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The funding gap for SMEs with a turnover of between $1 million and $20 million has widened by $4.6 billion to $94.3 billion since 2019, according to a report.
The 2021 Small-to-Medium Enterprise (SME) Banking Insights Report, commissioned by Judo Bank and conducted by East and Partners, has shown that one in four SMEs is unsuccessful at obtaining finance.
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The third edition of the report, which has been widened to include businesses with a turnover of up to $50 million, found that the funding gap for businesses up to this size hit $119.2 billion.
It also found that while almost three-quarters (74.0 per cent) of all loan applications in the range of $300,000 to $1.5 million were successful (average sum sought of $700,000), 26.0 per cent of SMEs were turned away for new finance.
The average value for those SMEs turned away was almost four times greater than successful applications, at $2.6 million, the report said.
The report – which involved direct interviews with over 1,750 SMEs nationally with an annual turnover of between $1 million and $50 million – has also revealed that just under one in two (45.4 per cent) enterprises sought funding in the last 12 months for an average sum of $1.2 million.
SMEs lodged finance applications for amounts ranging from $300,000 to $4.4 million, representing a significant increase on last round’s range of between $200,000 and $2.6 million, the figures showed.
“COVID-19 has clearly impacted SME lending demand at the ‘extremes’, while funding demand by number of businesses seeking credit and the value of loan balances have remained relatively steady year-on-year,” the report said.
When asked what purposes they plan to use borrowings for in the next 12 months, 69.1 per cent of SMEs cited easing working capital constraints as the primary purpose for sourcing new funds.
This figure rose to 80.6 per cent for SMEs with a turnover of between $1 million and $10 million, who, according to Judo Bank, “perennially struggle with cash flow”.
The expiry or qualifying for COVID-19-related provisions such as JobKeeper also rated highly, with 39.9 per cent of respondents citing this as a reason, while 38.2 per cent cited capital expenditure for plan and equipment, 32.4 per cent said retirement of existing debt, and 20.2 per cent said COVID-19-related growth opportunities.
One in four SMEs said they do not know what they plan to focus their business strategy on after the COVID-19 crisis, while one in three said that they would consolidate and take stock following the economic downturn.
“Significant variance exists by business size, exemplifying the challenge lenders face servicing SMEs reeling from the full impact of COVID-19-enforced shutdowns and revenue loss,” the report said.
When asked what the biggest challenge currently facing businesses is, 21.0 per cent said cash flow management remains a “key hurdle”.
While just under one in five (17.2 per cent) enterprises market-wide reported facing no challenges specifically at all, this is restricted almost entirely to larger-sized enterprises with turnover of between $10 million and $50 million (29.5 per cent), while only one in 10 businesses with turnover of between $1 million and $10 million reported that they are not facing any challenges whatsoever.
SME trust in banks dip
The report has also found that one in five SMEs reported no interaction with their bank whatsoever despite the pandemic lockdowns.
Of those SMEs who had some form of contact with a banker from one of the big four banks, 15 per cent described interactions with their bank as “high quality”, according to the Judo Bank report.
Speaking about the figures, Judo chief financial officer Chris Bayliss said that the report has found that at least a quarter of SMEs looking for finance to grow their businesses were turned away by the incumbent banks.
“It’s nothing short of scandalous that despite the huge amount of small-business support and stimulus made available to lenders by Canberra, our major banks have effectively shut their doors to Australian SMEs when they needed them most,” Mr Bayliss said.
“This is of serious concern not just to SME business owners looking to grow and employ more Australians, but for the economy more generally at a time when we should be doing all we can to create jobs and get the post-pandemic recovery under way.”
Judo chief relationship officer Frank Versace said the report has shown that SME trust in the major banks dropped from 2.40 to 2.26 out of 10.
“This report found that more than 45 per cent of SMEs are in an expansive growth phase, but the absence of bank support could be limiting their potential,” Mr Versace said.
“A quarter of SMEs said one of the main reasons they would change banks was a lack of accessibility with their banker. This has been a major issue for customers of the big banks during COVID-19, who have had no option other than to ring 1800 numbers and hope to get through to the right person.”
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