Non-bank finance has reached a new milestone in Australia, with the proportion of SMEs planning to use non-bank lending to fund new business investment exceeding 60% for the first time.
The latest edition of ScotPac’s SME Growth Index reveals that 61% of SMEs planning to invest over the next six months intend to use non-bank finance, more than triple the 19% recorded in 2019.
The record result reinforces the role of non-bank lending as a source of capital for SMEs seeking to fund growth and expansion.
Related findings include:
- 59% of SMEs plan to invest in their business over the next six months, maintaining the steady investment appetite evident in the post-pandemic period.
- 31% of investing SMEs plan to use bank lending, unchanged from six months ago and below the 48% peak recorded in 2023.
ScotPac CEO Clare Morgan said the findings reflected a continued shift in how SMEs are choosing to finance investment.
“SME investment intentions have remained steady for the past five years with two thirds of SMEs planning to invest, however the way businesses are choosing to finance that investment has changed,” she said.
“The reasons business owners are using non-bank finance include flexibility, greater choice, speed of decisions and ongoing support that reflects their circumstances.
“They recognise the value of funding solutions that can move with their business cash flow and provide the flexibility they need to invest with confidence.”
Self-funding Remains Prominent
SMEs also continue to rely on their own resources when it comes to investment.
Almost all investing SMEs (97%) expect to use internal funds or equity for at least part of any new investment in the next six months, compared with 81% in 2014. The proportion of SMEs planning to raise new equity has also increased over the same period, rising from 11% to 32%.
Ms Morgan said the findings highlighted the importance of taking a balanced approach to managing operational and investment funding needs.
“Using retained funds to invest in growth may make sense in some scenarios, but businesses need to ensure that investment does not compromise day-to-day liquidity,” she said.
“A working capital buffer helps businesses meet operating costs, manage unexpected expenses and absorb delays in customer payments. Investment capital allows them to pursue opportunities for growth.”
“An appropriately structured finance solution can help businesses find the right balance, allowing them to invest in equipment, technology or expansion while also preserving their cash reserves.”
Funding uncertainty highlights need for earlier support
The research identified ongoing funding challenges among SMEs facing weaker trading conditions, with a record 16% of SMEs forecasting flat or declining revenue being unsure which funding method they would use to finance future investment.
Ms Morgan said the result reinforced the importance of reviewing funding options before financial pressures emerged.
“Businesses facing weaker revenue conditions can find it harder to access finance at the very point they need flexibility and support”, she said.
“That is why planning and diversification matters. SMEs should assess their funding capacity and available options well before making a major investment decision.
Ms Morgan said ScotPac was well positioned to support SMEs.
“ScotPac’s expertise is in helping Australian businesses access the capital they need, when they need it – whether to support day-to-day working capital, acquire new assets or pursue opportunities for growth.”
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About ScotPac’s SME Growth Index Report
- Commencing in March 2014, ScotPac’s twice-yearly SME Growth Index Report is Australia’s longest-running research report on SME sentiment towards revenue growth prospects.
- The Round 25 research was conducted by East & Partners who interviewed 727 SME enterprises with annual revenues of A$1 million – $20 million.
- SMEs surveyed have operated continuously for an average of 16.6 years and manage, on average, 50 full-time equivalent employees.
About ScotPac
ScotPac is Australia and New Zealand’s largest non-bank SME business lender, providing funding to small, medium and large businesses from start-ups to corporates. For over 35 years, ScotPac has helped thousands of business owners succeed, offering fast and flexible funding. ScotPac is large enough to trust, small enough to care.
For more information contact: Todd Hayward – Mob: 0412 205 151
