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80% of SMEs would dip into personal finances

by Kate Aubrey11 minute read

Around 80 per cent of Australian SMEs said they would use personal funds to solve business problems.

While SMEs have remained fairly resilient to the economic headwinds of 2022, 2023 brings with it risks of higher interest rates and recession, which has fuelled uncertainty across the SME sector, a new survey has revealed.

The survey of 210 Australian SME owners, commissioned by comparison website Small Business Loans Australia, found that 72 per cent of respondents would use their personal expenses in some way if their business was experiencing financial difficulty.

Respondents were asked if they would draw on personal finances if their business needed funds, including drawing equity from property, using personal savings, taking out a personal loan or selling high-value items.


Across businesses of different sizes, a higher proportion of small businesses (82 per cent) would support their business with personal finances in some way, followed by 70 per cent of micro businesses and 66 per cent of medium-sized businesses.

This financial risk for small businesses comes despite larger businesses generally surviving longer, the survey noted.

The survey also revealed that 34 per cent of respondents would draw from their personal cash savings, while 19 per cent would draw equity from their property or take out a personal loan.

Eight per cent would use “other” personal finances, and 6 per cent would sell their car or another high-value item.

Across the major States, more Victorian businesses (82 per cent) are prepared to use their personal finances to save their businesses, followed by 80 per cent of South Australians, 70 per cent of NSW directors, 67 per cent of West Australians, and 62 per cent of Queenslanders.

Founder and managing director of Small Business Loans Australia Alon Rajic said if business owners are needing financial assistance, taking out a secured or unsecured business loan is another option, and is less likely to risk a director’s personal assets.

“To get the best interest rates or to avoid defaulting on payments, businesses should conduct thorough research into their loan serviceability capabilities in the medium term and the many loan options available.”

Australian businesses can loan “distributable surpluses” (after-tax profits) to their directors in the form of a “director’s loan”, which requires formal approval by shareholders and a loan agreement detailing the amount, repayment structure and the tax [office’s benchmark interest rate], Mr Rajic explained.

“Funds withdrawn from the company without such a structure should be regarded as income, with tax implications.

“On the other hand, there are no tax implications nor are formal arrangements needed to loan personal funds to a business in need. However, this move can come with enormous risks, particularly if those funds are tied to personal assets.”

Small Business Loans Australia surveyed 210 owners and senior decision-makers across the full business spectrum: micro (1-10 employees), small (11-50 employees), medium-sized (51-200 employees) and large (200+ employees).

On the flip side, the survey also revealed that over half (56 per cent) of Aussie business owners either already have or would in the future, take money out of their businesses to solve any personal financial problems.

Specifically, 26 per cent had already borrowed from their businesses and 30 per cent would borrow in the future if needed.

However, it noted that a higher proportion of small businesses (74 per cent) have, or would, borrow from their businesses compared with 52 per cent of medium-sized businesses and 50 per cent of micro businesses.

[Related: Business gearing up for holiday trade: NAB data]

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