2021 brought a unique set of circumstances to the lending market for small and medium sized enterprises (SMEs). Despite changing regulations, the ongoing impact of COVID-19 and changes in the property market, SMEs continued to borrow to manage and grow their businesses.

COVID-19 affects lending

Early in the year, SMEs faced challenges accessing funding as COVID-19 exacerbated lending disparities between small and large businesses. While SMEs have reported difficulty accessing funding for years, 2021 was especially difficult as the economy recovered and small business owners sought external funding in an attempt to expand their operations. According to research conducted at the beginning of the year, nine out of 10 SME owners reported feeling frustrated about the difficulty in securing funds for their business. Loan conditions, the need to provide property as security and a lack of flexibility were some of the major sources of annoyance.

However, the volume of lending to SMEs started to grow again towards the middle of the year. While this took a hit after further lockdowns were enforced, entrepreneurs gained confidence in seeking funding to grow their business, with 81% of respondents in a survey conducted by business lender Banjo reporting feeling confident about their long-term prospects.

Property boom

The surge in home prices presented opportunities for SME growth. Low interest rates and a seemingly exponential rise in home values allowed many business owners to use the equity in their properties to fund and grow their businesses.

With the value of the Australian housing market surpassing $9 trillion in value, the Australian Prudential Regulation Authority (APRA) did introduce some curbs to slow lending to ensure that the financial system remained safe and that borrowers are able to afford the level of debt they are taking on.

Observers also believe this isn’t the end of regulatory efforts to slow down the property market, and that changing regulations will continue to complicate the housing loan application process. This is likely to affect small business owners looking to leverage their home equity to fund their business.

Faced with the ups and downs in the market this year, mortgage brokers have been enlisted in record numbers (16,968 this year) to help customers navigate these challenges. Finance brokers who understand the diverse market of fintech and non-bank lenders – and who have the ability to comprehend business accounting practices – are in the enviable position of being equipped to help businesses take full advantage of the strength of the market.

To read any of our 2021 articles, go to primecapital.com/insights