Nine million Australians have dreamed of starting their own business, but money is holding them back
While 9 million Australians have dreamed of starting their own business, 60% cited access to money as the reason holding them back, according to a new report from the Australian Banking Association (ABA).
There are 2.31 million businesses in Australia, of which 98% are small businesses. Sixty-two percent of all 2.31m businesses in Australia are sole traders and around 27% employ between one and 20 people.
Showcasing the role brokers can play when it comes to helping these small business customers, the fewer people in these businesses, the less likely they are to turn to a bank.
The report also shows that there has been a 33% drop in loan applications since 2014, despite lower interest rates, but banks have approved 94% of small business loans.
Seeking finance
Between 2017 and 2018, only 12% of businesses with fewer than five employees sought finance, compared to 20% of businesses with 5-19 employees. The percentages increase with the number of employees: 23% of businesses with 20-199 employees sought finance and 34% with 200+ employees sought finance.
It looks like when these businesses do apply for finance, they are mostly successful: around 87% of small businesses, in fact.
Avoiding the banks
Fifty-seven percent of businesses with 0-4 employees approached banks for finance in 2017-2018, compared to 67% of those with 5-19 employees.
The figure grows to around 83% for those businesses with 20-199 employees and with more than 200.
Instead, the smaller businesses are going to finance companies. Forty-two percent of business with fewer than four employees took out finance from a lender that wasn’t a bank, compared to just 21% of businesses with more than 200 employees.
Type of finance
Perhaps a worrying statistic was that most small businesses said they had obtained finance by taking out new credit cards. The segment most likely to do this was businesses with 20-199 employees, where 41.6% said they had taken out credit cards.
Only 9% of the same segment had taken out a new mortgage loan, compared to 16% of business with 0-4 employees, 15.5% of those with 5-19 employees and 21.8% of those with more than 200.
Small businesses with 0-4 employees were the most likely to take out a new loan with a term of one year or less – but this figure was only at 8% of businesses. Only 7% of both those with 5-19 employees and those with 20-199 employees took out the same loan.
While only 1.7% businesses with 200+ employees took out a loan with a term of one year or less, this was because they were taking out loans with a term of more than a year (12.7%).
Reasons for finance
The top three reasons for businesses seeking finance were:
- Maintaining shortterm cash flow or liquidity
- Ensuring the survival of the business
- Replacing other equipment or machinery
For businesses with fewer than four employees, ensuring the survival of their business was more important to them than for any other sized business.
The bigger the business, the more likely they were to need cash for debt or equity finance and to upgrade equipment.
Low survival rates
The more employees a business has, the more likely it is to survive, according to the research. The ABA looked at businesses operating in 2014 and then at whether they were still operating in 2018.
Businesses with fewer than 0 employees had a 60% survival rate between those four years; this increased to 70% for those businesses with one to four employees.
Those with 5 – 19 employees had a 78% survival rate and those with 20 employees or more had a 82% survival rate.
