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Revenue sentiment is a key metric that sheds light on the current state of Australian businesses as well as their trajectory going into the near future. Scottish Pacific’s September 2019 SME Growth Index gained extensive insights into this area and found largely encouraging news.

Let’s now take a look at some recent trends so you can get a better sense of what the SME market looks like at the moment and where it’s heading. Positive revenue sentiment is at a 2-year high for SMEs collectively. However, there’s a definite difference in attitude between regional and metropolitan businesses. 

 

An Overall Snapshot

More than half of Australian SMEs (54.6%) are expecting positive growth for the second half of 2019, with an average revenue increase of 5.1%, while just over a fifth (20.7%) are forecasting a negative decline of 5.7%. Another quarter (24.7%) of companies are expecting no change in revenue. This means the business owners who are expecting positive growth vastly outnumber those who are expecting a negative decline. 

When you look at an overall snapshot of the SME market, it’s looking favorable with business owners predicting an average revenue increase of 2.7% — a number that’s higher than it’s been since March 2016.


It should be noted that this number is much smaller than the forecast revenue growth of 4.9% back in 2014. However, it’s a major spike from the 1.8% it was at in March 2019 and 1.1% in September 2018. So things are definitely heading in the right direction. 

 

Fewer SMEs in a Consolidating or Contracting Phase

Another good sign is the percentage of SMEs who are in a consolidating or contracting phase dropped below 20% for the first time since 2014. More specifically, 9.8% say they’re consolidating and 9.7% say they’re contracting. 

When compared with 18 months earlier when 12.2% were consolidating and 12.3% were contracting for a total of 24.5%, this is a significant improvement. As for growth, 4 in 10 SMEs say their company is in a growth phase, and nearly a third say they’re stable.

 

Revenue Growth is in Contrast with the Struggling Australian Economy

What’s interesting is how different the positive revenue sentiment among SMEs is from the state of the overall Australian economy, which continues to struggle. 

“Gross Domestic Product (GDP) expanded 1.7% year-on-year in Q1 2019, the slowest pace since the immediate aftermath of the 2008 Global Financial Crisis,” according to the September 2019 SME Growth Index. “The domestic retail market remains sluggish and capital expenditure subdued.”

One of the primary reasons behind the Australian economic woes is a drop in real private consumption, where consumers are spending significantly less on goods and services. In fact, it recently hit its lowest level since Q2 2013 at 1.8% year-on-year. 

Another is the major property downturn that’s been happening throughout Australia, especially in major cities like Sydney and Melbourne. In 2018, prices dropped by close to 5%, making it the worst year since 2008. Although experts predict the housing market will improve in 2020, it’s created some major issues as of late.  

So the positive revenue sentiment among SMEs is definitely in contrast with the Australian economy as a whole and defies broader outlook.

 

Metro SMEs Are More Optimistic Than Regional Ones

It’s also important to point out the disparity between the outlook of SMEs in metro and regional areas of Australia. Metro growth is much more optimistic, with 57.7% of business owners expecting revenue growth at an average increase of 5.8%. Only 18.1% of metro business owners expect revenue to decline, at an average of 5%. 

On the other hand, only 47.3% of regional business owners are expecting revenue growth. 27% forecast a revenue decline, by an average of 6.8%.


And this trend is by no means nothing new and has been happening consistently since 2014. During this time, there’s been a 10% drop in the number of regional SMEs forecasting positive growth — 58.3% to 47.3%. The number is considerably less for metropolitan SMEs at just a 6% drop from 64.4% to 57.7%. 

It’s truly a tale of two economies and indicates a more hopeful future for businesses located in major cities. 

“SMEs in rural and regional areas are doing it tougher than their metropolitan counterparts,” explains the September 2019 SME Growth Index. So while on average, revenue sentiment is positive for Australian businesses, it’s important to recognize that it’s less so for those located in more rural areas.

 

More SMEs to Invest in Business Growth

There’s one last trend to point out here — more and more declining growth/no change SMEs are committed to investing in business growth moving forward. 


And a good chunk of these companies (44.3%) are looking beyond conventional bank lenders to do so. We’re at a key turning point where many SMEs are becoming increasingly interested in obtaining financing from a non-bank lender. 

One of the more popular options for doing so is debtor finance where a business owner secures a line of credit against outstanding accounts receivables. Here’s how it works. 

First, a business owner uploads the same invoice to a lender they send to a client. They wait for approval (this typically happens within 24 hours) and they receive up to 85% of the value of the invoice, minus any fees. And they receive the remaining 15% of once the client pays in full. 

Debtor finance is quick, easy and doesn’t usually require business owners to put up any real estate as security — something that can be very appealing considering the recent property downturn. This makes it ideal for SMEs who want to grow but are hindered by slow or late-paying clients or who are unable to put up property as collateral. 

Another popular option is equipment finance, where non-bank lenders provide the funding needed for companies to purchase high value equipment to boost output and fuel growth. Some examples include forklifts, lathes, drilling machines and company vehicles. Significant equipment like this can be expensive and not something many SMEs can pay for outright. However, equipment finance allows them to borrow up to 100% of the asset value, while offering a fixed term and rate. 

And for business owners who already own major assets like a plant, property or equipment, they can use them as collateral to obtain working capital through asset finance solutions. For those who are already using an invoice finance facility, they can gain access to additional capital to accelerate business growth and gain a competitive advantage. 

The point here is that investing in business growth is a top priority for many Australian companies, especially those who are currently experiencing declining growth or no change. Understanding what’s available outside of traditional bank-lenders is important for securing capital and reaching growth initiatives.

 

A Promising Outlook

Although a fifth of SMEs expect a revenue decline and regional businesses are less optimistic than metropolitan ones, the revenue forecast as a whole is the best it’s looked since March 2016. And that’s great news given the struggles the Australian economy has faced over the last decade. 

The facts and figures highlighted above put perspective on these trends and show there’s plenty to be hopeful about as we transition from 2019 to 2020.

 

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