Confidence driving SME commercial-lending demand: ABA

The ABA 2022 Small and Medium Enterprises (SME) Lending Report has revealed the number of SMEs had expanded across Australia despite the “challenging economic conditions”.

The report also found that the number of microbusinesses grew 10 per cent to 1.55 million in the year to June 2022. During the same period, the number of small businesses grew 3 per cent to 955,861 after an “extraordinary period of growth” during the 2021 financial year, jumping 15 per cent to 931,791, it confirmed.

“Despite the difficult economic conditions resulting from a global pandemic and a contraction in economic activity during the 2021 and 2022 financial years, the number of SMEs operating in Australia has grown,” ABA chief executive, Anna Bligh said.

“The rate of growth across all business sizes during the 2022 financial year was larger than the growth experienced in the years leading up to pandemic.”

The report, launched at the Small Business Roundtable, provided a snapshot of the current economic position of the small-business sector in Australia, the ABA explained.

Ms Bligh said that the report showed the experience of SMEs has been mixed during the past year, as they “navigate an economic landscape complicated by inflation, rising interest rates and low unemployment.”

However, encouragingly, she said business and small-business confidence had not mirrored the “subdued consumer confidence.”

“While the growth of total small business lending remains flat, data received from ABA member banks shows that the average value of loans made to small and medium businesses has been increasing,” Ms Bligh confirmed.

A change in cashflow concerns

There were a number of key highlights gleaned from the report, further delineating where and why the SME finance demand stems from.

The total value of outstanding finance to small businesses in August 2022 was just over $142 billion, returning to the medium-term average, after having dropped to under $138 billion in the second quarter of 2022.

Lending to medium businesses had increased by 16 per cent, from $281 billion in August 2019 to $326 billion in August 2022, it revealed.

Interestingly, of those SMEs that intend to take out additional finance, the main reason is for cashflow or working capital, but fewer businesses were reporting a requirement to borrow for cashflow purposes.

According to the ABA, this suggests “cashflow problems are less of a concern than they were a year ago.” 

The report will be shared with governments and relevant stakeholders as the banking industry “continues to deliver innovative products and services to customers,” the ABA outlined.

Important role in economic health

The ABA report ultimately outlined that the “cautious optimism” coincides with a reported increase in SME revenues when compared with their revenue prior to the pandemic.

It explained: “Consumer confidence remains weak, but consumer behaviour tells a different story with retail spending continuing to grow, despite increasing inflation.”

“Heading into 2023 we expect SMEs to grow progressively confident.

“The sector will play an increasingly important role in the health of the Australian economy as it grows and creates employment opportunities for more and more Australians.

“In recognition of this, banks and government will continue to provide support to SMEs through lending and other measures to help improve the broader economic environment,” the association summarised

[Related: Growing SME debt finance puts brokers in focus, says Scotpac]