Small business lending continues to grow, Australian Banking Association says, as COVID-19 borrowing slump ends

The current economic challenges have not stopped the growth of Australia’s small businesses, as the average value of loans made to the sector continues to increase post-pandemic according to recently released data.

The Australian Banking Association’s 2022 Small and Medium Enterprises (SME) Lending Report, which was released on Thursday, found the number of SMEs expanded across Australia despite the difficult economic conditions.

According to the report, the number of micro-businesses grew 10% from 1.41 million in June 2021 to 1.55 million in June 2022. Small businesses grew 3% from 931,791 in June 2021 to 955,861. This comes after a period of growth during the 2021 financial year, jumping 15% from 812,734 to 931,791.

The report also confirmed that appetite for finance has returned to the longer-term average among small businesses but is growing among medium businesses.

The total value of outstanding finance to small businesses returned to the longer-term average, with $142 billion in outstanding loans in August 2022. On the other hand, lending to medium businesses has increased by 16%, from $281 billion in August 2019 to $326 billion in August 2022.

While total lending remains low, the data received from ABA member banks shows that the average value of loans made to small and medium businesses has been increasing.

Of those SMEs that intend to take out additional finance, the main reason is for cashflow or working capital but fewer businesses are reporting a requirement to borrow for cashflow purposes.

The report states that lending is critical to economic recovery and borrowing funds allows businesses to grow, employ staff, replace equipment and expand into new markets.

However, despite a tight labour market, energy costs and supply chain issues are of far greater concern for the SME sector at this point.

ABA CEO Anna Bligh says despite the difficult economic conditions resulting from a global pandemic and a contraction in economic activity during the 2021 and 2022 financial years, the number of SMEs operating in Australia has grown.

“The rate of growth across all business sizes during the 2022 financial year was larger than the growth experienced in the years leading up to the pandemic,” she said.

Bligh says that the report showed the experience of SMEs has been mixed during the past year, as they navigate an economic landscape complicated by inflation, rising interest rates and low unemployment.

However, she says business and small business confidence has not mirrored the subdued consumer confidence.

“While the growth of total small business lending remains flat, data received from ABA member banks shows that the average value of loans made to small and medium businesses has been increasing,” Bligh said.

The ABA report concluded its summary by stating that the association expects SMEs to grow progressively confident heading into 2023 and that the sector will play an increasingly important role in the health of the Australian economy as it grows and creates employment opportunities for Australians.