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Wednesday, October 25, 2023

Rising operational costs pose barrier to SMEs’ capital asset investments

A new survey reveals two-thirds (68%) of SMEs require additional or updated assets to grow their business this year.

However, almost a quarter (22%) blame the high price of vehicles and equipment as the reason preventing them from acquiring them. An additional one in five (19%) are concerned they are unable to afford new assets.

In a recent independent survey of 200 business owners, conducted by non-bank commercial asset finance lender Metro, respondents were asked whether a lack of capital assets was holding their business from expanding. Two-fifths (42%) of respondents said they need more capital assets to grow their business, and a quarter (26%) said their assets are too old and outdated. 

Out of the respondents that said their business was being held back from acquiring new capital assets, the most prevalent reason was high prices and lack of affordability (for 41% of respondents). One fifth (22%) said the cost of equipment and vehicles had increased too much, while 19 per cent said they can’t afford capital assets. A further 15 per cent don’t want to invest at present. Only 10 per cent of respondents said they don’t want to get a loan to cover the costs of new assets, and just three per cent said they can’t get loan approval.

Reviewing the results, Metro’s CEO Phillip Crossman says: “The fact that only a small number of businesses have been unable to get a loan corroborates recent experiences reported by our brokers: most prime asset borrowers are being approved for the loans they are seeking. However, it’s clear that Australian SMEs are conscious of spending in this environment and are wary of rising costs. If we want the business sector to continue to expand, they need the financial support to do so.”

A closer look at the survey results reveal different requirements reported by business size. Small-sized businesses (16-50 employees) and medium sized businesses (51-200 employees) are more likely to need updated capital assets to expand their business, with 85 per cent reporting so. This compares with 65 per cent of large businesses (over 200 employees) and 52 per cent of micro businesses (1-15 employees). 

The results don’t necessarily reflect businesses can’t afford price increases, as only 9 per cent of medium and large businesses and 13 per cent of small businesses said this is what is holding them back. Yet, for 29 per cent of micro businesses, this is a major concern. 

Phillip says, “Micro businesses, when compared to the other business sizes, are more likely to have a tighter cashflow that struggles to accommodate the rising costs of vehicles and equipment. Whereas larger-sized businesses have a greater ability to control their cash flow and absorb these higher costs..”

The data reveals most businesses are hoping to expand, with only 5 per cent admitting that their lack of growth aspirations are the reason they did not need asset finance, as Phillip explains: “The data released is largely positive with most businesses intending to expand or grow, and no major issues reported in securing financing for assets. However, it is clear many businesses, especially micro businesses, are feeling a level of anxiety about the economic outlook.” 

When comparing responses across states, Metro found that business owners in South Australia are the most concerned by the higher prices of equipment and vehicles (33% of respondents), compared with 25 per cent of business owners in Western Australia, 23 per cent in NSW, 19 per cent in Queensland and just 18 per cent in Victoria. 

Almost a third (31%) of business owners in Western Australia are unable to afford new capital assets, compared with Queensland (22%), Victoria (18%), NSW (15%) and South Australia (13%).

Phillip says, “Understandably, businesses have different challenges, depending on their market, but having access to the right equipment for the business to run smoothly shouldn’t be one of them, when there are appropriate finance options available.” 

The full survey results, including business size and State breakdowns, can be found here: https://metrofin.com.au/is-australian-sme-growth-hindered-by-under-investment-in-capital/ ↗

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Michael Maren
Michael Maren
Former marine biologist who likes to spend as much time in the tropics as possible, due to a horrible time I once had in Alaska. Brrrr.

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