Report finds loan rejections and late payments causing cash flow crisis

- September 25, 2019 2 MIN READ

A new report suggests small business owners are turning to alternative lenders for funding as their cash flow crisis continues to worsen due to late payment times and funding rejections from traditional banks.

The SME Growth Index report by Scottish Pacific has found one in five small businesses are facing cash flow problems specifically due to business loans being rejected.

According to the report, the percentage of small businesses reporting significantly worse cash flow has doubled since March 2018, with 7.3 per cent saying it is significantly worse and 12.3 per cent saying it is worse than the previous year.

Scottish Pacific CEO Peter Langham said this was the first time that the Index researchers had asked businesses throughout Australia if being declined from a lending product was creating cash flow issues.

“The fact that one in five businesses is struggling with cash flow because they’ve had business funding rejected is a massive wake up call to SMEs and their advisors to make sure they are funding their business in a way that optimises cash flow,” Langham said.

“A business struggling with cash flow can only stretch working capital so far before something has to give.”

The twice-yearly report also discovered many small business owners reporting issues in remaining compliant in regards to tax and super obligations. More than one in four (27.8 per cent) of small business owners say they have difficulty meeting tax by the due date.

A quarter of small business owners say their cash flow problems stem from late payment times and suppliers reducing their payment terms. Only one in 10 small business owners say they have had no cash flow concerns in the past year.

“The impact of poor cash flow on the Australian economy is considerable. East & Partners estimate that this issue costs the SME sector more than $235 billion annually in lost revenue,” Langham said.

“If business owners don’t find new ways to deal with perennial cash flow issues, Australia’s growth potential will continue to be constrained.”

The report revealed many small business owners were turning away from the traditional lenders with the percentage of business owners who fund their growth via their main bank halved in the five years of Index research – falling from 38% in 2014 to 18.3% now.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell says the data reveals the extent of the cash flow crisis for small and medium-sized businesses in Australia.

“Australian small businesses are in the midst of a cash flow crisis and the SME Growth Index indicates the situation is getting worse,” Carnell said.

“Small businesses are telling us time and time again that a lack of access to funding is their biggest barrier to growth. This has major implications for the sector as a whole as well as the economy more broadly. Interestingly, the Index found just one in 10 SMEs said they had no cash flow concerns in the past year. This highlights why it is so important for small businesses to be paid on time.

“My office, in partnership with Scottish Pacific, has created the Business Funding Guide which not only offers comprehensive, up-to-date information about what’s out there in terms of finance options, but also helps small businesses get ‘finance fit’ to give them the best chance at securing the funding they need.”

ASBFEO and Scottish Pacific launch small business funding guide