Aussie SMEs in critical need of debt support, data reveals

AVA Advisory revealed a significant portion of Australian small businesses needed assistance when managing and dealing with their business debt.

Research from the debt restricting businesses highlighted 38 per cent of SMEs acknowledged their need for financial or business advice against the backdrop of rising inflation and economic challenges.

Along with the acknowledgement that advice was needed, it also highlighted demand for it, as respondents said they wanted better advice to navigate their current debt challenges.

However, 62 per cent of SMEs said they did not need or want advice, which included 16 per cent that were receiving or had received advice to manage current debt.

AVA Advisory founder and CEO Andrew Quinn said it was understandable that more than one third of SMEs recognised their need for advice to manage debt, given the tough conditions business owners have faced.

“Nearly half in this group, however, still need more or better advice suggesting that some are having trouble accessing the right advice or might not know who to contact for solutions that target their specific needs,” he said.

“Amidst the current headwinds, it is likely that some SMEs require a more comprehensive approach to get on top of debt.”

“The gap in debt solutions awareness also leaves some SMEs exposed. Business owners without an understanding of options to manage financial distress are more vulnerable to missing out on critical opportunities for proactive debt management- until a problem arises and the business is met with unexpected challenges that require immediate address.”

AVA Advisory said a “concerning” finding from the research showed that 34 per cent of SMEs had admitted to being unaware of common debt solutions available to a business in financial distress, which signalled a potential gap in debt management understanding.

Only 32 per cent were aware of debt restructuring solutions, 31 per cent were aware of refinancing of current debts and only 27 per cent were aware of alternate or private lending solutions.

It was also found that only 24 per cent were aware of refinancing private assets to unlock capital and only 23 per cent were aware of the sale and lease back of assets.

According to the research, respondents were asked what debt restructuring or formal insolvency measures they had heard of, excluding self-employing businesses.

Fifty-five per cent said voluntary administration, 55 per cent said voluntary liquidation, 37 per cent noted the small business restructure (SBR) process, 34 per cent said court order forced liquidation and 15 per cent had never heard of the options.

Though 38 per cent of SMEs acknowledged their need for help to manage debt, most SMEs said they were taking considered steps to maintain good financial practices.

Quinn said the biggest universal problem Australian SMEs faced was the intense economic climate.

“Our research shows the majority of SMEs are prioritising debt repayments despite the tough economic climate. For instance, 55 per cent state their creditor problem is low, with these businesses always paying creditors on time and another 33 per cent mostly paying on time,” he said.

“Doing business in the way businesses do it best is doubly challenging right now and straight off-the-back of COVID-19.”

Quinn also noted that despite awareness numbers for SBR having remained relatively low, an increasing number of small businesses still took advantage of it.

However, according to the data, SMEs were less aware of the SBR as a specific debt restructuring and formal insolvency tool.

“The SBR is designed for the specific purpose of assisting eligible small businesses with total liabilities under $1 million to restructure their debts and continue trading through a simplified process,” Quinn said.

“But despite SBR adoption gathering pace, there remains more limited awareness of the SBR process.”

“For viable yet struggling businesses in debt distress, it is important to know that alternate solutions to liquidation and windup are available in many cases. The SBR is one example and is a potential insolvency solution for many small businesses in FY2025.”