the latest Scottish Pacific Growth Index “19.6 percent [of SMEs] plan to fund their growth using a specialist non-bank lender, a 30 percent increase from the figure of 15.1 percent in Sept 2015.” Interest in non-standard financing is clearly growing year on year.


Why Miss an Opportunity?

According to the 2016 Banjo study cited above, 25% of SMEs have missed out on a business opportunity because of a lack of funding, and in general, SMEs feel that traditional financing options are both strict, and expensive. With the Turnbull government opening up conversation for a change in legislature, and small business loans becoming ever more popular and trusted by SMEs, we’re expecting small businesses to capture an ever-increasing slice of the economy in the years to come.


About Toby Smith
Toby Smith is an Australian freelance writer from Sydney. He is passionate in writing about businesses and finance, and educating his readers on how to effectively grow and lead successful businesses.