SMEs are recovering well from a difficult year, and signs are pointing to a positive economic environment for FY22.  In the next 12 months, nearly two-thirds of SMEs are planning to borrow to drive growth for their businesses.  But there are still too many pain points around getting the appropriate funding.

These are some of the many findings in the Banjo SME Compass report 2021.  The report reflects a recovering SME sector, many of whom are feeling positive about the year ahead and planning for growth.  Yet barriers to growth remain, and a surprising number are lagging in getting their businesses online. 

Banjo’s SME Compass report is based on research commissioned by Banjo, to analyse how the engine room of the Australian economy is going.  A broad cross-section of SMEs across Australia was surveyed earlier this year by Honeycomb Strategy for Banjo.

Top factors that helped drive SMEs’ revenue

Not surprisingly, just a quarter of SMEs say they exceeded their revenue targets last year.  There was a common factor among the 25% who recorded strong performance: all of them invested for growth by implementing new technology, improving products and buying new assets or equipment in 2020.   Those who leveraged debtor or supply chain finance were significantly more likely to exceed revenue targets.

Many businesses are poised for growth

Nearly 7 in 10 SMEs are expecting an increase in revenue over the next 12 months.  With close to one third having let staff go during the pandemic, employment prospects are also set for growth with 46% intending to increase their headcount in 2021.

However, many have a lot of catching up to do in online business.  With only 28% of SME revenue currently generated online, businesses are more aware than ever that on the back of pandemic restrictions, online needs to be a key component of their growth strategy.  

More than half (52%) propose to increase the proportion of their sales generated through online channels in 2021. For 14% of SMEs, this year will mark the first time they begin to earn revenue online.

Demand for funding – and what SMEs need right now

With nearly two thirds of the approximately 1.2 million SMEs in Australia intending to borrow in 2021, this means approximately 750-800,000 SMEs seeking funding. 

The sector had $146 billion of funding lines in June 2020, which declined during the pandemic to $141 billion in March 2021.  Based on this research, and the upswing Banjo is seeing in demand, this suggests lending to the SME sector will increase by around $5 billion between now and the end of the year.

A significant proportion (59%) of SMEs experience challenges when looking to secure funding to grow.  Chief among the pain points are lenders who require property or assets as security, and lengthy loan approval times. 

Drawn-out approval processes are undoubtedly prevalent in some parts of the banking sector.  However, lenders with the right technology can give a small business owner an answer either way, within 24 hours.

The opportunity cost of not being able to secure funding when a business needs it – now – is too big to ignore.

After a competitive interest rate, SMEs find the most attractive feature in a lender is a simple application process. 

Women business owners take a different approach

Female business owners are much less likely than their male counterparts to borrow to fund growth, preferring to self-fund from operations.  This is in large part because they are more averse to providing personal assets as security – regardless of how large or small their business is.  There is also the question of where to turn for funding.     

Mergers, acquisitions and expansions

Acquiring another business (or being acquired) to grow is on the cards for 42% of those surveyed.  SMEs chiefly turn to business advisors/consultants and accountants for advice on M & As, with other advisers coming a distant third or later.

Where expansion is concerned, NSW is the target for most.  Interestingly, Queensland is on par with Victoria as a target, despite having a much smaller SME footprint than the southern, more heavily populated state.   

Find out more by downloading your copy of the Banjo SME Compass report 2021 here.