We know that small business is Australia's economic engine room, so growth in this sector is vital, particularly when we face a challenging financial climate globally.

We also know that access to capital is the lifeblood of small business growth. You can have the smartest people, the best products, and the most awesome customer service; but to grow, you need resources to boost production, increase your inventory and expand your team. That means spending money - and there is usually a gap between when you invest and when you get that money back in sales.

That's where capital comes in. Bank loans have traditionally been the most common source for small business capital.

But despite record low interest rates, growth in lending to small business has dived over the past year. We saw that in our analysis of data straight from the Reserve Bank of Australia.

That backs up a report in the Australian Financial Review in April this year showing that bank loans between $100,000 and $500,000 were in negative growth for the previous three quarters, with the December quarter showing its worst rate of growth in seven years.

Meanwhile, Judo Capital's Banking Insights report uncovered a funding gap of $83 billion between the loans that Australian SMEs sought during in 2017, and the new borrowings issued to them.

That's why we commissioned Kantor to find out how our small business sector is travelling when it comes to getting capital. What we found out was concerning; while the banks say they are primed for lending, a number of small business operators are finding it difficult to get loans approved. And that's stemming their cash-flow to a trickle.

Survey results show lending shortfall to SMEs

Our 2019 American Express Access to Capital SME Survey gathered information from 1000 small to medium business owners earlier this year. About ten percent of them, that's 111 respondents, had tried to get a loan from a bank.

Only about half of those businesses (52 percent) said they got what they requested. The other half either weren't approved (34 percent) or they didn't get as much as they wanted (14 percent).

About three quarters of those businesses that were successful in borrowing, had some degree of difficulty obtaining that loan, with 39 percent saying they found it extremely difficult.

It's probably no surprise that micro businesses – those that employ between 1-4 staff – had the most difficulty. That's disappointing because micro-business is the nursery of start-ups in this country. It's where some of our most innovative and exciting new companies are emerging, and Australia needs to nurture that talent.

Anecdotally we hear that banks are often reluctant to extend finance without real estate as collateral, so owners are resorting to putting equity in their own home on the line to secure the capital they need to grow.

Not only can this lead to small enterprises becoming far more cagey and risk-averse when making decisions, it can also ramp up the pressure on business owners at home as well as at work, causing a lot of stress for all involved.

The impact on businesses

The flow-on effect from this tightening-up of access to capital has a direct impact on cash-flow for small and medium enterprises in Australia. This affects not just individual businesses, but the economy as a whole.

In May this year, a study from Wakefield Research commissioned by Intuit Australia, surveyed 500 Australian businesses and found that 63 percent had experienced cash-flow problems more than once over the previous 12 months.

The study also revealed that half of small businesses surveyed had lost $10,000 or more by foregoing a project or sale because of issues created by insufficient cash-flow.

If we extrapolate that to the wider economy, it suggests that Australian small businesses lost out on $5.8 billion of sales last year as a result of cash-flow constraints.

That's nearly $6 billion of business activity that our economy could really benefit from.

We know that access to finance for SMEs is important because they generate employment and drive innovation in our national economy; when cash-flow problems stifle these, there's a real knock-on impact.

Worryingly, the Wakefield Research report also shows that 46 percent of businesses had reported being at risk of not being able to pay their staff on time due to cash-flow issues.

When employees don't feel secure in their jobs, consumer confidence and therefore consumer spending drops. We saw that earlier this year, when the Westpac-Melbourne Institute July 2019 Index of Consumer Sentiment showed that consumer confidence fell 4.1 percent to a two-year low despite interest rates and tax cuts.

But just because bank lending seems to be less accessible for small business, doesn't mean they stop needing money. The 2019 American Express Access to Capital SME Survey reports that 42 percent of SMEs say they have plans to grow, and 18 percent say they want to become a larger business.

As a result, many business owners are seeking alternative forms of capital, and these alternative lenders are growing exponentially.

The 2019 American Express Access to Capital SME Survey found that 62 percent of small to medium enterprises now say they would go to any financial institution to finance their business. 

Commitment to thrive

At a time when access to finance is a struggle for many SMEs, American Express has your back.

Times might be tough when it comes to raising capital from traditional banks, but for a record number of small business owners, American Express has both the longevity and the forward-thinking that makes us a go-to for business owners seeking secure funds with fair and reliable terms.

American Express is committed to helping SMEs with a raft of products that give them better access to capital.

American Express Business Cards are a great example. Not only are they a payment tool for everyday business purchases, giving business owners flexibility in managing expenses, but they also help you track and manage business costs through instant alerts and other online tools.

Cards also let you earn rewards on business spend that you can use on travel, to cover staff incentives or even to pay off part of your balance. You also get access to purchasing power that can grow as your business grows.

Card members can get up to 55 cash flow days[1]. That's among the longest payment terms of any business card in Australia.

Smart business owners are using “cash-flow days" to extend the terms of their business payables. They line up their supplier payments with their preferred statement cycle, so that business receivables come in before business expenses are going out.

Our research shows that access to finance is a struggle for many SMEs in Australia. American Express recognises that SMEs are run by dedicated people who play a vital role in our economy - that's why we are committed to helping these businesses thrive.

[1] Depending on the Card, when you make a purchase, when your statement is issued and whether or not you are carrying forward a balance on your account from your previous statement period.