Getting a small business loan means borrowing money from a finance company to start, manage or grow a small business. Unfortunately, according to 2020 estimates, four out of five small business entrepreneurs were denied funding from banks, even though it seems straightforward to visit your bank or local financial institution and apply for small business loans.
“Although small businesses are the Australian economy’s backbone, they’re seen as high-risk debtors, and the majority of small business loans granted are decreasing,” connotes Max Funding’s lending expert Shane Perry.
Downward Trend In New Small Business Loans
Since the coronavirus outbreak, small enterprises’ access to loans has been restricted. According to Australian banks, current lending rules are more challenging to implement whenever the economy is stalled and there is much uncertainty. For this reason, small businesses have been hit the most by the pandemic’s effects on new small business loans applications. It may be sufficient to interpret why the actual number of existing small business loans fell last year in light of the unusual conditions.
However, the ugly truth is that even before COVID-19, access to financing for small businesses in Australia decreased.
How Is Australia Attempting To Revive Small Business Loans?
Several loan schemes were put in place by the Australian government to help small and medium-sized businesses (SMEs).
● Modifications To The System Of Instant Asset Write-offs
Since its establishment, the instant-asset write-off program has encouraged small businesses to make significant investments into new assets, and the interim rise in the ceiling during this year’s pandemic makes complete sense.
● Payments Using Jobkeeper
Many Australian SMEs have found the JobKeeper Payments to be a lifesaver in retaining employees.
● The Short-Term Financing Facility
The term financing facilities and the SME guarantee plan have been two of the least successful approaches. The RBA’s term finance program is aimed to cut lenders’ cost of capital if they loan more to SMEs. In contrast, the RBA’s ability to provide liquidity to significant banks for extended durations favours independent lenders and finance companies, who have to rely mainly on the secondary markets for much of their funding.
● The SME Insurance Program
The SME guarantee plan appears to have entirely missed the target in Phase 1 and garnered minimal adoption. However, phase 2, which was revised to lengthen the period of small business loans and limit borrowing costs for borrowers, is predicted to work somewhat better.
How To Deal With The Challenges Of Small Business Loans?
Follow these techniques to improve your chances of being approved:
- Create a modest business plan to go along with your application.
- Collateralise your assets.
- Boost your credit score before applying for a loan.
- Maximise your earnings while reducing your obligations.
- Invest a reasonable amount of money in your small business.
Achieving Financial Stability For Your Small Business
Smaller businesses in the early stages of development or expansion that lack high-quality security (such as properties or stocks) continue to struggle to get external funding. However, you can use these stumbling blocks as stepping stones to achieve financial stability for your small business. Never lose hope in applying for small business loans, find other funding alternatives, and improve your credit rating.