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SME Growth Index results: growth stumbles, and small business sector starts looking beyond main bank for funding options.

Australian SMEs are slightly less confident about growth prospects and show a greater willingness to look beyond their main bank to fund growth compared to this time last year.
The Scottish Pacific SME Growth Index indicates a 35 percent jump in the number of SMEs planning to go beyond their main relationship bank and use specialist non-bank providers or other banks to support their business growth in the next six months.

The September 2015 Index, the third in a twice-yearly series, surveyed a broad range of SMEs with annual turnover of $1-20 million. National SME working capital specialist Scottish Pacific commissioned East & Partners to interview the senior managers (mostly owners, CEOs and CFOs) of 1,257 SMEs around Australia.
Scottish Pacific CEO Peter Langham said more small business owners forecast short-term revenue decline - 16.8 percent of owners, up from 13.2 percent in August 2014. Their predicted average revenue decline rose to 4.6 percent from 3.9 percent last year.

"Fewer SMEs predicted positive growth (59.6 percent compared to 62.6 percent a year ago) and the average short term growth rate forecast dropped from 8.6 percent to 6.5 percent," Mr Langham said.

"Despite the Budget 2015 small business initiatives, taxes remain the biggest barrier to SME growth (68.6 percent), along with credit conditions (66 percent) and access to credit (56.2 percent). Cash flow is emerging as a significant hurdle with half of all growth SMEs (50.7 percent) saying it is a key challenge."
Do SMEs put banking issues in the too-hard basket?
The Scottish Pacific SME Growth Index found that only 4.8 percent of SMEs actively keep an eye out for credit facilities that fit best with their business. Fifty percent of SMEs don't get around to reviewing their primary bank relationship and only 20 percent review this regularly.
Most borrowing reviews are in house rather than reliant on special advisors such as brokers or accountants.
Mr Langham said it was notable that 15.1 percent of growth SMEs said they would fund growth by using specialist non-bank providers and funders other than their main bank (it was 11.2 percent a year ago).
"It's important that small business owners are aware of the range of funding options available to them to support their growth. If the banks say no, or if they don't like the conditions placed on them, there are many other viable options including debtor finance and P2P lending," he said.

More Scottish Pacific SME Growth Index results:

  • Ultimately most small businesses remain heavily reliant on their own capital to fund growth (89.4 percent) as a result of difficulty accessing credit.
  • A third of SMEs have no plans for new products or services, perhaps wary of market conditions.
  • When reviewing borrowing requirements or deciding on new providers, SMEs generally prefer to handle the task internally (43.3 percent) in preference to consulting a business colleague (27.8 percent), or accountant (16.9 percent) or sourcing a commercial finance broker (11.6 percent).
  • Relatively few SMEs (16.1 percent) indicated a willingness to share facilities between two main lenders or seek a mix of bank and non-bank specialist providers (12.7 percent).
  • One in two SMEs have not reviewed their primary bank relationship or felt the need to seek a new credit provider. This suggests a high number of small businesses remain unaware of the specialist product solutions and service propositions offered by alternative bank and non-bank providers.
  • Only one in five SMEs regularly review existing lending requirements. Of the SMEs actively reviewing their business lending requirements, most only do so every three years or less frequently.
  • When deciding on new debt providers, relatively few CFOs go with the cheapest provider (16.8 percent) or respond to competitive pitching (2.1 percent). Generally the majority of Australian SMEs are content to keep all of their debt facilities with their main relationship bank (39.7 percent).
  • 5.2 percent of SMEs classified themselves in a growth phase, 27.4 percent report business is stable, 10.1 percent say business is contracting and 11.7 percent indicated they are in start-up phase.

"We've noted the increase in growth SMEs willing to borrow from another bank or specialist non-bank lender. This increase is even greater amongst SMEs who see themselves as declining or with unchanged growth - the number of these businesses looking beyond their main bank for funds has almost tripled in the last year from 6.9 percent to 18.2 percent," Mr Langham said.

Mr Langham said while a growing number of small business owners were seeking alternate funding to grow their businesses, many owners remained unaware of other options if they don't meet bank criteria or don't want to put their house on the line for the business.
"Governments, the financial services industry and SME associations should be energetically communicating funding options to SMEs, who often didn't have the time to seek alternatives, or were unaware of them." he said.

For a free, full copy of the latest SME Growth Index visit our Research page to download.

Scottish Pacific Business Finance Pty Ltd provides working capital solutions to SMEs, offering the broadest range of trade and debtor finance solutions in Australasia. With more than 1000 clients in industries including transport, manufacturing, wholesale, import, labour hire and printing, Scottish Pacific handles more than $6 billion of invoices each year, providing funding lines exceeding $500 million.

Scottish Pacific SME Growth Index - Initiated in September 2014, the Index benchmarks small business growth in Australia and highlights issues of concern to the SME community. Twice a year East & Partners interviews 1,200 businesses with annual revenues of $A1-20 million. The latest round of interviews took place in late August 2015. 82 percent of respondees were SME business owners, CEOs or CFOs. The next Index will be released in March 2016.

Media contact: Kathryn Britt, Cicero Communications, Tel: 0414 661 616,
For information about Scottish Pacific products, phone Chris Bhagwan on 1300 332 867.

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