While the COVID-19 Pandemic was one of the biggest humanitarian challenges the world had ever seen, its economic impacts cannot be negated. The world’s business ecosystem saw constant shocks and tensions. Small businesses were the ones that were most affected by the economic repercussions of the pandemic.
Lockdowns announced by nation-states the world over forced them to close shop for indefinite periods. Even when the lockdowns were restricted, social distancing norms, staggered timings, and other limitations never allowed them to get their businesses back on track. This resulted in millions of businesses shutting shop, laying off their employees, and incurring losses.
In this article, we look to study the impact of the pandemic on small businesses in NSW. Specifically, we look at the problems related to arranging small business loans and how traditional lenders have been unable to help small businesses.
The COVID-19 Pandemic’s Impact on Small Businesses in New South Wales
Many small businesses in NSW have faced severe losses because of the restrictions that the pandemic necessitated. The hardest-hit has been businesses that were dependent on the movement of people. For example, cafes, restaurants, gyms, and fitness centers have been unable to bounce back even after nearly eighteen months of the pandemic.
With the Australian government being strict regarding the containment of virus zones, businesses have been left financially crippled. The hardest hit in this regard has been the SMEs and MSMEs. Given that they are not famous for stockpiling capital, they have been forced to exhaust almost all of their savings. Or, they have been forced to work with small business lenders.
The following are some of the major problems that small businesses in NSW are facing-
- Small businesses have been unable to pay the salaries of their employees. This has affected the working conditions and livelihoods of many.
- Most family-run small business operations have been forced to dig deep into their savings, sometimes completely exhaust them to keep operations running.
- Small businesses that did not have the capital to shift to online platforms saw their sales and revenues slowly dry up, even after the pandemic restrictions were lifted.
- Several small business owners, shut down their operations, mortgaged their homes to clear debts, and shifted to seeking employment elsewhere.
- Local economies and communities were majorly affected as a result of the closure and shutdowns of small and medium businesses in neighborhoods.
Small Businesses and the Problems of Securing Financial Credit from Traditional Lenders
The problem of access to finance for small businesses was always a longstanding one, even before the pandemic. There have been numerous studies that were conducted outlining the problems of securing credit.
According to financial experts, the problems faced by small businesses could have been eased had traditional lenders like banks stepped in by providing financial credit. In this regard, businesses have started exploring small business lenders that provide online business loans.
However, almost all traditional lenders followed a rigid and conservative approach when it came to revitalizing the economy. At a time when small businesses required capital inflow to ensure sustenance, traditional lending institutions stopped lending money.
Even if they were lending to some, they were charging exorbitant rates of interest, demanding collaterals payment terms that were unfeasible.
In NSW, many small businesses applied for financial credit only to be turned away by banks. Even the terms that were read out to them were so exploitative, that they chose to shut down their operations.
According to experts, the following were some reasons banks turned down loan request applications from small businesses-
- Firstly, for traditional lenders like banks, having a proper and sound business model when applying for credit is a prerequisite. During the time of the pandemic, small businesses were looking for sustenance and were unable to come up with a business plan.
- Secondly, banks look for strong cash flow when extending financial credit. Given how thousands of NSW small businesses were not making any sales, poor cash flow was cited as a reason for rejections.
- Thirdly, banks look for collateral and most small businesses had already pledged everything that they had. From taking double mortgages to exhausting movable and immovable assets, they did not have any collateral to offer to the banks.
- Fourthly, during the pandemic, most government offices and professionals had stopped working. This means that small businesses could not get the paperwork done as had been demanded by banks. This led to incomplete forms and attestations.
Is the Financial Credit Situation Improving today for Small Businesses in NSW?
The last few months, especially since the last major lockdown in July 2021 have seen government intervention. Not only are governments rolling out their own schemes and policies, but they are also working with lenders to revive the economy.
While the situation has changed for the better, a lot more needs to be done to help small businesses bounce back. SMEs and MSMEs have benefitted greatly from the presence of small business loan providers in Australia.
These new lenders have a more proactive approach in helping small businesses secure financial credit. The terms of the engagement are more flexible and business-friendly in nature. These lenders tend to go easy on the paperwork and terms of payment.
The lower restrictions and demands mean that they can roll out financial credit that helps small businesses with sustenance and growth. The Government of Australia’s SME Loan Recovery Scheme that rolled out on 1st October 2021 is very important in reviving the economy.
The scheme enables small businesses to access cheaper and more fulfilling credit opportunities. The government is working with several lenders to help rejuvenate the economy by providing a small business loan.
The Bottom Line
Governments, financial lenders, and small businesses have to come together to revive NSW’s local economy. While positive steps have been taken in the right direction, a lot still needs to be done to bring businesses back to pre-pandemic levels.
The demand is slowly picking up. Many small businesses are using financial credit to set up their online or digital presence as well. They had been caught off-guard when the pandemic hit. Access to credit continues to be a major challenge.
The government’s new SME Loan Recovery Scheme sounds right in principle. A lot now depends on the execution of the policy. If it is implemented in the right spirit, small businesses not only in NSW but also across Australia would benefit from the rollout.
If you have any other questions, you would like us to address on small business loan schemes or want to understand how online business loans work, let us know in the comments below.