A steadily falling Australian dollar and improved export conditions is prompting more businesses to expand into offshore markets, according to a major business survey.
The Scottish Pacific SME Growth Index revealed 7.5% of respondents are preparing to expand their business overseas in the next six months, compared with 5.6% last year.
This represents a 33.9 percent increase, driven mainly by the weaker Australian dollar and increasing export demand.
And 13.2 percent of respondents said they are planning to expand their businesses domestically and internationally in the same period – compared with 11.6 percent the previous year.
However, overall Australian SMEs are slightly less confident about growth prospects, the survey found.
Also, they show a greater willingness to look beyond their main bank to fund growth compared to this time last year.
The Scottish Pacific SME Growth Index indicates a 35 percent jump in the number of SMEs planning to go beyond their main relationship bank and use specialist non-bank providers or other banks to support their business growth in the next six months.
The September 2015 Index, the third in a twice-yearly series, surveyed a broad range of SMEs with annual turnover of $1m-$20m.
Short-term revenue decline
National SME working capital specialist Scottish Pacific commissioned East & Partners to interview the senior managers (mostly owners, CEOs and CFOs) of 1,257 SMEs around Australia.
Scottish Pacific CEO Peter Langham said more small business owners forecast short-term revenue decline – 16.8 percent of owners, up from 13.2 percent in August 2014. Their predicted average revenue decline rose to 4.6 percent from 3.9 percent last year.
"Fewer SMEs predicted positive growth (59.6 percent compared to 62.6 percent a year ago) and the average short term growth rate forecast dropped from 8.6 percent to 6.5 percent," Mr Langham said.
"Despite the Budget 2015 small business initiatives, taxes remain the biggest barrier to SME growth (68.6 percent), along with credit conditions (66 percent) and access to credit (56.2 percent). Cash flow is emerging as a significant hurdle with half of all growth SMEs (50.7 percent) saying it is a key challenge."
Do SMEs put banking issues in the too-hard basket?
The Scottish Pacific SME Growth Index found that only 4.8 percent of SMEs actively keep an eye out for credit facilities that fit best with their business. Fifty percent of SMEs don't get around to reviewing their primary bank relationship and only 20 percent review this regularly.
Most borrowing reviews are in house rather than reliant on special advisors such as brokers or accountants.
Mr Langham said it was notable that 15.1 percent of growth SMEs said they would fund growth by using specialist non-bank providers and funders other than their main bank (it was 11.2 percent a year ago).
"It's important that small business owners are aware of the range of funding options available to them to support their growth. If the banks say no, or if they don't like the conditions placed on them, there are many other viable options including debtor finance and P2P lending," he said.
More Scottish Pacific SME Growth Index findings:
- Ultimately most small businesses remain heavily reliant on their own capital to fund growth (89.4 percent) as a result of difficulty accessing credit.
- A third of SMEs have no plans for new products or services, perhaps wary of market conditions.
- When reviewing borrowing requirements or deciding on new providers, SMEs generally prefer to handle the task internally (43.3 percent) in preference to consulting a business colleague (27.8 percent), or accountant (16.9 percent) or sourcing a commercial finance broker (11.6 percent).
- Relatively few SMEs (16.1 percent) indicated a willingness to share facilities between two main lenders or seek a mix of bank and non-bank specialist providers (12.7 percent).
- One in two SMEs have not reviewed their primary bank relationship or felt the need to seek a new credit provider.
- Only one in five SMEs regularly review existing lending requirements.
- 45.2 percent of SMEs classified themselves in a growth phase, 27.4 percent report business is stable, 10.1 percent say business is contracting and 11.7 percent indicated they are in start-up phase.
"We've noted the increase in growth SMEs willing to borrow from another bank or specialist non-bank lender,” Mr Langham said.
“This increase is even greater amongst SMEs who see themselves as declining or with unchanged growth – the number of these businesses looking beyond their main bank for funds has almost tripled in the last year from 6.9 percent to 18.2 percent."
Mr Langham said while a growing number of small business owners were seeking alternate funding to grow their businesses, many owners remained unaware of other options if they don't meet bank criteria or don't want to put their house on the line for the business.
"Governments, the financial services industry and SME associations should be energetically communicating funding options to SMEs, who often didn't have the time to seek alternatives, or were unaware of them," he said.
Scottish Pacific Business Finance Pty Ltd provides working capital solutions to SMEs, clients in a broad range of industries including transport, manufacturing, wholesale, import, labour hire and printing.