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More small businesses are looking for funding amid growing cost flow pressures, according to Prospa.
Two-thirds of small and medium-sized enterprises (SMEs) have experienced cash flow stress in the past year, leading many to seek external funding to bridge the gap, according to non-bank lender Prospa.
Prospa’s April 2025 SME Sentiment YouGov Report found 77 per cent of SME business owners found rising costs and a challenging economic environment had impacted them personally, most commonly forcing them to reduce their own income while increasing stress and burnout (43 per cent, respectively).
A further one-quarter of SMEs rated their business health as poor while 13 per cent said they had no cash reserves.
Prospa said this is forcing many to look for external funding, with 30 per cent expecting to access external funding in the next 12 months, with an average funding need of almost $25,000.
Most SMEs (83 per cent) are taking action by cutting non-essential expenses (46 per cent) and raising prices (37 per cent).
Despite pressure, most small-business owners remain optimistic about their operations, with 74 per cent rating their business health as good.
SME tech gap widening
As well as the funding trends, Prospa research found 60 per cent of SMEs believe artificial intelligence (AI) is critical to their business, yet just 21 per cent of those planning to invest in their business in 2026 will put money into tech.
The findings pointed to an optimism in AI that is not translating into further tech investment.
AI’s uptake in the Australian finance industry over the past two years has been slow, according to the Australian Finance Industry Association (AFIA).
Earlier this week, the founder and CEO of software specialist Zetaris, Vinay Samuel, said the high costs of AI adoption could pose problems to companies and warned of the potential for “massive cost blowouts”.
Commenting on SME pressures, Beau Bertoli, co-founder and chief revenue officer at Prospa, said: “Small businesses are showing incredible resilience and adaptability.
“It’s been a tough time for many, marked by sleepless nights and dipping into personal savings – but I’m continually impressed by how business owners are embracing technology and finding smarter ways to operate.”
In separate research from non-bank lender Shift, brokers flagged the biggest challenges facing their clients as the need to manage cash flow, navigate cost pressures, and access capital.
Prospa’s latest report differs from recent Westpac research, which found an increasing share of SMEs experiencing improving cash flows for the second consecutive quarter.
You can find out more about the challenges and opportunities for SME finance in the May edition of The Adviser magazine.
[Related: Cost crunch among top challenges for broker clients]
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