Lenders Set a High Bar for SME Borrowers

Lenders Set a High Bar for SME Borrowers

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Four in 10 small businesses and two in 10 medium businesses that applied for finance this year were knocked back, according to new report.

The Australian Banking Association has released an SME Lending Report, which says borrowing intentions dropped during the pandemic and remain low.

In December 2019, 71 per cent of SMEs reported that they had a borrowing product. By June 2021 the proportion had fallen to 50 per cent.

Only 14 per cent of small and medium businesses reported seeking finance in the three months to February 2021.

Of businesses that did seek finance, 60 per cent of small businesses and 80 per cent of medium businesses reported success in securing it.

Businesses that were declined finance were more likely to report facing challenges in their business in the following months.

The main reason for seeking finance was to maintain short-term cash flow or liquidity. The other main reason was to purchase equipment or machinery.

When businesses that did not seek finance were asked for their reasons, the most common response was that they already had sufficient funds, followed by unwillingness to increase debt.

Ten per cent of small businesses said they were unable to meet the eligibility requirements for finance and nine per cent said they could not service a loan.

*The ABA report was based on data from the Australian Bureau of Statistics, the Reserve Bank, RFI Global and ACA Research.

*This article was originally published on Banking Day.

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