SME tech sector grappling with tough economic climate

Australia’s small and medium-sized enterprises (SME) are grappling with an increasingly tough economic climate, with IT and telecoms loan submissions dropping by 36 per cent for the March quarter compared to the previous corresponding period, according to unsecured loan provider Banjo Loans.

Banjo’s newly released Banjo Barometer report showed loan applications for SMEs across all sectors reached their lowest point this financial year. The reluctance to take on additional debt highlights the continued anxiety within these businesses, claimed the unsecured loan provider.

The also report showed that SMEs with annual revenues under $2 million remain particularly cautious about borrowing, with many businesses still burdened by Australian Tax Office debts and rising operational costs.

“The removal of the $20,000 instant asset write-off has made it even harder for these businesses to reinvest and expand, further dampening their borrowing appetite,” said Banjo.

However, despite a 22 per cent decline across SME business borrowing, among SME businesses with $10 million to $20 million annual revenue, there was a 6 per cent increase in borrowing in Q3, the report showed.

Across the industry, arrears increased with 20 per cent of SME borrowers now in arrears. Healthcare bucked the arrears trend, with a 100 per cent payment coverage in Q3.

Banjo Loans CEO Guy Callaghan told ARN the last four years have been “really tough” for SMEs, and this is now starting to hurt all areas.

“We have had COVID, high inflation, interest rate rises, and a heap of economic uncertainty – all contributing to business uncertainty, particularly in the SME space,” he said. “SMEs in the information and technology sector saw a spike in activity early on in the COVID years which has eroded away as the business flows to these operators falls away as confidence and certainty in the whole sector does.

“However, all businesses know they need to keep on improving their technology, so this should return with more certainty in the market.”

Callaghan said with all the uncertainty at the moment, there might be more pain coming for the SME sector over the next six to 12 months.

“To ensure survival and success, businesses will need to be very thorough and prepared with their cashflow management. Supply chain issues are often a barometer to SME pain,” he said. 

However, the global state of tariffs from the US could negatively impact supply chains, Callaghan added.