Guy Callaghan, CEO of Banjo Loans shares his thoughts with Manufacturers’ Monthly about growth strategies for SMEs following the pandemic.
Many small and medium enterprises (SMEs) have come out of a horror year feeling positive about the road ahead, with almost 7 in 10 expecting an increase in revenue over the next 12 months.
Looking back at 2020, the majority of SMEs had to restrict their operating capabilities as a result of the COVID-19 pandemic, with more than 1 in 3 having to either temporarily close or overcome significant restrictions on their ability to operate.
More than half (54%) didn’t achieve their revenue targets in 2020 and close to 1 in 3 (29%) decreased headcount in response to the pandemic.
In the next 12 months, nearly two-thirds of small and medium enterprises (SMEs) are planning to borrow to drive growth for their businesses. But there are still too many pain points around getting the appropriate funding.
A broad cross-section of over 500 SMEs across Australia were surveyed for the Banjo SME Compass report 2021. While the researchers found that many SMEs are feeling positive about the year ahead and planning for growth, some barriers still remain, and a surprising number are lagging in getting their businesses online.
Top factors that helped drive SMEs’ revenue
Not surprisingly, just a quarter of SMEs say they exceeded their revenue targets last year.
There was a common factor among the 25% who recorded strong performance: all of them invested for growth by implementing new technology, improving products and buying new assets or equipment in 2020. Those who leveraged debtor or supply chain finance were significantly more likely to exceed revenue targets.
Many businesses are poised for growth
With close to one third of SMEs having let staff go during the pandemic, employment prospects are also set for growth with just under half intending to increase their headcount in 2021.
However, many have a lot of catching up to do in online business. Currently only 28% of SME revenue is generated online, and businesses are more aware than ever that on the back of pandemic restrictions, online needs to be a key component of their growth strategy.
More than half of the survey respondents plan to increase the proportion of their sales generated through online channels in 2021. For 14% of SMEs, this year will mark the first time they begin to earn revenue online.
Demand for funding – and what SMEs need right now
With nearly two thirds of the approximately 1.2 million SMEs in Australia intending to borrow in 2021, this means approximately three quarters of a million businesses will be seeking funding.
The sector had $146 billion of funding lines in June 2020, which declined during the pandemic to $141 billion in March 2021.
Based on this research, and the upswing Banjo is seeing in demand, lending to the SME sector is expected to increase by around $5 billion between now and the end of the year.
But many businesses experience barriers when trying to borrow to fund their growth.
Nearly 6 in 10 SMEs say onerous lender requirements are challenging. The most common pain points are lenders who: require property or assets as security; and take weeks or even months to approve or reject a loan.
The opportunity cost of not being able to secure funding when a business needs it – now – is too big to ignore. After interest rate, SMEs value ease of application as a lender’s most attractive feature.
Drawn-out approval processes are certainly common in some parts of the banking sector. However, business lenders like Banjo who have the right technology, can give a small business owner an answer either way, within 24 hours. And it doesn’t need reams of paperwork. The sustainable EBITDA (earnings before interest, taxes, depreciation, and amortisation) of a business is key to our lending decision. Your accountant, whether external or internal, can be key to helping put together the right information to give to the lender.
Women business owners take a different approach
Female business owners are much less likely than their male counterparts to borrow to fund growth, preferring to self-fund from operations. This is in large part because they are more averse to providing personal assets as security – regardless of how large or small their business is. There is also the question of where to turn for funding.
Mergers, acquisitions and expansions
Acquiring another business (or being acquired) to grow is on the cards for 42% of those surveyed. SMEs chiefly turn to business advisors/consultants and accountants for advice on M & As, with other advisers coming a distant third or later.
Where expansion is concerned, NSW is the target for most. Interestingly, Queensland is on par with Victoria as a target, despite having a much smaller SME footprint than the southern, more heavily populated state.
Find out more in the Banjo SME Compass report 2021 here.