High percentage investing in tech
Small-to-medium sized businesses across the nation are struggling to source funding for growth following the COVID-19 pandemic, a new report shows.
Banjo Loans’ annual SME Compass Report looked at 500 SMEs with at least two years’ trading history and a minimum annual revenue of $500,000. It showed an increasing number of businesses sought alternative funding options that wouldn’t tie up their personal assets.
The fintech, which provides working capital loans, including an express funding solution for SMEs, said the findings, conducted during February and March 2022, showed small businesses had a “big appetite” for borrowing to fund growth.
Despite this, businesses struggled to lay their hands on it. Of those businesses able to secure funding for investment, almost three quarters (71%) invested in new technology, 67% purchased new assets and 63% hired new staff.
Banjo Loans CEO Guy Callaghan (pictured) said while small businesses were “back on track”, the sector required better funding options if it was to continue to grow and navigate obstacles such as supply chain interruptions and talent shortages.
Findings also showed 30% of businesses exceeded their revenue target over the past 12 months, up from 25% the previous year.
“Australian SMEs are coming out of two years of the pandemic with an upbeat outlook and an eagerness to invest in their business. More companies have acquisitions in their sights, yet many are frustrated by the traditional borrowing process and not fully informed about the alternative options available to them,” Callaghan said.
“With 40 per cent of SMEs still turning to the major banks as their first funding option, this suggests many are yet to understand there are faster and more efficient funding alternatives that won’t tie up their assets.”
Almost two-thirds (62%) of businesses faced challenges getting funding, with almost a quarter (23%) citing big bank processes were their main frustration.
“SMEs repeatedly tell us traditional banks just take far too long, and the opportunity cost of not being able to get funding in time can restrict businesses’ growth. This is why we see so many respondents (20%) saying they reluctantly end up drawing investment from their own personal finances,” Callaghan said.
Working with thousands of SMEs across Australia, Banjo Loans provides unsecured loans to fund investment, with its fintech model enabling lending decisions to be handed down in as little as 48 hours, Callaghan said.
Findings showed 33% of SMEs leveraged funding from bank loans, and 17% used credit facilities, such as overdrafts and credit cards. Secured business loans and term loans were the most common financial products used.
“What we also see in the research is a desire to move away from secured loans, with women business owners in particular much less likely to offer up personal assets as security than men,” Callaghan said.
According to the findings, growth through acquisition was on the cards for 47% of SME businesses – up from 42% in 2021.
At 45%, many more SMEs were using acquisitions to add value to customers than last year (33%)
Supply chain issues - mostly delays in shipping - impacted 44% of businesses over the past 12 months, with businesses now bringing forward stock in response. One in three struggled with recruitment, with over 60% looking to hire new staff.
“Funding will play a role in helping small business navigate these headwinds. With rising interest rates, debt that can be supplied quickly so that businesses can leverage the growth it powers to pay it down faster, that’s a much healthier picture,” Callaghan said.
Among other key findings of the research were that over half (55%) of SMEs had achieved or exceeded revenue targets, up from 45% the previous year.
Access to funding and insufficient cashflow, economic climate and recruitment were cited by SMEs as the greatest barriers to growth.
Looking forward, over two-thirds (69%) of SMEs expected revenue to increase over the next year, which would be achieved by improving products (77%), investing in technology (73%) and marketing (71%).
Over the next year, a high portion (63%) intend to leverage funding to drive growth. This would be achieved through bank loans (33%), founders’ cash (20%) and credit (17%). Among founders tapping into personal savings, 27% would take out a mortgage against a personal property, and 28% from another form of personal investment.
