Young business owners are struggling to find finance, with more than one third of Generation Ys reporting being rejected for business loans as experts say the struggle to get into the property market is making loan applications challenging for early stage entrepreneurs.
A survey of 504 businesses for finder.com.au last week found that one in five Australian businesses had been refused a loan in the past two years, but this number jumped to 43% for entrepreneurs in the Generation Y age group.
The survey suggests doubts over the company’s business plan were seen as the biggest challenge to getting finance, but entrepreneurs were also concerned about how their credit histories and debt burdens impacted on the likelihood they would be granted a business loan.
While Gen Y business owners were found to be the most likely age group to be rejected for a loan, the research also suggests they are the least likely group of entrepreneurs to take a break, with 30% of young business owners taking seven days or fewer off each year.
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Australian Small Business and Family Enterprise Ombudsman Kate Carnell says there is a clear challenge for young business owners securing finance in Australia at present: they don’t own property.
“Quite seriously, it’s because they don’t have equity in bricks-and-mortar,” she says.
“Back in the 1980s, when I was buying businesses, banks used to lend [more often] against cashflow and business cases. They would lend you money for a good business that they knew was a good business. Now, unless you’ve got equity, 20- and 30-year-olds are very unlikely [to secure funding from banks],” she says.
Property prices in capital cities mean it is unlikely young business owners would be investing directly in commercial property, Carnell says.
The difficulty in securing funding from traditional sources makes alternative lenders and business loans through fintech companies more attractive, but in these cases Carnell advises to really read the fine print.
“You’ve got to be really careful to understand the deals you’re entering into,” she says.
While fintechs present “great options” for loans, the most important thing for any loan is to read the contract carefully, Carnell advises.
There is also the option of approaching smaller banks to get the best deal, she says.
“Look around, some of the smaller banks are a little bit more interested and we’re very pleased that the government is freeing up the requirements for new-entry banks.”
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