SMB confidence weakening – slowly but surely

Australian small and medium business (SMB) confidence has dropped 5% quarter on quarter, with 39% of SMB owners now believing the economy is in slowdown compared to 34% in the last period, according to the November Sensis Business Index.

The Index also revealed that 36% of SMBs believe the nation’s economy will be worse in 12 months’ time, compared to 30% last quarter. Only 16% said it would be better a year from now, compared to 22% last quarter. More than one in four (26%) Australian SMBs think current Federal Government policies are working against them – an increase of 3% from last quarter.

Sensis CEO John Allan said this is the first time the Index has seen an upward trend in the number of SMB owners who believe Federal Government policies are working against them. “Over the years we have seen a growing perception among SMBs that Federal Government policies do not affect them. This change in sentiment may be small but is a significant trend,” he said.

The national drop in support for Federal Government policies is led by South Australian (30%), Tasmanian (29%) and Victorian (28%) SMBs. Conversely, support from Queensland SMBs has seen the most positive change, growing 5% from last quarter to 36%. Positive sentiment across all other states held steady quarter on quarter except for Western Australia which dropped by 5%.

Access to finance increasingly difficult

SMB owners also believe it has become harder to access finance, with 35% saying it is now more difficult – a 5% increase from the previous period.

Western Australian (42%) and South Australian (41%) SMBs are the most likely to say that finance is more difficult to access than six months ago. Conversely, SMB owners in Victoria (18%) are most likely to think finance is now easier to access, with NSW coming second (14%).

“Small businesses nationally are facing a worsening credit squeeze as banks continue to react to the intense scrutiny and criticism of the Royal Commission. Lenders are becoming increasingly risk averse and introducing more onerous checks on borrowers, which means SMBs are being unfairly caught in the fallout from disciplinary action on the banks,” Allan said.

Nationally, 17% of SMBs tried to access finance in the past six months – a jump of 5% compared to last quarter. Of these, only 63% were successful compared to 73% in the previous period. More than one in four (26%) were rejected, compared to a rejection rate of fewer than one in five (19%) last quarter.

Confidence in prospects slips post-election

The majority of SMBs (55%) are still confident about their business prospects over the next 12 months despite this measure of confidence falling every quarter in 2019. This period saw the trend continue with a 2% drop in confidence compared to last quarter.

SMBs are anticipating strong profitability and workforce growth in the next three months, with 34% expecting an increase in profitability (29% in previous period) and 19% expecting the size of their workforce to grow (16% in previous period).

“SMB owners are by nature optimistic. We know they have can-do attitudes that give them the drive to tackle a challenge even in the face of trying conditions. It’s this same entrepreneurial spirit that is now shoring up SMB confidence in business prospects despite their growing scepticism in the state of the national economy,” Allan said.

Forty two percent of SMBs nationally expect to grow moderately over the next year. More than half of SMB owners (53%) believe the recent Reserve Bank of Australia interest rate cuts will have little impact on their business. However, almost one in five (19%) SMBs think the rate cuts will encourage consumers to spend more, while 15% believe it will lower the cost of doing business.

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