Over the course of 2020, the Australian economy went through a rollercoaster ride of ups and downs even into 2023. Famously, we entered the worst recession in recent history, with businesses shutting down permanently and individuals around Australia losing their jobs.
The recession lasted only a few months for many companies, but that just highlights the problem with the way we measure an economy. Thousands of small businesses have not recovered, while people are still struggling to find jobs and pay debts.
And, while Australia has managed to contain the virus for the most part, the significant proportion of the economy that relies on international travel and tourism is set to suffer for months or even years to come.
How does our economy begin to recover in a way that benefits all players? According to Dave from Small Business Loans Australia, small businesses need new avenues of financing. To shed some light on why quick and accessible small business loans are so important right now, we caught up with Dave.
Q: Why Is It So Important That Small Businesses In Particular Can Recover?
Dave: When the average person considers what we call the economy, they tend to think of big banks and corporations rather than the small startups and entrepreneurs. But that is the issue with this idea of the economy as a homogenous monster. In reality, before COVID-19, small to medium size businesses made up 57% of Australia’s GDP, employing somewhere in the number of seven million people! Without its small businesses, our economy would be in a lot of trouble.
And it’s not just in economic value that Australia’s small businesses matter. We have seen time and again that it’s not the banks or the massive corporations who are innovating. For example, it is companies like Finch and PokitPal who are moving the Fintech industry forward and not the old faithful corporations.
The same is even true for the companies providing loans to small businesses. The newcomers generally have better products with more to offer the modern day entrepreneur.
Q: It’s Clear That Small Businesses Are Crucial To Our Economy. Your Stance Is That This Should Drive Lenders To Finance SMEs, Even Though The Continuing Crisis Makes These Loans Riskier Than Ever. Is It Not Wiser To Focus On The Growth Of Companies That Have Stayed Afloat And Newcomers With Their Own Sources Of Capital?
Dave: You're right that there are small businesses that have managed to stay afloat. However, this has only happened because financing has been made available or secured by the government. But beyond the needs of these small businesses, this question brings light to another modern economic fallacy: that the best companies survive.
Especially in a situation like this one, which companies survive often has more to do with fortune than inherent worth. There are tons of businesses which collapsed because they were in the middle of a critical round of financing when the crisis began. Other small businesses had just spent millions on launching new products which the pandemic killed demand for. The surviving companies aren't necessarily those who are making a big difference or set for growth – they are the ones who circumstances favoured.
In terms of companies bringing their own capital, that is every business owner’s dream but is just not realistic. So much capital has gone to waste just keeping businesses afloat, and those startups lucky enough to still have capital remaining will be forced to dream small if there are no financing options available.
Quite simply, for the small business economy to recover, quick and accessible financing is crucial.
Q: What Incentive Do Lenders Have To Offer Risky Loans To Small Businesses In 2021?
Dave: Well, it’s important to remember that the incentive for lenders to lend is their own success! Private lenders have themselves been struggling to find the right balance during the pandemic. They need to provide loans in order to make money, but if they provide too many risky loans, they face the prospect of total collapse.
A lot of the economic measures put in place by the Australian government during the pandemic have helped lenders continue to offer financing without the unsustainable risk. The government has subsidised and secured loans for small businesses with programs like the Coronavirus SME Guarantee Scheme. There have been limits to the reach of these loans, which has been frustrating for some small businesses, but they have gone a long distance to keeping the economy afloat.
Q: You're Saying It Is In The Best Interests Of All Parties That Small Business Loans Are Made Available. What Can We Do About This? And Is There Anything Small Businesses Need To Know About Securing Financing?
Dave: Yes, small business financing has been and will continue to be one of the fundamentals of rebuilding our economy. The best private lenders have managed to create products that better suit businesses in the time of COVID. But ultimately, the government needs to continue supporting lenders and working with them to find sustainable solutions.
One thing that can make a difference is increased awareness that financing is available and that it is a viable option for 2021. Many small business owners who saw their startups collapse and many would-be entrepreneurs who have looked on from the sidelines assume that now is not the time to try get back on track.
For some companies, that is at least partly true. International tourism is simply not going to return to normal for the next few months. However, most businesses can start rebuilding, if slowly at first.
Small business owners need to know that it is possible to secure financing, even if they cannot guarantee immediate success. The country needs to rebuild, and the government and lenders are aware of that. If you have been waiting for the perfect time to seek financing, make some enquiries now at the very least. You will find that the barriers to entry are not as high as they once were.
Lenders and borrowers need to get onto the same page. Small business financing needs to be available and entrepreneurs need to know that they have options on loans and financing.
