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3 in 10 small businesses ponder quitting: Judo

by Malavika Santhebennur13 minute read
3 in 10 small businesses ponder quitting: Judo

New research has revealed that many small businesses are thinking of quitting altogether due to the impact of COVID-19.

Small-to-medium enterprise (SME) lender Judo Bank has commissioned and released the fourth edition of the SME Banking Insights 2021 mid-year report, which has shown that 30 per cent of smaller businesses with a turnover of between $1 million and $10 million have contemplated completely shutting shop.

According to Judo Bank chief executive Joseph Healy, these figures have underscored the “boom or bust” impact of the coronavirus pandemic on pockets of the SME sector.

On the other hand, the SME lender also noted that nearly half of all SMEs have been seeking to grow their businesses, hire more staff, and invest in expansion despite uncertainty over the COVID-19 crisis.


Market-wide, 48.1 per cent of all SMEs applied for funding in the last six months, with the majority of these comprised of smaller businesses (59.7 per cent) compared to medium enterprises (40.3 per cent), according to the research based on a survey of over 1,750 SMEs nationwide with a turnover of between $1 million and $50 million.

Of these businesses, more than a quarter (27.7 per cent) were unsuccessful in accessing the full amount of new funding in the first half of 2021.

Although the proportion of SMEs seeking new funding increased since the February 2021 report from 45.4 per cent to 48.1 per cent, only three out of four of those have been either fully successful (50.4 per cent) or partially successful (22.0 per cent) in accessing new funds.

Twice as many $10 million-sized enterprises were unsuccessful (35.6 per cent) in accessing new funding in the last six months compared to $10 million to $50 million-sized enterprises (15.9 per cent).

Among the 72.3 per cent of SMEs that successfully sourced new funding in full or partially in the last six months, the funds were primarily allocated to cash-flow/working capital requirements, (91.1 per cent), investment in new plant and equipment (48.1 per cent), and COVID-related provisions such as bridging finance or managing business closures (45.6 per cent).

One in four SMEs applied newly sourced capital to hiring staff (25.9 per cent), on average employing seven new staff members, ranging from three employees in the $1 million to $10 million segment, to 11 employees in the $10 million to $50 million segment.

Of the businesses that were unsuccessful in sourcing new funding (27.7 per cent), 92.7 per cent said they would have allocated the funding to working capital/cash-flow requirements, while 49.8 per cent said they would have utilised it for new plant and equipment, 45.9 per cent said they would have allocated it to COVID provisions, and 28.8 per cent to hiring new staff with a view to employing three new full-time employees on average.

In the second half of 2021, one in two SMEs indicated borrowing intentions, up from the 48.1 per cent of SMEs that attempted to access funding in the last six months, the report said.

It also found that 50.5 per cent of the $1 million to $10 million segment and 48.6 per cent of the $10 million to $50 million segment reported no new borrowing intentions for the next six months.

This is a reduction on the February 2021 findings, when 55.4 per cent of SMEs did not plan to source new borrowings in the next 12 months (64.7 per cent of the $1 million to $10 million segment and 41.5 per cent for the $10 million to $50 million segment).

This comparison to the prior report has indicated growth in demand for business credit within the SME segment, the report stated.

Larger SMEs likely to turn to big four

One in three SMEs have indicated that they plan to apply for a new loan in H2 2021 (34.4 per cent), while 15.9 per cent said they have been reviewing their books and refinancing existing debt facilities.

One in four (23.4 per cent) said they would source finance from a new lender, while 26.8 per cent said they would turn to their current lender.

The research found that SMEs are more likely to borrow from a major bank (34.4 per cent) than a non-major bank (6.6 per cent) or a non-bank (9.2 per cent).

Smaller-sized SMEs leaned more towards non-banks (11.3 per cent) than larger-sized businesses (6.1 per cent).

In the last six months, it took lenders 42 days on average to discharge existing SME loans when businesses changed lenders, 23 days to approve or reject a loan application, and 20 days to settle the facility if successful.

However, there is a significant gap between discharge times and expectations, with SMEs expecting their loan to be discharged when swapping lenders within five days, loans approved or rejected within 11 days, and settlement within five days.

Lack of funding affects employment, says Judo

Commenting on the findings, Mr Healy said: “These figures are a testament to the remarkable strength and resilience of the SME economy, which continues to employ most Australians.

“The SME economy remains focused on growth despite the many challenges it has faced. Further, this research highlights that borrowing intentions over the next six months remain high, with over half of SME businesses surveyed intending to seek new funding or refinance.”

Judo chief relationship officer Angelo Manos observed that despite the significant amount of government stimulus and support offered to the banks, the report has found that more than a quarter of all SMEs have been unable to access new funding, which has had a negative impact on employment levels.

He said: “The report shows that those SMEs that were refused a loan were in effect, stopped from employing on average three additional full-time staff members – and this has direct implications on employment and economic recovery post pandemic.

“And adding insult to injury, this report shows that banks are taking on average 42 days to discharge loans when [an] SME switches lender. These unnecessary loan transfer delays by the major banks inhibit fast access to funding at a time when small businesses need it most.”

[Related: Unmet demand for SME credit tipped at $120bn]

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