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New research published by Banjo Loans reveals that small to medium-sized businesses in Australia are feeling positive about the road ahead, despite facing challenges such as insufficient cashflow and reduced access to funding.
The Banjo SME Compass Report provides insights into how Australian SMEs were impacted by 2020, how they are performing in 2021, and their view of the near future.
Barriers to SME growth in 2020
In 2020, 72 per cent of SMEs had their operating capabilities restricted as a
result of the COVID-19 pandemic. Approximately one in three had to overcome significant operational restrictions or close down temporarily.
The top barriers to growth for 37 per cent of SMEs were economic and market conditions. Many faced difficulties due to insufficient cashflow, access to funding, competitor activity, and recruitment challenges.
Twenty-nine percent of SMEs decreased headcount in response to the pandemic. Other measures included shifting to online operations, launching new products, and investing in new technology and markets.
Although 54 per cent of respondents did not achieve their growth goals, 25 per cent exceeded their revenue targets by prioritising new technology, products, and assets. SMEs that leveraged debtor or supply chain finance were also far more likely to succeed.
Drivers of SME growth in 2021
The majority of SMEs surveyed are expecting 2021 to be a year of revenue growth. Sixty-nine per cent are anticipating a revenue increase over the next 12 months while 46 per cent are looking to increase their headcount.
The most essential business functions for SMEs were found to be operations (68 per cent), sales (61 per cent), and marketing (56 per cent), followed by finance, technology, and human resources in last place.
Top drivers of growth for SMEs are expected to be improving existing products (67 per cent) as well as investing in new products, marketing, and technology.
Fifty-two per cent of SMEs are looking to increase the proportion of their sales generated through online channels. For 14 per cent, this year will be their first in generating online revenue.
Sixty-five per cent of SMEs intend to leverage funding in the next 12 months. While most business owners still prefer banks (23 per cent), a growing number of founders are looking to personally invest in their business (18 per cent).
SMEs looking to obtain funding are increasingly turning to business advisors, consultants and accountants for advice. The biggest challenges they face are strict lender requirements (22 per cent) and lengthy applications (21 per cent).
Growth strategies preferred by female and male-led SMEs
The report found that female-led SMEs vary from their male counterparts in terms of growth strategy. Female business leaders are more likely to focus inwards by improving existing
products (67 per cent compared to 57 per cent) and increasing investment in marketing (56 per cent compared to 54 per cent).
On the other hand, male-led SMEs are more concerned with entering new markets (46 per cent compared to 29 per cent) or mergers and acquisitions (37 per cent compared to 17 per cent).
In addition, female business leaders prefer to operate without external financial assistance (47 per cent compared to 27 per cent) although male business leaders are more confident when it comes to providing personal property or assets as security (32 per cent compared to 24 per cent).
Up to two-thirds of SMEs planning to boost business by borrowing
CEO of Banjo Loans Guy Callaghan said that up to 800,000 SMEs in Australia are planning to leverage funding as a primary driver of growth.
“At average borrowing of $7500, the sector had $146 billion of funding lines in June 2020, which declined during the pandemic to $141 billion in March 2021,” Mr Callaghan said.
“Based on our research, and the upswing we’re seeing in demand, we forecast lending to the SME sector will increase by $5 billion between now and the end of 2021.
“Responsible lending definitely does not have to mean a drawn-out approval process. Lenders with the right technology can give a small business owner an answer either way, within 24 hours.
“There’s a lot less tolerance among SMEs for waiting weeks for an answer from a traditional bank.”