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New Year debt hangover puts SMEs in danger zone

by OnDeck Australia,   Jan 31, 2020

 

The New Year brings cashflow challenges to SMEs at a time when business owners may be nursing a spending hangover of their own – but brokers can provide a solution.

 

58% of Australia’s 2.3 million SMEs[1] may have experienced disruption as a result of the Christmas/New Year holiday period. After investing heavily in pre-Christmas stock, this time of year can see SMEs juggling increased staff leave costs coupled with quieter trading conditions, especially as the recent bushfires and prolonged drought are having a negative impact on consumer confidence.

 

However, small business owners planning to rely on bank finance to navigate a New Year cash squeeze could be disappointed.

 

Our research found that almost one in four SMEs that have applied for business finance with a bank have been rejected. Of these, one in three (33%) have reached out to family and friends for funding, and a further 32% have resorted to their personal credit card to fund business needs.

 

Cameron Poolman, CEO of OnDeck Australia, said, “We know that many small business owners turn to family and friends or personal credit cards when they’re rejected for finance by mainstream banks.”

 

“However, they may find that both avenues are fruitless at this time of year. For many Australians, personal finances can be thinly stretched in the New Year as they recover from higher spending throughout the festive season.”

 

Australians spent an estimated $28 billion on credit cards in December, and 37% of cardholders, equivalent to 7.2 million people, expect to still be repaying their Christmas debt through 2020.[2]

 

Brokers play a vital role in helping their SME clients understand that alternative funding options are available. And these client conversations should be supported by growing awareness of online lenders. Our research confirms that one in three (33%) SME owners believe the lending options available to small businesses are expanding, and consideration of online SME lenders such as OnDeck has doubled to one in five (22%), vs one in ten (11%) who would have considered an online lender in the past.

 

“Access to capital is the single biggest factor holding small business back in Australia. Brokers can support their SME clients to achieve business growth by partnering with online lenders such as OnDeck, which may be able to source the funds they need to take advantage of timely opportunities for business growth.”

 

“This also enables brokers to deliver value-added services as it preserves the important line between business assets and liabilities, and personal financial resources”, concluded Mr Poolman.

 

About the research

AltFi research was conducted online in April 2019 by Honeycomb Strategy across 430 SME owners Australia-wide. The survey included SMEs with less than 50 employees, annual turnover of $50,000-$5 million, and in operation for at least 12 months.

 

 

[1] https://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/8165.0Media%20Release1June%202014%20to%20June%202018

[2] https://www.finder.com.au/press-release-jan-2020-7-2-million-aussies-will-nurse-a-new-year-financial-hangover

 

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