It includes insights on SME investment plans, AI use, and more
ScotPac has released the 19th edition of its Small and Medium-sized Enterprises (SME) Growth Index, to provide insights into the ever-evolving world of business finance.
Launched in 2014, ScotPac’s SME Growth Index aims to inform the development of new and enhanced financial solutions and shares relevant insights about the unique needs of SMEs.
SME growth forecasts
Australian SMEs diverge on growth, with more than a half foreseeing positive revenue in the next six months, while 32% anticipate a decline.
“The six-month revenue growth outlook for Australian SMEs has ballooned to its largest margin in the near decade-long history of ScotPac’s SME Growth Index (SMEGI) Report, with forecasts ranging from growth of 13% to a decline of 22%,” said Jon Sutton (pictured above), ScotPac Business Finance CEO.
“The good news is that a remarkable 57% of SMEs are forecasting growth to March 2024 – the highest figure in seven years – by a healthy average of 8%. Conversely, a record 32% of SMEs are predicting their revenues will contract, up 18% year on year. The downturn in the construction sector, which is the largest SME category in the country, was no doubt a significant factor.”
Geographical variations were stark, with Western Australia and Queensland SMEs, optimistic at 92% and 84% growth, respectively, due to their large exposure to a booming resources sector. Conversely, Victoria SMEs were the most pessimistic at 17%.
Regional businesses aligned with metropolitan counterparts in growth, but contraction forecasts were half those in the cities.
SME investment intent
ScotPac data showed that nearly two-thirds of Australian SMEs were planning to invest in their business in the next six months – a 15% jump from the prior year and the highest in four years. The increase represented a surge in confidence that correlates with the 6.3% year-on-year lift in national capital expenditure, as reported by ABS’ June 2023 data.
For funding new investments, 90% of SMEs considered using their own funds, while the appetite for non-bank lenders remained at a record high of 47%, a 50% increase since March 2022.
When opting for non-bank lenders, SME owners prioritised securing better interest rates (80%), streamlined onboarding processes (55%), and higher credit limits (more than a third).
Wage hikes influencing SMEs’ staffing strategy
ScotPac said recent wage increases, which took effect on July 1, are significantly impacting Australian SMEs' business plans and growth projections.
The national minimum wage rose by 8.65% to $23.23 per hour, and award rates, affecting 2.8 million employees, increased by 5.75%. With SMEs constituting 97% of the country's businesses, these wage hikes are prompting changes in approach for many. More than two-thirds of SMEs planned to hire fewer new staff, reduce employee hours, or decrease headcount.
A third of SME owners also cited wage rises as an obstacle to business growth, while 17% were considering outsourcing to contractors. At the extreme, 4% of SMEs were contemplating closing their businesses due to wage pressures.
Use of secondary working capital provider
Four in five Australian SMEs embraced “multi-banking,” seeking additional finance providers in the high-interest rate landscape, ScotPac reported.
Half of respondents cited the desire for enhanced support and sharper pricing as motivations for diversifying lenders. Two-thirds prioritised the ease of credit attainment from secondary lenders, while more than half valued proactive engagement.
For 10%, the impulse for multi-banking was to expand product coverage.
Among the 20% without a secondary working capital provider, reasons included a preference for consolidated cash management accounts (67%), adherence to Treasury policy over securities (67%), and challenges with onboarding and new account requirements (60%).
More regular financial health checks
Rising interest rates and escalating business costs have prompted SMEs to more frequently review their primary lending relationships.
In 2015, 47% of Australian SMEs hadn't reviewed their lending relationship for years; now, only 22% shared this sentiment.
Interest rates prompted 30% of CFOs, treasurers, and business owners to consider lender switches, a significant increase from 2015, while a further 12% cited the influence of their broker channel. A small proportion of SMEs sought new credit providers after reaching current credit limits.
Artificial intelligence productivity gains
Fewer than one in seven Australian SMEs have implemented or planned to implement artificial intelligence, while a massive 85% had no AI plans. Over half were aware of AI but uncertain about applications, and 28% had no knowledge of AI.
Among respondents who offered views on AI's influence, customer service, identifying new opportunities, and sales/BDM management were the top three applications.
Less than 5% of SMEs understood AI but weren't considering implementation, and 4% saw AI as a potential threat, either competitively or in terms of cybersecurity risks like deep fakes, the ScotPac report found.
Leveraging the IAWO scheme
In the 12 months to June 30, SMEs extensively used the extended instant asset write off (IAWO) scheme, claiming immediate tax deductions averaging $91,500 on assets. Declining Growth or No Change SMEs were the IAWO scheme’s biggest users, with 68% purchasing eligible assets, while NSW and ACT SMEs posted the highest usage at 75%.
In the 2023-24 Budget, the Albanese government revised the IAWO scheme threshold to $20,000 per asset, effective from July 1, 2023, until June 30, 2024.
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