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SMEs unsure of borrowing capacity and loan documentation

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Annie Kane 7 minute read

Nearly half of SMEs want to borrow money in the next year but are uncertain of their borrowing capacity and correct loan documentation and have falling levels of trust in banks, new research from Judo Bank has found.

The findings come from Judo Bank’s second annual SME Banking Insights Annual Report, which saw researchers East & Partners interview 1,751 small- to medium-sized enterprise (SME) owners and managers.

The report paints a picture of growing mistrust with the banks and frustrations around the loan process and turnaround times.

SMEs seeking finance


According to the research, just over 46 per cent of SMEs sought finance in 2018-19, for an average value of $1.1 million.

Nearly three-quarters of businesses that sought funding in the past year succeeded (with an average sum of $800,000 sought), while a quarter of SMEs (particularly those seeking larger loans) were unsuccessful.

According to the Judo Bank report, the current funding “gap” for businesses with a turnover of up to $20 million has grown in the past year from $83 billion to $90 billion.

While around half of SMEs said they are looking to borrow money in the next 12 months (with the vast majority seeking funds for cash flow or business equipment), the researchers found that there was a lack of understanding around how much they could borrow and what documentation would be required from the lender.

Of those looking to borrow funds, the average sum sought totalled $1.2 million. However, 51.7 per cent of SMEs said they had “no idea” how much funding they would be seeking.


Seventy-six per cent of small businesses (those with turnover of under $10 million) said they did not know how much money a lender would approve them for.

Nearly half of businesses said they would source longer-term funds for their needs, while a quarter were unsure and 15.3 per cent said they would take “whatever they can get”. This rose to nearly a quarter when limited to small businesses, who reported a more urgent need for funding.

Echoing concerns raised in a recent Aussie report regarding loan application challenges, the Judo Bank report also found that there was widespread confusion and uncertainty around what was required to secure a loan.

For example, 38.5 per cent of SMEs said that they found application documentation the “most challenging financing information to provide” in the loan process, whereas a third stated that providing financials that met the lender’s requirements were challenging.

Despite SMEs wishing to access finance, the report showed a falling level of trust in the banking sector. When asked to rate their levels of trust from 1 (representing mistrust) to 10 (representing complete trust), SMEs reported an average of 2.4 out of 10.

This was down on the previous report, when the trust index in the banking sector was 2.52 out of 10.

Small businesses were found to be largely driving this mistrust, with this segment showing a 13 point drop from last year, and with some small businesses reporting a trust rating for their lender as low as 1.65 out of 10 (and only as high as 3.90).

Those with turnovers between $10 million and $50 million were relatively more trusting, with scores ranging from 1.87 to 5.10.

When asked how the banking industry could rebuild trust, the most popular suggestion for improvement was for banks to be “honest, clear and transparent” in dealings and communications with them (22.3 per cent), while nearly a fifth said they wanted the bank to “actually do what they say they will do”.

Other suggestions included improved service quality in the form of more knowledgeable customer-facing SME staff (18.8 per cent), while one in 10 said they would want greater relationship depth through access to closer guidance and proactive business insights (12.5 per cent).  

Notably, nearly a fifth of respondents (17 per cent) said that the banks were “too far gone” to be trusted – up from 14.6 per cent last year.

Speaking of the Banking Insights Report, the chief financial officer at Judo, Chris Bayliss, said that the research showed that the softening of SME credit was “definitely not a demand issue as the big banks claim” but “entirely a problem with supply”.

He commented: “Our major banks gave up on SMEs long ago, and this is reflected in the growing finance gap highlighted in the Judo Bank-commissioned report.

“Many SMEs have obviously concluded that the big banks simply have no appetite for their financing requirements.

“And that may explain why SME customers remain deeply skeptical about the major banks – and unhappy with the services on offer.”

Mr Bayliss said the report made it clear that the lack of funding was holding back SMEs, destroying any plans business owners had to buy new equipment, raise wages for existing staff, and hire additional employees.  

He warned the credit crisis would have a serious impact on the national economy, since SMEs accounted for about 70 per cent of all jobs in Australia.

“Small-business owners are crying out for financing so that they can use the money to grow their business, employ more workers, and pay higher wages – which is exactly what Australia needs right now,” Mr Bayliss added.  

[Related: ASIC takes banks to court over ‘unfair’ loan terms]

SMEs unsure of borrowing capacity and loan documentation
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Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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