Warning SMEs won’t be able to sell their businesses unless access to finance improves

Small business ombudsman Kate Carnell has welcomed news of a patent review. Source: AAP Image/Mick Tsikas.

The small business ombudsman has launched an inquiry into access to capital for SMEs, amid warnings that unless Australia tackles barriers to business loans, mum-and-dad operators could struggle to sell their businesses in future because of a lack of potential buyers.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell tells SmartCompany small business owners are already feeling the pressure in states like Queensland, where Baby Boomers looking to sell their companies have struggled to generate interest from buyers, in part because those potential buyers are unable to secure commercial loans to take over or acquire a business.

“Queensland has a huge problem in this space,” Carnell says.

“Due to the decentralised nature of Queensland, a lot of people at retirement age are outside the south-east corner of the state, and they simply have been unable to sell their businesses, there were no buyers. There were no buyers because nobody can secure the money to buy [the businesses].”

Carnell’s office has today begin a formal inquiry into the barriers to commercial lending for small businesses, which will include looking at how federal and state governments can help smaller businesses grow by providing alternative support for commercial loans.

One area that will be considered is the idea of a government-backed loan system, similar to the British Business Bank, which could support smaller operators in getting the loan approval they need in order to start and grow a business, she says.

Research into the lending space last year revealed 43% of generation Y business loan applicants were refused capital in the past year, while reliance on alternative lending and fintechs has skyrocketed.

Carnell says the problem is also about how much lenders are willing to lend: getting a big enough loan from a commercial lender to actually start or buy a business is proving incredibly difficult for business owners without equity in property, she says.

The dilemma comes with the fact that the banks are generally good with up to $50,000, which is sort of like a credit card. The fintechs say they lend ‘up to $250,000’, but generally they don’t. So if you’re looking to buy an existing business, and you don’t have the ‘Bank of Mum and Dad’ or equity in property, you have absolutely nowhere to go,” says Carnell.  

This creates flow-on effects right through the small business ecosystem, because without willing buyers, many business owners who had planned on selling their business to fund their retirement have few options on the table.

“We want to create a market for Baby Boomers who do want to sell,” she says.

The ‘Affordable Capital for SME Growth’ inquiry will canvas views of local and international experts in the space, with a view to report recommendations in July.

Communication a massive challenge

Kathryn Bordonaro is a commercial finance broker and owner of All Biz Finance Brokers. She says she can think of several cases where businesses have had their requests for finance knocked back by the big four banks because bankers have not had enough industry-specific knowledge to immediately understand the need for a loan.

“I had a client about eight years ago, in the specialised field of a pilot training school. They had a small fleet of aircraft but they were older, and they knew if they could update their fleet with new aircraft, it would attract more students, and it would be a game-changer,” she tells SmartCompany.

The company approached a big four bank outlining their plans, but were immediately told “no, sorry, we can’t help you”.

The challenge for the company in this case was that despite having a legitimate business case for the loan, “the bank didn’t really understand the industry, or the assets”, Bordonaro says.

She then worked with the business for six weeks, compiling an incredibly detailed pitch, right down to the fuel and maintenance efficiency of the new fleet, hour-by-hour.

Eventually, the company was approved for the loan by another big four bank, but she says the situation was “pivotal” in her mind because it reveals an challenging truth about how banks and businesses communicate.

Quite often, where a business comes unstuck in accessing finance is translating the information about their business into ‘bank speak’,” Bordonaro says.  

On the flip-side, lenders are rarely experts in every business industry they come across, meaning pitching for capital requires business owners to be confident about explaining their financials, their industry and growth potential in detail once they get in front of any bank.

Bordonaro says one of the biggest frustrations for SMEs is that when a lender does reject them, “they often can’t find out the reasons why”.

That makes it critical that the moment a bank rejects your loan application, you press them for further feedback, Bordonaro advises.

NOW READ: Behind the 500% increase in small businesses using marketplace lending


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Paul Nielsen
Paul Nielsen
3 years ago

As a former National President of the Australian Institute of Business Brokers and Chair of the Council Of Small Businesses Organisations of Australia and Queensland Resident I absolutely endorse the Small Business Ombudsman’s comments, particularly in relation to the Queensland marketplace. The Federal Government backed the Banks in the GFC so why can’t they back the SME’s that they call “the backbone of the Australian economy”. Succession to the next generation of SME owners cannot occur without access to Capital. The Brit’s have a government-backed loan system – the British Business Bank and the Americans have it through their Small Business Authority. Why won’t the State or Federal Government back Small Business in Australia. I call on all SME owners in Australia to petition their Local MP to make this happen.