Inability amongst Aussie SMEs to access credit ‘deepens’ economic downturns, slows recovery

Downturn

The growth of SMEs is being significantly restricted by their inability to access credit readily, according to the results of a survey commissioned by fintech lender GetCapital.

The Businessloans.com.au Small Business Credit survey was completed by 611 SMEs, defined as businesses with between 5 and 250 FTE and an average minimum revenue between $50,001 and $250,000. It revealed that more than 60% of those who applied for credit last year ‘did not receive what they were looking for’.

“Credit is the key driver of growth for a small business and so a lack of credit means they simply can’t grow,” Jamie Osborn, CEO of GetCapital told Dynamic Business. “According to the survey, 33% of small businesses said they delayed expansion plans because of insufficient access to credit and a further 28% said they couldn’t fulfill orders because of a lack of credit.  There is a direct relationship between access to credit and small business growth.”

Osborn said the survey highlighted the significant time spent by SMEs in the search for credit – three quarters spent more than 6 hours in the process with 15% spending more than 20 hours.  He also said it demonstrated a concerning lack of knowledge, amongst SMEs, about where to look or what was involved, which meant false assumptions about credit availability and eligibility requirements.

“The key misconception amongst SMEs is that Banks are the only source of business finance in the market,” he said. “In the last 5 years there have been a number of non-bank lenders surface across all of the major loan products (trade finance, equipment finance, working capital loans and invoice finance).   Many SMEs don’t know these options exist.

“The Banks still completely dominate the supply of capital to the business sector in Australia and, on many measures, do a very good job of supporting a fully functioning credit market.  However, where we see very limited supply of funding by the Banks is in situation where the loan amounts are small (sub $500,000) and where the borrower has no or limited security.”

Commenting on the fact that 55% of respondents had been in business for more than ten years, Osborn said that as a general rule, older businesses better access to credit but “not by a big margin”. He continued, “the main determinant of access to credit in the past has been the ability of directors to put up property security for a loan, as this is what the Banks typically look for. That’s obviously changing and changing fast as the alternative lenders offer a wide range of unsecured finance options.

Osborn said it was ‘very hard’ to estimate the cost to the economy of SMEs not being able to access credit.

“What we do know, however, is that small business is responsible for 44% of total employment in Australia, so if small business can’t get access to credit, that has a big impact on employment numbers,” he said. “Outside of the hard numbers, what we see anecdotally is that small businesses are the first to hire in an economic expansion and the last to fire in a downturn. So, small business can play a really critical role in smoothing out the economic cycle. On the flip side, if small business can’t get access to credit, it leads to deeper downturns and slower recoveries across the cycle.  Small business really is the lifeblood of the economy.”