SMEs need more financing but don’t know how to access it

More SMEs are looking for funding and seeking financial advice than they were six months ago, but they still have difficulty accessing funding.

Saturday, August 19th 2023, 9:24AM

The results of a newly released six-monthly survey from RFI and the SME Banking Council, commissioned by Prospa, show that the current macro-economic environment - characterised by inflation and high interest rates - is driving SMEs to seek professional advice about their finances.

About a quarter of the 500 businesses surveyed in May said they had sought, or would seek, professional advice about their business finances.

SMEs that had sought funding were not always successful, of the 37% of businesses that applied for a loan, only 18% received the full amount they asked for (compared to 30% in November last year). Others received only a portion of what they applied for (14%) (down from 18% in the last survey).

Yet despite all this, most SMEs surveyed actually expect to need more financing in the next 12 months, not less, citing purchasing equipment (41%), maintaining cashflow (41%) and business expansion (32%) as the key reasons for seeking funding.

About 65% of SMEs surveyed intended to apply for funding in the next six months, but of those only two out of three were aware of alternative lenders, and just one in three would consider actually taking out a loan with an alternative lender.

SMEs aren’t taking advantage of alternative lenders as much as they could

When seeking a loan, most small and medium sized businesses were looking for competitive rates (48%) and the ability to bank online (34%) first and foremost. Further down the list were things like flexible repayment methods, the ease of the application process and good customer service.

Yet only two out of three SMEs were aware of alternative lenders and only one in three would consider applying for a loan with one. However, of those that did choose an alternative lender, 29% said it was because of the ability to access funds quickly, and 26% said it was because of the lower fees. Another 24% said it was because of the quality of the advice received.

Of those considering applying for funding with an alternative lender, 35% said it was because they were more willing to listen to the business’ specific needs, while 28% said it was because alternative lenders had more flexible repayment options. Trust was an important factor for 27% of respondents, who said that they felt safer and trusted the alternative lender to a greater degree with their financial information.

Of the SMEs that would not consider approaching an alternative lender, most said it was due to a lack of awareness - they simply had not thought about it (27%). A smaller number said it was because alternative lenders were less trustworthy (18%) or because they had higher fees (17%).

So what does all of this mean?

Prospa NZ, managing director, Adrienne Begbie says there’s a huge opportunity for advisers to diversify into small business lending.

“We know over half of small business owners expect to need funding in the next six months and the chances are only a handful will actually get the full amount they apply for.

"Now is the perfect time for brokers to educate their small business clients about the benefits of alternative lenders and bust any myths that may be preventing them from considering its services.”

Tags: Adrienne Church Prospa SME lending