1 in 10 SMEs look to alternative lenders following RC

However, cash flow issues are still a key area of concern for small business owners, with 79 per cent saying that this issue causes them the most sleepless nights, up from 73 per cent in 2016.

This has been compounded by customers increasingly paying late (a major issue for 31 per cent of respondents) and suppliers cutting payment terms (the key stress factor for 19 per cent).

Indeed, the SME Growth Index shows that while more are forecasting positive growth, those performing poorly are in significantly worse shape than they were four years ago.

While approximately a quarter of SMEs expect revenue to hold steady, a further quarter expect revenue to decline by an average of 6 per cent.

For those with declining revenue, the range of predicted decline (5 per cent to 13.5 per cent) is almost double that of 2014.

Despite the push for growth, the research shows that the most common way for SMEs to fund growth is to use their own funds (89 per cent).

This compares with nearly a quarter (23 per cent) saying they borrow funds from their primary bank (23 per cent). In fact, the intention of using their main relationship bank is now 2 per cent lower than it was last year, and continues the drop in loyalty that has been recorded since the index began in 2014.

While 15 per cent are looking to use alternative lenders, 10 per cent would look to borrow from secondary banks, with 13 per cent looking at taking on new equity.

More than half (59 per cent) of SMEs are reportedly seeking additional finance to fund projected growth, with one in three looking to borrow $50,000 to $250,000 and a similar proportion seeking $500,000 to $2 million, the index shows.

Notably, almost one in 10 (8 per cent) of SMEs said that revelations from the financial services royal commission will prompt them to seek out non-bank alternatives. Only 4 per cent of SMEs said they would never consider borrowing from an alternative lender.

The research from Scottish Pacific also revealed that the key benefit of alternative lenders, as cited by SMEs, are “fast credit approval times” and “streamlined compliance requirements”, as cited by one in five.

Fewer than 10 per cent of SMEs said they’d prefer to fund their business growth using property as security, with one in five stating that the main benefit of non-bank lending is the fact that they do not have to borrow against a property.

Speaking of the findings, Scottish Pacific’s senior executive, Wayne Smith, said: “The average projected revenue increase of 4.5 per cent is the most positive sentiment since 2016 and reflects a promising rebound in underlying business confidence within the SME sector.”

However, Mr Smith added: “Many business owners are cash-strapped, time-poor and confused about the options available to them to fund their growth.

“With a declining property market and banks exercising caution, the concern is that a lack of credit could hamper growth prospects. Business owners will need to consider funding alternatives to traditional property secured lending.

“Those SMEs who find alternative ways to fund growth and master cash flow management will have a clear advantage over their competitors.”

The growth index has been welcomed by the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, who said: “Extended payment times impact business cash flow, which is critical to SME day-to-day operation. Reduced cash flow impacts the ability to pay staff, superannuation and the quarterly BAS, and an overly complex workplace relations system inhibits employment, which in turn inhibits growth.

“The index also points out SMEs are looking at alternatives to banks to access finance, including invoice finance, fintechs, government grants and crowdfunding. We’ve done considerable work in this space, recently releasing our Affordable Capital for SME Growth report and Borrowing from Fintech Lenders guide.”

[Related: Broker opportunities building up in SME market]