SMEs in growth mode but find that funding growth is a challenge

Scottish Pacific has recently teamed up with East & Partners, a leading, specialist, market research firm in the corporate and investment banking markets of the Asia Pacific. This partnership has led to the launch the Scottish Pacific SME Growth Index.

One of the key findings of the initial research, compiled from interviews with more than 1,250 business people from around Australia, was that a majority of Small and Medium Sized Enterprises (SMEs) are forecasting a positive change in revenue in the next six months. However these same SMEs also say the availability and conditions of credit are key barriers to their business’ growth.

The Index found that 61% of SMEs cited credit conditions as a growth barrier, while 51% percent cited credit availability as a growth barrier. Of those that were forecasting increased revenue, 77% indicated that they were required to use personal assets as collateral to access funding.

Four out of ten businesses said they were planning to borrow from their main relationship bank, yet only one in ten had considered other non-bank lenders and specialist providers as a funding source. This indicates a distinct lack of awareness of the other business credit options available to SMEs.

SME business owners flag 8.6 percent revenue increase

The research showed that 62% of the SMEs, selected from all over Australia and across all industry sectors, were expecting an average 8.6% increase in their business revenues in the coming six months. Only 13% were forecasting a revenue decline, by an average of 3.9%. When asked to describe the business phase they are in, almost one in two (45%) said they were in growth mode, with more than three out of ten (32%) describing themselves as stable or consolidating.

Many SMEs remain unaware of specialist business funding options

Peter Langham, chief executive at Scottish Pacific, said the Index emphasised the uphill battle many SMEs face to execute on their growth plans. “The research clearly shows that a majority of SMEs are in growth mode, and have plans to introduce new products and services,” Mr Langham said.

Despite this, many SMEs seem unaware of the funding options – such as asset-based lending (including debtor finance and trade finance) – that are available beyond the traditional secured overdraft.

“There are currently more than 4,500 Australian SMEs, with combined annual revenues of $65 billion, using debtor finance to fund their business growth – but thousands of SMEs are unaware that this funding option is even available. Debtor finance facilities are self-liquidating. Instead of taking on additional debt, an advance is offered on money that is already owed to the business. Unlike most overdraft facilities, debtor finance does not generally require real estate security. The fact that so many SMEs, particularly those in growth mode, are providing collateral from their personal assets, rather than using the assets of the business to support their growth, suggests there is still a bigger opportunity for the non-bank specialists with more innovative solutions to increase their presence, but it starts with awareness,” Mr Langham said.