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SMEs increasingly concerned about cash flow

by Reporter6 minute read
Cash flow, SMEs, money, banknotes

The number of small and medium-sized businesses citing cash flow as a key barrier to business growth has increased by almost 10 per cent in just six months.

According to Scottish Pacific’s recently released SME Growth Index — which polled more than 1,200 business leaders running Australian companies with an annual turnover between $1 million and $20 million — credit conditions, the availability of credit and cash flow are increasingly becoming a barrier to growth.

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The September 2017 SME Growth Index showed that 60.9 per cent said that cash flow and its security were a barrier to business growth, up from 55.9 per cent in the previous index (for the first half of 2017).

Further, 60.4 per cent of SMEs cited the availability of credit as a barrier to business growth (up from 58.3 per cent), while 69.6 per cent said that conditions of credit were a barrier (up from 65.5 per cent).


Other barriers to growth included high taxes (73.6 per cent), red tape (65 per cent) and government policies (38 per cent).

The index also demonstrated a lower level of confidence from businesses that are on the decline; only 48 per cent of SMEs were predicting revenue to rise through to February 2018, and on average were forecasting 4 per cent growth. Twenty-three per cent were expecting negative growth and 28 per cent indicated they would be stable or consolidating.

Rising house prices was cited as being an area of concern, with one in 10 businesses (11.1 per cent) foreseeing a reduced demand for products and services due to residential house prices.

Speaking to The Adviser, Scottish Pacific CEO Peter Langham said: “I think what this was pulling out was that rising house prices and therefore increased levels of debt were presumably going to put increasing pressure on consumer spending. Further, we know that a lot of SMEs will use what equity they have in their homes, but there is less and less of them actually able to get much equity in their home, because they are so expensive.”

Touching on the barriers to growth, Mr Langham highlighted that the number of SMEs funding growth via their main relationship bank continued to trend down (from 38 per cent to 27 per cent) while the popularity of non-banks had grown (from 10 per cent up to 22 per cent since the Index started tracking sentiment in 2014).

He said: “One of the main takeaways for me was that there was a steady move from traditional bank lending to non-bank lending and that is telling me that SMEs are more aware of the alternatives that are out there.

"With an almost 10 per cent jump in the number of growth SMEs citing cash flow as a key barrier to business growth, and the increase in those planning to fund expansion plans via non-bank lending, the time is right for those who can step up and offer fast and effective growth funding for the SME sector.”

Mr Langham concluded: “Scottish Pacific, along with most non-bank lenders, [relies] on brokers. I see finance brokers as the old bank manager, where the bank manager understood your business and worked with you to get the outcome you want and the brokers fill that role.

“Most businesses are down about finding in terms of it being too hard to access finance, the terms are too strenuous, so I’d be making sure I’d be re-engaging with my accountant and finance broker.”

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