Running a small business often feels like navigating a rollercoaster—full of exhilarating highs and nerve-wracking drops. Right now, however, many small business owners in Australia are gripping the handlebars a bit tighter. The cause? The uncertainty of borrowing money in today’s volatile economy.
For entrepreneurs who thrive on tackling challenges, this might seem like the perfect opportunity to step in and help. But let’s take a closer look at why small business owners are being cautious about taking on new debt, and how you can help make a difference. While data from leading non-bank lender Banjo Loans reveals some regional variations, the overall trend is one of caution—particularly in Western Australia, where SMEs have seen a decline in funding.
A rocky road ahead
Australia’s economy has been slowing recently, and that’s left many small businesses holding onto their cash. With an unpredictable future, many SMEs are hesitant to rush into loans. After all, borrowing money when the outlook is uncertain feels like a risky bet—like splurging on pricey concert tickets, only to wonder if the band will even show up.
ATO’s growing demands
To complicate matters, small businesses are dealing with the Australian Taxation Office (ATO), which has been actively pursuing unpaid debts. For businesses already feeling the squeeze, the pressure from outstanding tax bills is only adding to the strain. So, what’s the logical step for many owners? Play it safe. With tax bills already looming, taking on more debt seems like a step too far.
The struggle for businesses under $2m
Small businesses earning less than $2 million annually are particularly vulnerable. These underdogs often lack the deep pockets of their larger counterparts, making the idea of borrowing even more daunting. For these businesses, even small financial changes can feel catastrophic. They’re more likely to stay on the sidelines, hoping for a calmer economic environment before making any bold moves.
The loan application standstill
You might expect that, with the economy in a downturn, businesses would be eager to take out loans to weather the storm. But in fact, loan applications have stalled. Businesses are staying put rather than seeking new funding. Why? Because the ability to service those loans is a significant concern. It’s akin to buying a new car when you’re unsure if you’ll be able to make the payments next month—certainly not an enticing prospect.
How you can make a difference
So, what can you do? Here’s where your expertise comes in:
- Provide Clarity: Business owners are looking for guidance. With so many financial options out there, they need someone to help them make sense of it all. This is your chance to be the trusted advisor who helps them navigate through the maze of borrowing options with confidence.
- Think Long-Term: While the current economy may seem daunting, it’s important to help businesses think about the future. You could be the one to guide them in planning for growth when conditions improve, showing them how to position themselves for success when the market picks up again.
- Build Trust: Small business owners need someone they can rely on. They need an expert who understands their struggles and can provide honest, sound advice. By building trust and offering support, you can become the go-to resource for businesses navigating these uncertain times.
Banjo Loans CEO Guy Callaghan highlighted the ongoing uncertainty SMEs continue facing, pointing to weak loan application numbers and a shift away from earlier hopes for recovery. “SMEs are feeling the weight of the ongoing economic challenges, with most businesses still wary of
borrowing or investing,” said Mr Callaghan. “While some regions like Victoria are seeing a slight uptick, the overall mood across the country remains one of caution. The lack of a typical end-of-year rush further indicates the ongoing strain businesses are under.”
In terms of loan quality, the Barometer confirmed that SMEs are still managing to meet their loan payment obligations, following approvals. However, it also highlighted that SMEs with revenue under $2 million (the S of SME’s) remain the most cautious, with many hesitant to take on any additional
debt in the current market. “Serviceability and meeting eligibility criteria continue to be the highest reasons for loan rejections, particularly with the rise in businesses carrying unsustainable ATO debt,” said Mr Callaghan. “The ATO’s aggressive approach to recoup outstanding payments is likely contributing to this trend.”
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