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Future for small business very much about finance

16 March 2021


The pandemic’s consequences for potentially sound SMEs have yet to be realised. It’s a foregone conclusion termination of government support that has kept thousands of zombie companies and other unstable businesses functioning will soon end.

What’s hard to predict for this year and next is the fate of businesses that would now have been functioning efficiently were it not for COVID-19.

Prediction is complicated. Clearly business shut downs will increase in the immediate future primarily because of cash flow problems and lack of finance to solve them, yet the crisis has also triggered the evolution of new technologies, new business models and opportunities that have opened unforeseen pathways to success for many companies.

To a very large extent the nation’s post pandemic economic recovery will depend on these opportunities as well as the government’s plans to extend JobKeeper support selectively to businesses` in trouble financially through no fault of their own.

For individual companies’, recovery in the immediate future will depend on their managements’ ability to perceive means of survival (including finance) and ways to employ them.

Challenges in this

Exacerbating SMEs’ cash flow problems have been late payments. These, averaging 13.4 days in 2019, averaged 30.1 days last year and in some industries exceeded 90 days. It’ll be interesting to see how new legislation improves this situation. (See New legislation to deter late payers in our 18 February newsletter.)

Although the nation’s employment recovery has exceeded predictions, rising SME closures is expected to worsen a volatile situation where consumer spending is generally down.

One of the biggest difficulties facing SMEs is reduction in opportunities for financing. The hard time they’ve always had in getting loans from banks has become harder as alternative online fintech lenders, unable to source capital during the pandemic, began to run out of money and stopped lending.

Because fintechs, set up to work with small businesses and sole traders as a priority, have been more effective in delivering government-back financing (for example under the SME Loan Guarantee Scheme) than large banks, failing fintechs have therefore doubly disadvantaged SMEs.

Fintechs blossomed after the GFC when banks’ lending was reluctant but many are now in trouble and collectively their lending is down 40%.

But all is not doom and gloom

However, fintechs able to attract capital are doing very well, and that means if yours is a business needing finance, a little research on these could save the day. Leading online lenders in Australia include Capify, Prospa and GetCapital, and all offer financing under the SME Loan Guarantee Scheme. Because government assistance is so varied, you should also check eligibility for other types of financial help within your region.

The failure of businesses and momentum COVID-19’s disruption has given to the technological revolution, have opened space for sound businesses able to offer products and services better suited to current circumstances.

To compete in this space it may be necessary to make hard decisions – for example to close your business to create something new, perhaps also to consider new partnerships.

Changes in consumer needs, aspirations and behaviour may prompt you to either evolve your business or reinvent it to seize opportunities.

We’re not suggesting this will be easy, especially given that markets are changing and consumer spending is likely to lag in the months ahead.  Even as vaccine rollouts are in train worldwide, nobody really knows what the pandemic’s aftermath will look like – although the consensus among domestic analysts is that while Australia’s recovery in some respects is better than expected, it’ll still be protracted.

The fintechs’ role is important

SMEs are the traditional backbone of the nation’s economy, and fintechs have an obviously important role in providing a financial pathway to survival for many of them.

Even though some fintechs are struggling, clearly the fintech business model works well, which is why Macks Advisory wouldn’t be surprised if investors increase their support for this sector of financing and it continues to give banks some serious competition in the loans market.

 But this won’t happen in a hurry, although an encouraging sign of investor interest in top online business lenders was Capify’s recently announced successful $14m equity round and continued support from Goldman Sachs Merchant Banking Division that will serve to finance many small businesses in immediate need of cash.

The greater the investment in fintechs the greater the availability of loans to speed SMEs’ recovery from pandemic recession – and a US report that the volume of fintech investment there is “like water over Niagara Falls”, should boost investor interest in Australia’s fintechs.

During COVID-19 chaos here there has been rapid acceleration in the digitalisation of financial services that is encouraging previously reluctant business owners to engage with them, an indication that fintechs delivering offerings to accommodate shifting consumer demands will thrive.

Because they help banks provide services now that would take years to develop, and because banks can  help fintechs scale distribution faster and cheaper than they could independently, SMEs should expect to see blossoming partnerships between banks and fintechs.

But because the immediate future for many SMEs is very much about finance now, they should be researching the significant role mature fintechs can have in that.         


Disclaimer: The information contained in this webpage is general information and does not constitute legal advice. Nothing in this webpage is or purports to be advice. If you do need advice, then you ought to seek and obtain appropriate personal professional advice based on your personal circumstance.

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