One-third of SMEs claim they won’t survive six months into a recession

As financial experts continue to predict an Australian recession in the next two years, new research has found that 34% of Australian SMEs wouldn’t survive more than six months of economic downturn, with 14% unable to survive a recession at all. 

The research commissioned by Small Business Loans Australia also revealed that Australian businesses are torn whether a recession or rising inflation would be more damaging to their businesses, as 55% are more concerned with the impacts of a recession, while 45% would be worse-off from continued rising inflation. 

In the survey, respondents were asked to forecast how long they could survive through a recession. Less than one in four (39%) of survey respondents would’ve made it through the previous Australian recession, which lasted 14 months, predicting they could survive 18 to 24 months. Less than one-fifth (14%) would not survive a recession at all, however short. One fifth (20%) admitted they would survive less than six months of a recession and one quarter (28%) predicted they would survive just six to 12 months.  

Small Business Loans Australia founder and managing director, Alon Rajic said, “The survey results are concerning. Many Australian businesses have had to endure a tough two years of decreased margins and cashflow, due to operational limitations, lockdowns and lower consumer confidence.

“As a result, many SMEs are heading into a recession without a savings cushion or plan B. The sector is extremely resilient and my hope is that businesses have learnt from the pandemic to have some safeguards prepared to see the other side of this period.” 

Concerningly, larger businesses were least equipped to combat the impacts of a recession with 31% of medium-sized businesses (51 to 200 employees) said they could not survive more than six months of a recession, compared with 26% of small businesses (11 to 50 employees) and 16% of micro businesses (1 to 10 employees). 

“Recessions can affect businesses of all sizes, however, typically larger companies can have an extra financial buffer to fall back on, as it is normally easier for them to secure financing. It is concerning to see established businesses have a gloomy outlook on their ability to survive a recession,” Rajic said.

“To minimise the impacts of a potential recession, I encourage SMEs to implement preventative financial practises now. Renegotiate vendor agreements and re-examine your accounting books to cut costs where possible. If SMEs are paying off business loans and have been affected by increased rate rises, consider consolidating debts and refinancing loans to secure a lower rate. Comparison services make good online research tools and can help SMEs find an appropriate loan that will allow them to fix lower interest rates.”