SMEs turn to investment to drive growth and navigate headwinds

Australia’s small to medium enterprises (SMEs) are increasingly seeking alternative funding options that don’t tie up their personal assets, as they drive growth post-pandemic while navigating ongoing supply chain and recruitment challenges.

The latest annual SME Compass Report by fintech SME lender Banjo Loans, found small businesses have a big appetite for borrowing to fund growth, but they struggle to get their hands on it.

When they do, it powers exponential expansion.  The research found that 30 per cent of respondent businesses exceeded their revenue target in the past 12 months, up from 25% the previous year.  Key areas of investment were:

• 71 per cent invested in new technology
• 67 per cent purchased new assets
• 63 per cent increased headcount.

Banjo Loans CEO Guy Callaghan said small business is back on track and powering Australia but needs better funding options to continue to grow and navigate obstacles like supply chain interruptions and recruitment drought.

With 62 per cent of businesses facing challenges securing funding, the slow pace of big bank processes is cited as the main frustration (23 per cent).

“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,” he 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.”

Banjo Loans works with thousands of Australian SMEs, providing unsecured loans to fund investment, with its fintech model enabling lending decisions to be handed down in as little as 48 hours.

“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 per cent) saying they reluctantly end up drawing investment from their own personal finances,” he said.

A further 33 per cent will leverage funding from bank loans, while 17 per cent will use credit facilities, like overdrafts and credit cards. Secured business loans and term loans are the most common financial products.

“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,” he said.

Growth through acquisition is on the cards for 47 per cent of SME businesses – up from 42 per cent in 2021. Significantly more SMEs are using acquisitions to add value to customers (45 per cent) than last year (33 per cent).

Supply chain issue – mostly delays in shipping – impacted 44 per cent of businesses over the past 12 months, with businesses now bringing forward stock in response. One in three are struggling with recruitment while more than 60 per cent looking to hire.

“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.

Other key findings included:

• moving into 2022, 55 per cent of SMEs are achieving or exceeding revenue targets, up from 45% the previous year
• The greatest barriers to growth were:
  • access to funding and insufficient cashflow (40 per cent
  • economic climate (33 per cent down from 37 per cent last year)
  • recruitment (28 per cent)
• 69 per cent expect revenue to increase over the next 12 months and they’ll do this by:
  • improving products (77 per cent, up from 67 per cent previous year),
  • investing in technology (73 per cent, up from 62 per cent)
  • marketing (71 per cent up from 62 per cent).
• In the next 12 months, 63 per cent of SMEs intend to leverage funding to drive growth.     Many will seek bank loans (33 per cent), some will use founders’ cash (20 per cent), others credit (17 per cent).
  • Half of those will be tapping founders’ personal savings (27 per cent taking out a mortgage against a personal property, and 28 per cent from other personal investment!)

For more information or to download a copy of the report, see: Banjo’s SME Compass Report 2022