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Higher borrowing costs and living pressures have prompted small and medium businesses to adopt a raft of conservative strategies.
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90% of SMEs to dial back borrowing in 2024, survey finds
07 December 2023
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10 minute read
Almost all business owners say they will scale back their borrowing in the new year and over two-thirds say cost pressures have derailed their future purchasing plans, according to a recent survey.
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With interest rates standing at a 12-year high of 4.35 per cent, a survey of over 200 small and medium business owners and directors by Small Business Loans Australia found that a “startling” 90 per cent would be more careful with financing options to keep borrowing costs in check.
Small Business Loans Australia founder Alon Rajic said SMEs were facing both direct and indirect impacts of high interest rates and cost-of-living pressures.
Past surveys found that 64 per cent had been impacted by late payments, with almost a quarter struggling to pay themselves and 15 per cent struggling to pay staff, he said.
“Economic growth in Australia is still below historical trends in the last quarter, so it makes sense that businesses are playing it safe.”
“There are a lot of financial pressures in play right now, so many business owners will be waiting to see how the next year pans out before taking on any financial risk.”
The survey found medium businesses were more likely to tighten their budgets, with 97 per cent aiming to be more conservative in 2024, while 82 per cent of small businesses said they would do the same.
Their financial conservatism would play out in a few ways, the survey said, including comparing loans to find the best value options, spending more time on loan applications, and taking out smaller loans or cutting back entirely.
Micro-business owners, employing between one to four employees, were more likely to weigh up their options before considering applying for a loan (54 per cent).
According to Small Business Australia, this was because lenders saw smaller businesses as “riskier” than larger ones, charging higher borrowing costs as a result.
Just under 40 per cent of medium businesses and 28 per cent of small businesses also said they would be spending more time to find the most favourable loan terms possible.
Additionally, 16 per cent of small businesses said they would seek out smaller loan amounts than usual next year, compared to around 10 per cent of medium and micro-businesses.
The survey also found that around 70 per cent of decision-makers would postpone purchases and expansion plans in the new year, such as buying capital equipment or hiring staff.
A higher proportion of micro-businesses were reluctant to invest next year, with 78 per cent stating that the current economic environment had contributed to their decision to hold back. This was compared with two-thirds of medium businesses and 59 per cent of small businesses.
But Mr Rajic said there was hope in sight.
“The economy [is] proving more resilient at the moment than first expected, and that supports demand for Australian businesses. The federal budget also put measures in place to support businesses through these tough economic times,” he said.
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