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Two-thirds of SMEs use property as security

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Malavika Santhebennur 7 minute read

New research has revealed that more than two-thirds of all SMEs have used or would be willing to use their own properties as security.

Research by invoice financier Apricity Finance has found that over half – or 51 per cent – of small-to-medium enterprise (SME) owners are willing or have used secured finance when borrowing money.

The survey of 503 business owners with fewer than 50 employees conducted by YouGov on behalf of Apricity Finance in mid-April found that of those that do use or are willing to use secured finance, 63 per cent prefer to use property (family or private home).

The survey also found that 34 per cent prefer to use business property and 29 per cent prefer to use plant and equipment as security.


Furthermore, of all small-business sizes, sole traders (58 per cent) are most likely to only use/prefer to use unsecured finance, the research found.

However, it also found that the likelihood of adopting secured finance increases as the business size increases, as small businesses with 20 to 49 employees (82 per cent) and six to 19 employees (74 per cent) and two to five employees (63 per cent) are more likely than sole traders to say they prefer or are willing to use secured financing.

Meanwhile, three quarters of small businesses who applied for finance in the past year or are planning to in the next two years are willing to or have used secured financing, the survey found.

Less than four in 10 (or 38 per cent) of small-business owners said in the survey that they are confident in their ability to secure additional funding for immediate needs or to make the most of an immediate opportunity, with only 16 per cent (the equivalent of just 369,000 small-business owners) saying they are very confident.

1 in 5 unaware of alternative funding sources


According to the research findings, four in 10 small-business owners have applied for finance in the past year or are planning to apply for finance in the next two years.

Furthermore, of those that have applied or are planning to apply for finance in the next two years, 44 per cent have or would use finance to fund business growth, including for a new plant or equipment (28 per cent) and for growth and expansion (15 per cent), while 45 per cent are simply using it to stay afloat, with 27 per cent saying they would or have used it for working capital and 18 per cent to pay other debts.

Moreover, 80 per cent of those that have applied or are planning to apply for finance in the next two years to fund business growth said that they are willing to use or have used secure finance when borrowing, according to the research.

The survey found that more than one in five small businesses (22 per cent, or the equivalent of more than half a million small-business owners) are unaware of any alternative source of finance other than traditional lenders such as smaller banks, credit unions and building societies, while 78 per cent are aware of at least one alternative source of finance.

The research also revealed that more than six in 10 (63 per cent) small-business owners have borrowed money for their business, with 43 per cent using the big four banks as a lender (the most common source of funding for small businesses) while 38 per cent used alternative sources.

These sources include borrowing from personal connections (20 per cent), other traditional lenders such as smaller banks, building societies and credit unions (16 per cent) and equipment financing companies (10 per cent).

More than 100,000 business owners, or 4 per cent, have used alternative lenders such as invoice financing and crowdfunding, according to the survey results.

In addition, 37 per cent of small-business owners have never borrowed money for their business, the survey found.

Almost three-quarters (70 per cent) of companies aged 10 years and over have borrowed money for their business, with 52 per cent using the major banks, 21 per cent using other traditional lenders, 18 per cent using personal connections, and 15 per cent using equipment finance companies.

The research revealed that businesses with an annual turnover of more than $500,000 are more likely than those with an annual turnover of less than $500,000 to have used funding sources other than the big four banks (53 per cent compared with 36 per cent).

Commenting on the survey findings, Apricity Finance CEO Linden Toll said: “The ability to access a secure stream of funding to support the current vital stage in business resurgence is key to achieving a stable recovery.

“It’s our view that these findings show a continued perception that accessing home equity is the easiest way to secure finance. Couple this with new rules enabling access to higher amounts of super for home ownership and we may be looking at a situation where Australian small-business owners are putting both their present and future personal security on the line to fund their business, despite this being far from the only option.”

He concluded: “We were interested to see that awareness of alternative finance is higher among experienced businesses, suggesting a knowledge gap among newer players who may be missing out on opportunities. Ensuring small business is made aware of the options could be a game changer, especially for those who continue to struggle with funding for growth.”

[Related: Demand for excavators up 191% YOY: CBA]

Two-thirds of SMEs use property as security
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Malavika Santhebennur

Malavika Santhebennur

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.


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