Access to finance for SMEs
Access to finance for SMEs is critical to the growth of Australia, and its position within the world.
Small and medium sized enterprises (SME) make up a massive portion of Australia’s broader economy. SMEs hire up 70.5% of private sector employees, an absolutely astounding number, and contribute 57% of the industry value added by business. As an economy, our success is heavily related to the success of SMEs. Politicians are able to boast about employment figures, and how well Australia’s economy is doing, but if they aren’t able to fix issues for SMEs it is just empty rhetoric.
SMEs have had a rough few years. The global economy has come out of recession, and there is still a lot of uncertainty in capital markets and credit liquidity. Lending has tightened over the last few years, and that has put a lot of small businesses in a position which they haven’t previously been in. A third of SME’s with external finances find it hard to access finance.
We’ve talked a lot about the regulations surrounding P2P lending and crowd sourced equity funding. Without repeating myself, the Government has taken very slow and cautious steps when dealing with P2P lending and CSEF. P2P lending has allowed SMEs to access external finance, relatively easily as well. On Marketlend and most other P2P lenders, the marketplace system rewards SMEs who are compliant, and provide as much information as possible. It allows individual investors to diversify in what they believe in, whilst bolstering the Australian economy. But it hasn’t really been recognised by the Government, yet.
In addition to this, most SME owners are not financially literate. I suppose this brings up a major issue in Australian education. We aren’t being taught the right things. Schooling should bring in education about finance as soon as possible. It doesn’t have to be extreme, but it has to happen. By high-school, students should know what their money is worth, the idea of compound interest and many other things. Most students should have a general understanding of the banking system and accounting by the time they leave. This could seriously aid the establishment of SMEs everywhere. So many people don’t know where to begin, and how to learn finance, whilst those who do benefit heavily from this knowledge.
Reform is needed. We need to seriously look at how we’re approaching SMEs. On a short-term basis, cutting the red-tape and allowing P2P lending to be more freely done is important. On a longer term basis, we have to look at how we’re educating our population. Many SMEs aren’t run by University graduates, they are run by high-school graduates. We should be learning these things as soon as possible, not a few days before their tax returns are due.