One of the most hotly debated topics on the Australian business scene is that of small and medium businesses, which everyone seems to be regarding as some sort of miraculously saving force of the country’s economy. Granted, Australia hasn’t been seeing as dire a recession as other countries around the world (the U.S., China, and the European Union, to name but a few). Yet it is equally true that the lending segment of the banking sector still appears to be mired in the murky waters of a never-ending recovery. Consumer confidence has been improving in 2013, but lending activities haven’t picked up significantly just yet – and that’s why many banks in Australia are choosing to focus on attracting more small businesses within the ranks of their clients.
Should this type of initiative prove successful, it stands to benefit both parties (the lenders, as well as the start-ups), since small businesses in Australia have had a rough time gaining access to financing. A 2012 poll among SME owners revealed that only 32 per cent thought it easy to get access to a business loan, down four per cent from the previous year. This is a paradoxical situation, in a country where 20 per cent of the GDP comes from start-ups and half of the people employed in the private sector work for such a business. As such, it makes sense that absolutely every Big Four bank, as well as some smaller lenders, are gearing up to lure in as much of this segment of debtors as possible.
Only last month, for instance, one of Australia’s top banks came out with an announcement that it would invest $1 billion per year into small new business loans. This is the same bank whose non-mortgage loan portfolio amounts to an impressive $150.5 billion – yet it is not clear how much of that money has been geared toward start-ups thus far. According to the spokesperson of the bank in question, this primary goal behind this strategy is to make it easier for start-ups to ensure a steady, reliable cash flow in the beginning, when many might find it difficult to do so.
And, as a matter of fact, they do – many small businesses are caught up in a spiraling problem with debt. They are owed money and, in turn, they delay payments to service providers and other partners, in order to secure their cash flow. This information comes via a recent poll, ran by another one of Australia’s top banks, which asked over 760 small business owners about debt, postponing payments, and cash flow issues. They found that such companies in New South Wales are currently owed an estimated $4.4 billion, 78 per cent of which is overdue. At the opposite end of the overdue debt spectrum stands Western Australia, where small businesses are only owed $236 million, 22 per cent of which has been repeatedly postponed.
The current levels of debt are making a good case for loans, but also for other means of saving on various overheads, in order to maintain a healthy cash flow. It explains why an increasing number of start-ups are bypassing long-term office rentals in favor of serviced offices – fully appointed office spaces, which they only use for meetings or other short-term needs. Financial consultancy, as well as financial management skill training, are other areas in which SME owners ought to invest, in order to avoid more debt being carried against them. For, while the situation has improved since the most trying times during the aftermath of the recession, it’s quite clear that there is a cash crisis risking to jeopardize the start-up sector in Australia.
