Regional SMEs need finance options

Small and medium-sized businesses in regional areas might need to look to non-bank lending pathways to secure finance, particularly if they are lacking in assets, according to a report to be released today by the Regional Australia Institute.

The ‘Access to Finance’ report found regional small businesses in accommodation, retail trade, and information technology sectors would all have difficulty securing bank finance.

Professional, scientific, and technical services providers were in a similar boat.

Industries with assets that could be used as collateral, such as manufacturing, construction, agriculture, forestry and fishing, and housing tended to find bank loans easier to obtain.

The common thread among industries that faced difficulty was that they were services, or more knowledge, based.

In Western Australia, there are about 56,000 SMEs, the institute said, with just less than half of those in industries with lower access to finance.

Other factors included business age and location in areas with smaller markets, while some businesses, such as those in agriculture, benefitted from large pools of data available for use by lending institutions.

The mining industry was a big user of equity finance, the report said.

Enterprises in industries with more limited access to funding might use venture capital, angel investment and crowdfunding to raise funds.

Crowdfunding in particular offered benefits, with borrowers able to access a wider pool of investors, and able to test demand for the product on the market.

Peer-to-peer lending and guarantor schemes could be used, too.

The report also recommended increased data collection about regional businesses and their performance, better financial literacy for owners, and building business confidence as useful policy tools to improve the outlook for SMEs.

Overall, nonetheless, the view was positive.

“The RAI analysis finds limited evidence to suggest that additional, widespread access to finance issues exist for regional SMEs in Western Australia,” the institute said.

“Instead, regional businesses usually have many of the factors associated with successful access to finance.

“These factors include good availability of collateral, sufficient size of employment or turnover, a well-established trading history or credit record, good financial literacy, and being in industries which are well understood by banks.

“There is a high rate of successful access to finance in regional WA.

“This is most likely due to the dominance of the agriculture sector, with land assets that can be used as collateral for lending.”