Since many SMEs operate in industries like hospitality, retail, arts and recreation, it’s no surprise that small businesses were twice as likely to report a drop in revenue from the previous year, compared to large businesses.
So what does the future of small business look like?
The future of SME lending
Like consumers, SME owners are spending more cautiously. In fact, 60% of business owners are reconsidering, delaying or cancelling investments due to economic uncertainty.
Since the beginning of the pandemic, banks have tightened their approval criteria, lending more conservatively to SMEs, especially if the borrower was a new customer or in a harder-hit industry. It’s been difficult for SMEs to get eyes on applications, let alone an approval in a reasonable timeframe.
Alternative lenders have increased in popularity over the past decade for these reasons. Benefits of alternative lending include speed (in some cases funds can be approved in a day or less), greater leniency compared with banks and a stronger focus on small business.
Alternative lenders have been a lifeline for SMEs needing fast access to finance over the past six months, and will continue to serve these customers well into the future while bigger banks lend cautiously.
SMEs and remote working
No doubt the pandemic has changed the way we work, and research reveals that in many ways, employees are actually thriving with increased flexibility and remote working arrangements. One study found that employees who work from home are actually more productive, and perform better by 13%.
Other studies have found the majority of workers won’t accept a role without the option of working flexibly now that they’ve seen the benefits, and prefer to work remotely moving forward—at least part of the time—for the rest of their careers.
This is something small business owners will need to take into consideration, especially those who seek top talent. The good news is: businesses are no longer restricted by location when hiring. The other trend we’re seeing is an increase in the hiring of contractors and freelancers, also indicative of a cultural shift that could stick around well into the future.
Changing consumer attitudes and behaviours
Wait a second. Do I really need that?
That’s the question we’ve all been asking ourselves since the pandemic began. It’s made us rethink the way we live, what we value and how we spend our money.
Economic uncertainty, job loss, less disposable income and more deliberate purchasing behaviour will change the way Australians shop. Consumers are deprioristing status symbols and instead spending their money on a more meaningful lifestyle and home improvement.
Lockdowns have led to an increase in online shopping as well, so if your customers can’t easily add to cart it goes without saying, you’re missing out! To keep up with competition, retail businesses will need to stand out with convenient and attractive online shopping incentives. Many are offering discounts, free shipping and easy return options to keep sales up and encourage their customers to transition from buying face-to-face to online.
If you offer a service as opposed to tangible goods, a little creative thinking will go a long way to successfully adapt your offering. Most businesses will be able to adapt to some degree, and if you need a finance solution to support a new strategy for your business, we can lend a hand.
SMEs will need to adjust their USPs
It’s clear that SMEs will need to rethink their USPs to accommodate new consumer behaviours i.e. more selective, conscious and value-driven spending.
For some, this could mean a focus on higher quality, sustainable and locally-sourced products. Others will put extra effort into nurturing their existing customer base. Across the board (but especially within the hospitality industry), there will be a greater emphasis on hygiene, cleanliness and customer wellbeing.
Many small businesses will also need to embrace new technologies, move online (if they aren’t there already) and adjust their business model to not only survive, but compete with more established and emerging online businesses.
Lastly, offering flexible work arrangements will attract top talent to small businesses, while workplace distribution and outsourcing could help SMEs save money and access additional resources.
Brent is the Director of Operations at Valiant, bringing a wealth of knowledge from 18 years of experience in the finance industry. He’s worked with banks and fin-techs in the consumer & commercial space, where he discovered his passion for helping SMEs.