Small businesses have felt the impact of the pandemic more severely but still struggle to access affordable finance for five key reasons
Small businesses in Australia continue to unnecessarily struggle when accessing affordable finance and deserve greater options, according to Taulia, the leading fintech provider of working capital solutions. In a new paper, Taulia has outlined the multiple challenges facing Australian small businesses – who often act as suppliers to large local and international businesses – regarding access to finance.
Small businesses are the driving force behind Australia’s economy, accounting for 35% of GDP and 44% of employment, but the Reserve Bank of Australia’s analysis of the COVID-19 pandemic shows that lending to these smaller firms has been relatively flat since January 2019. Taulia attributes this ongoing lack of finance to five key causes:
- The long-term challenge small businesses have had in accessing finance, particularly from traditional banking sources
- Fewer resources within small businesses dedicated to understanding liquidity risk and cash flow, which can mean they only realise their need for finance once it’s too late
- The spread of interest rates between small business loans and the Reserve Bank of Australia cash rate – small businesses often have rates more than 10% higher than large businesses, in Taulia’s experience
- Misunderstanding around the use of alternative finance – a cheaper, more accessible form of finance that is prevalent in other major economies such as the UK and Europe
- Traditional bank supply chain finance programmes lacking the technology platforms capable of onboarding large numbers of small companies, thus preventing small firms’ access to this type of finance.
Steve Scott, Head of Asia Pacific at Taulia, commented: “Access to credit for businesses of all sizes is critical to future economic growth in Australia. This is particularly acute for small businesses, who have borne the brunt of a deeply challenging 18 months, following the onslaught of the global pandemic. One route for smaller businesses to have greater access to low-cost finance is participating in early payment programmes – but these have not yet been widely adopted due to misunderstanding and nascent supporting regulations. Helping small businesses to understand and access forms of alternative, cheaper finance, such as supply chain finance, should be placed high on the priority list for Australia’s business landscape.”
The Australian government has rightly been focused on supporting the growth of small businesses through the current challenges of the global pandemic, according to Taulia. It has introduced reporting requirements to improve transparency and proposed regulations to limit payment terms for small businesses to 30 days to improve small business cash flow.
Steve Scott added: “The Government’s regulatory initiatives will go a long way to further improving understanding and transparency, while contributing to changing businesses’ behaviour in accessing different forms of finance. While supply chain finance will not solve all the problems that small businesses face, it is clearly one of the most efficient forms of cash flow finance and should work alongside more traditional forms of finance to support small business growth. Technology-driven supply chain finance solutions, implemented responsibly with the long-term in mind, will also help to foster the growth of Australian businesses, small and large.”