3 reasons SMEs struggle to get finance

Small businesses have different challenges and opportunities than larger companies or consumers, and this can create specific cash flow needs. When advisers have a good understanding of these, they’re in a better position to spot a prospect, deliver the right solutions and strengthen relationships with their clients. 

A new study commissioned by small business lending specialist Prospa (and conducted by YouGov Galaxy) has highlighted some of the key struggles faced by small business owners that advisers should keep in mind.  

1. Small business owners are time poor and struggling with work life balance

As a nation, we Kiwis are known for our work ethic – and when it comes to owning our own business, we’re certainly not afraid to put in the hard yards.

Nearly half of the 250+ small business owners surveyed reported working six days or more in or on their business in any given week. Of those, a massive one in five reported working a full seven days.

Small business owners are (almost universally) time poor - and as many advisers can testify to, it can be hard to switch off when running your own venture. The research found common sacrifices included personal time (58% of respondents), hobbies (57%), exercise (48%), family time (38%) romantic relationships (33%) and sleep (30%).

Advisers should be aware of this when considering what finance options are suitable for new or existing small business clients. Red tape can strangle small business, taking up precious resources (people, time and money) and making it difficult to seize new opportunities to grow. Expectations around customer experience are also changing, with increasing demand for speed, transparency and great customer service.

2. Wearing so many hats at work can be overwhelming

Being a small business owner often means juggling a lot of different roles at work – covering everything from sales to strategy, reception and regulation. While some small business owners may enjoy the variety, over three-quarters (76%) are struggling with managing different aspects of their business. An overwhelming majority (88%) of respondents admitted experiencing negative emotions as a result, including stress (44%), feeling overwhelmed or burnt out (38%) or a fear of failure (34%).
38% of those surveyed said they lost opportunities to grow their business, with a further 28% having lost revenue and/or customers as a direct result. 

Small business owners are go-getters and can find it difficult to let go of responsibilities from time to time – either out of necessity or because they’re used to doing everything themselves. Investing in extra staff can help small business clients grow their business in the long-term. If it’s to support areas they really struggle in, such as marketing, a new hire could deliver a significant return on investment.

3. They’re struggling with finance

Running a small business will always have its stresses and challenges – but more often than not, it’s finances that keep small business owners up at night.

Among respondents who reported struggling with business management, finance and accounting (39%) was the most common source of concern. One in five (20%) admitted having experienced serious cash flow issues that brought them close to going out of business.

The survey also found that Millennials were more likely than their Baby Boomer counterparts to report struggling with finance and accounting (52% vs 33%).

For most small business clients, finance and accounting will be part of being the boss, but far from their area of expertise. Advisers should consider being more proactive with conversations about cash flow peaks and troughs to help clients plan ahead. This may include asking them about seasonal or sector trends that impact their business or talking about possible business expansion plans where additional finance may be helpful.

The market opportunity in small business lending is estimated to be around $4 billion per annum. There are hundreds of thousands of small business owners who need trusted advisers to help them access finance. The more advisers understand the unique challenges and opportunities this community face, the more likely they are to deliver the right solution and support.

Adrienne Church is the general manager of Prospa New Zealand, the small business lending specialist.