The State Of Small Business Loans In Australia Amid New Lockdowns

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The world continues to grapple with the COVID-19 pandemic with some countries exhibiting more hardships than others. Australia in particular ranks as among the most locked-down countries and entrepreneurs across the world are paying particularly close attention to the latest developments.

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Will Australian companies be able to navigate through a fresh round of lockdowns with no near-term end in sight? Will banks and financial institutions continue extending Australian small business loans amid economic uncertainty?

Just weeks into the new lockdown, we have some insight that should provide hope to concerned entrepreneurs.

Australia's Lockdown Spells Trouble For Small Businesses

Australia’s Canberra is the latest to enter a strict lockdown. The capital city’s lockdown means 400,000 people are restricted to their homes except for essential reasons. Canberra joins other major economic hubs like Sydney and Melbourne that recently announced their own lockdowns.

In fact, Melbourne is Australia’s second-largest city and announced its sixth lockdown in early August. Many already struggling small businesses across Melbourne and impacted regions could decide to shut their doors for good.

Unfortunately, existing government support programs require a small businesses to demonstrate their revenue is down 70% to receive financial assistance. As any entrepreneur knows, even a 10% decrease in revenue is problematic. So companies feeling the pain with their revenue slashed by half are being left in the dark.

Small business advocate and Chapel Street Precinct General Manager Chrissie Maus was quoted as saying small businesses on the iconic retail street are “like walking zombies.” She also said there is no “compassion, support, and care” from the government.

Even if a business is able to access support, it may prove to be insufficient. Companies that are optimistic they have a future over the coming years clearly need to tap financial support outside of the government.

Do Australians Have Easy Access To Small Business Loans?

Now more than ever, struggling small businesses backed by brave entrepreneurs willing to rough out any near-term turbulence are turning towards financial institutions and hoping for a lifeline.

But is it easy for entrepreneurs in Australia to secure a small business loan? Are Australian lenders even eager to lend money in this uncertain environment?

Taulia is a US-based financial technology provider of working capital management solutions to Australian businesses of all sizes. The company said in an early August research report that Australian small businesses struggle when it comes to obtaining affordable finance.

Taulia found that small businesses often have to settle for interest rates that are more than 10% higher than what large businesses are able to borrow.

Yet, on the other hand, fellow financial technology lender to small businesses Prospa Group showed a more confident and bullish tone. In the company’s fiscal fourth-quarter (ended June 2021) earnings update, Prospa reported impressive metrics, including:

  • 51% increase in loan originations at A$182.1 million.
  • The highest ever quarterly originations.
  • Repeat and returning customers accounted for half of all originations.

Commenting on the report, Prospa CEO Greg Moshal said:

“Whilst we are all too aware of the challenges currently faced by small businesses in the Greater Sydney metropolitan region, Victoria and South Australia, the SME sector generally has been on a solid recovery path this past financial year. Research undertaken on our behalf by RFi Consulting in May 2021 shows that one in four SME business owners expect their FY21 turnover to increase. This compares with just 7% who expect it to decrease for the period.”

Prospa is required to update the investment community with data like this because it is a public company. Unfortunately, private companies don’t face the same requirements so it is impossible to know for sure if Prospa’s optimism is shared across the Australian small business loan community.

Entrepreneurs Are Better Prepared

More than a full year into the pandemic, motivated entrepreneurs are more equipped to deal with any fallout compared to 2020. Many businesses have found success in adopting an online model or introducing other necessary changes to adapt to the rough times.

There is one telling piece of data that makes it clear small business operators are putting up a fight. According to the Australian Banking Association, from July 8 through the first week of August, only 600 business loans across the country were in deferral. This is a small fraction when compared to the 225,000 Australian business loans that were in deferral during the same period a year prior.

CreditorWatch Chief Executive Patrick Coghlan was quoted as saying:

“Businesses have also learnt a lot over the last 12 to 18 months about how to prepare and plan for the future. There has been a big shift to online, to automation and to digital ... businesses are a lot leaner.”

To be fair, this statement cannot apply to all businesses. Some entrepreneurs by default of their specific product will find it easier to adapt. Many others, especially those that survive off tourism and events, can’t adapt at all.

Fortunately, Australian small business lenders are showing a willingness to lend capital so entrepreneurs have a fighting chance of operating in the coming years and decades.

Bottom Line: Entrepreneurs Will Find A Way To Thrive

Entrepreneurs are among the most resilient groups of people in the world and will always find a way to thrive. There is no doubt that the pandemic created a scenario that few if any business leaders could have ever imagined. But more than a year into the crisis and the business community has learned how to adapt and evolve.

Fortunately, small business loans in Australia remain accessible to those willing to put up a fight. They are the ones that will overcome near-term challenges and become the business leaders of tomorrow.