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Small businesses are steering clear from personal finance to fund business costs, a new report reveals.
A recent report from ScotPac’s SME Growth Index (1Q23) revealed a substantial decline in SME businesses using personal finance to fund business costs.
The survey, conducted in the first quarter of 2023, included 720 SMEs with annual revenues ranging from $1 million to $20 million and found 47 per cent of SMEs reported that they had “never used personal finance sources for business purposes”, indicating a significant shift from just 12 per cent in 2016.
However, the report also highlighted that smaller SMEs with annual revenue up to $5 million were three times more likely to rely on personal finance facilities, such as credit cards, to manage increasing business costs compared to larger SMEs.
ScotPac chief executive Jon Sutton acknowledged the positive trend of decreased reliance on personal finance for business costs but emphasised the need for further improvement.
“There are still too many SME owners mixing their personal and business finances,” Mr Sutton said.
He expressed concern about SME owners mixing personal and business finances, suggesting that this practice could be detrimental to their financial stability.
“While larger SMEs historically had access to a broader range of debt funding sources than smaller businesses, there are now a host of tailored and accessible non-bank finance products to support most SMEs in most situations,” Mr Sutton said.
“These include invoice finance facilities that provide working capital while SMEs are waiting for client payments, and online business loans that can see funds approved and dispensed in as little as 24 hours.”
In addition, the report revealed that 31 per cent of SMEs projected a contraction in revenue over the next six months, with an average expected decline of 8.5 per cent.
This discrepancy in revenue projections reflected the challenging economic conditions faced by many businesses, highlighting the need for SMEs to navigate the evolving economic landscape and seek appropriate financial solutions, the report noted.
SME lender flags importance of brokers at EOFY
Meanwhile, online small-business lender OnDeck Australia has urged small- to medium-sized enterprises (SMEs) to capitalize on end of financial year (EOFY) tax deductions with the assistance of their brokers.
CEO of OnDeck, Australia, Cameron Poolman, highlighted the importance of funding for SMEs to leverage deductions such as temporary full expensing.
[Related: SMEs split on future optimism]
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