While the value of loans made to small and medium businesses have been increasing in recent years, new data reveals that there is an alarming number of SMEs left with no financial lifeline at all.

Australian Bureau for Statistics (ABS) shows a decline in value of small business loans from $4.81 billion in June 2021 to $$4.79 billion in June 2022.  Australian banks blame the low demand for finance from SMEs as the root cause, yet recent data paints a different picture altogether, with a staggering 50% of SMEs reporting to face daunting obstacles when attempting to access business loans from banks. 

The data from a survey by business loan comparison site, Small Business Loans Australia reveals a considerable portion of SMEs have financing plans this year and significantly more SMEs are turning to secured financing (75%) over unsecured options (50%).

Although four in 10 (40%) SMEs sought funding from banks last year, the research shows that half faced obstacles during the process, including excessive timeframes for loan approval (19%), difficulty obtaining a favourable interest rate (17%), and inability to provide required property or personal assets as security (15%). 

Australian small businesses’ perception of accessing finance has remained consistently low since the financial crisis, with a decline starting before the Covid outbreak. Small businesses have a relatively higher risk and are approximately three times more likely to default on a loan than their larger counterparts. However, loan approval figures that show around 75% of all small business loans are approved in Australia. 

Amid the prevailing economic conditions, numerous SMEs will find themselves dependent on business lending as their cash flow diminishes. Small Business Loans Australia found that the most pressing concern among SME directors was the rapid increase in inflation, which is closely associated with rising interest rates and reduced consumer spending.

Approximately 11% of respondents also expressed concerns about their existing loan obligations, while a significant 76% of respondents believed that surging interest rates and inflation would have an impact on their cash flow. Among the challenges anticipated, 30% expected difficulties in collecting customer payments, 26% anticipated struggles in attracting sales, and 20% believed that both factors would affect their cash flow. 

Small Business Loans Australia founder and managing director, Alon Rajic said, “The Australian government should take action such as reviewing lending criteria or mandating maximum approval timelines to address these factors and actively work towards enhancing the accessibility of SME finance within responsible lending practices. Currently, we find ourselves trapped in a situation where traditional lending standards are being enforced even more strictly amidst economic uncertainty.”