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September 25, 2019

More than one in five SMEs are having cash flow problems due to business loans being rejected, according to national data from the September 2019 Scottish Pacific SME Growth Index, out today.

Scottish Pacific CEO Peter Langham said this was the first time that the Index researchers had asked businesses throughout Australia if being declined from a lending product was creating cash flow issues.
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“The fact that one in five businesses is struggling with cash flow because they’ve had business funding rejected is a massive wake up call to SMEs and their advisors to make sure they are funding their business in a way that optimises cash flow,” Mr Langham said.

“A business struggling with cash flow can only stretch working capital so far before something has to give.”

SME Growth Index research is conducted twice yearly by banking analysts East & Partners on behalf of national working capital funder Scottish Pacific.  More than 1000 owners, CEOs or senior financial staff of SMEs across a range of industries and all states, with annual revenues of $A1-20 million, are surveyed.

Business owners consistently name government red tape and compliance as their greatest cash flow issue (nominated this round by almost three-quarters of respondents).

A similar proportion of business owners say they were unable to take on new work because of cash flow problems. Only one in 10 SMEs say they have had no cash flow concerns in the past year.

Mr Langham said more than a quarter of SMEs (27.8%) say they have difficulty meeting tax payments on time. This has crept up from 24.8% 18 months ago.

Many cash flow problems stem from suppliers reducing payment terms and customers paying late – both these issues were named by one in four business owners.

“The impact of poor cash flow on the Australian economy is considerable. East & Partners estimate that this issue costs the SME sector more than $235 billion annually in lost revenue,” Mr Langham said.

“If business owners don’t find new ways to deal with perennial cash flow issues, Australia’s growth potential will continue to be constrained.”

SMEs expecting to grow, but employing fewer staff

September 2019 SME Growth Index findings highlight that a typical Australian SME with $1-20m revenue is:

  • Staying in business longer but employing fewer full- time staff than five years ago (average FTE headcount now is 68, down from 72 last year and 88 in 2014).
  • Expecting modest revenue growth of 2.7% for the remainder of 2019.
  • Not wanting to use personal property to fund their business (yet seven out of ten continue to do so).

Cash flow worsening for increasing number of SMEs

SMEs – whether they are growing, stable or declining – have flagged that their cash flow woes are increasing. The cash flow situation has deteriorated for one in five SMEs, with 7.3% saying it is significantly worse and 12.3% saying it is worse than the previous year.

The percentage of SMEs reporting significantly worse cash flow has doubled since March 2018. In addition, fewer SMEs are reporting significantly better cash flow (22.3%, compared to 26.8% in March 2018).

For the total SME market, there has been a 10-percentage point fall in SMEs who report their cash flow is better or significantly better, falling from 68.9% a year ago to 59.4% this round.

At the other end of the spectrum, a year ago one in 10 SMEs said cash flow was worse or significantly worse – now almost one in five are saying so.

For growth SMEs, almost twice as many as in H1 2018 say their cash flow is worse or significantly worse (21.2%, up from 12.3%).

Business funding and cash flow

Scottish Pacific in partnership with the Australian Small Business and Family Enterprise Ombudsman recently released a comprehensive independent guide outlining a wide range of funding options suitable for different small business needs.

The Business Funding Guide, targeted at advisors such as accountants, brokers and book-keepers, and the FitsME Guide, its short companion for SMEs, are both available as free downloads.

Mr Langham said business owners were gradually looking beyond the banks and their own pockets to fund business growth and to maintain a strong cash flow position.

He said the percentage of business owners who fund their growth via their main bank had halved in the five years of Index research – falling from 38% in 2014 to 18.3% now.

In the latest research, 18.7% of SMEs say they’ll support their revenue growth plans by using non-bank funding.

Only 2.6% of SMEs would not consider using a non-bank lender, down from 4% last year.


Scottish Pacific is Australasia’s largest specialist working capital provider, helping thousands of business owners with the working capital they need to succeed. Scottish Pacific lends to small, medium and large businesses ranging from start-ups to SMEs with revenues of more than $1 billion. www.scottishpacific.com

AWARD WINNING SOLUTIONS

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         Industry Cash flow  Lender
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