SMEs: A Significant Contributor to Australia’s Booming Economy
There is no denying the value lent to an economy by massive corporations. However, SMEs (small and medium enterprises) have since risen to become a third of Australia’s Industry Value Added (IVA) sector and contribute to nearly half of the total employment in the country. Australia’s most agile and innovative entities have been smaller companies, yet they still face certain key challenges that restrict their access to finance.
Key Challenges for SMEs in Australia
SMEs have had to account for difficulties regarding:
- Transitioning into profitability
- Adjusting to changing government regulations
- Accounting for employee loyalty
- Cash flow and funding
Access to Finance: The Main Problem
Having to pump capital and secure funds at regular intervals, SMEs have to account for keeping their payables and receivables in control at all times. However, having quick and easy access to money to support fast-paced expansion plans isn’t always feasible. Because of this, having to open new stores, make big recruits, and stock up on inventory can make a serious dent in a business’s budget.
Most smaller businesses depend entirely on personal funds or those lent by family and friends due to the challenges they face applying for a business loan with big banks. Let’s take a look at what these are.
Demanding Qualification Criteria
Securing funds from larger banks require a high credit score and real estate options as collateral.
Small business loans make for lengthy application processes and large amounts of paperwork. Not to mention, a bank can simply decide not to approve the loan at all, leaving SMEs with time-sensitive projects in the dust.
Lenders usually favour larger corporations over smaller ones to avoid the risks of unsecured finances. SME managers will usually resort to using their own personal credit cards in the early stages of business.
Because of restricted access to capital and cash flow, SMEs can experience delays in services, debt repayments, buying capital-intensive equipment, and hiring.
Unconventional Sources of Capital For SMEs
Instead of dealing with big financiers who would prefer not to do business with SMEs altogether, alternative and non-traditional financing options have become available. SMEs can now apply for:
- Instant approval loans
- Trade creditor loans
- Factoring and advance loans
- Equity loans
- Invoice financing
- Secured and unsecured loans
Lenders that provide unsecured loans are streamlining processes, asking for less information and expediting applications in less than a day’s time. Though interest rates remain higher than bank rates, unsecured lenders continue to focus on relationship banking, taking into account the nuances of SMEs.
The Future of SME Financing
With alternative lending as most SMEs’ prime option, they can anticipate methodical regulatory changes within big banks in the coming years. Similarly, SMEs still need to keep an eye on developments within the alternative lending space, making sure to structure their funding projects in a way that prioritizes their future.
Though big banks need to improve their loaning processes when it comes to SMEs, businesses should also ensure that their taxes and the future borrowing of funds are not adversely affected by uninformed decisions.
If you’re an SME in Australia and looking to apply for a small business loan, work with us at Business Loan Experts! We help increase your profits while keeping a close eye on your budget and planning your business growth.