Many east coast SMEs on “knife edge”, survey reveals

The two-speed economy has been laid bare in a new survey, which shows SMEs on the east coast are feeling the pinch way more than those located near resources activity.

Martin North, executive director industry group at Fujitsu Australia, says some small businesses are on a “knife edge” as they take longer to get paid, and battle higher costs for energy, petrol and wages.

The J.P Morgan/Fujitsu Australian SME market report shows respondents see exchange rates, interest rates and the availability of credit as the major dampeners of confidence.

“Political instability has increased after registering a meaningful response in 2010, reflective of ongoing uncertainty around several Federal Government policies, most notably around the carbon tax, resources industry,” the report says.

The survey found that small business loan write-offs have consistently escalated over the last five years. The latest report found 2.55% of secured line of credit loans, 2.32% of residential loans and 2.35% of commercial loans were written off last year.

Write-offs have risen by about 0.2 of a percentage point since the last survey.

Fujitsu modelling also found that confidence has fallen by the greatest degree in New South Wales (-15%), followed by Victoria (-12%) compared with Western Australia (+15%), Northern Territory (+4%) and Queensland (+3%), as well as Australian Capital Territory (+7%).

North says what SMEs really need to see is where the revenue side is going to come from.

“You can squeeze costs to some extent, but the key question is where to find customers,” he says.

North says after running this survey of 25,000 SMEs for five years, he has never seen such diverse results before.

“If you’re a small business owner in Western Australia servicing the resource sector, you’re feeling really great, and the same if you’re in the agricultural sector because the rain has come,” North told SmartCompany.

“But if you’re in hospitality, manufacturing or retail, it’s really gloomy because people aren’t spending.”

According to North, the resources boom in WA and Queensland is flowing through to other SMEs in the states.

“Even if you look at retail in Western Australia versus New South Wales, the spillover effect is positive for retail in WA.”

“But it’s not reaching Victoria, New South Wales and some areas of Queensland.”

North says the survey raises real questions about whether small businesses are benefitting from the resources boom.

“What are the implications of the patchwork or the two-speed economy?” he asks.

“Do we really believe that the resource sector is going to be strong enough to effectively lift the rest of the economy by its boot straps.”

“Talking to small business owners around the place, they’re sceptical.”

But it’s not all bad news. North says:

• SMEs can get funding it if there’s a reasonable business case behind it.
• Interest rates paid by small businesses are currently in line with the 10-year average and therefore do not appear “restrictive”.
• A further pause in rate rises will give some breathing room to SMEs.

And he says with the big four banks increasing their SME market share over the past few years, the door is open for a player to differentiate itself by specifically targeting the key market.