The low level of home ownership among younger age groups has played a role in business loans being rejected, the chief executive of MYOB has noted.
MYOB’s latest Business Monitor report, released this week, found that four in 10 Gen Y small business owners, or 44 per cent, had applied for a loan over the last year, with more than a third of those applications, or 39 per cent, being rejected.
Commenting on these statistics, MYOB chief executive Tim Reed said: “This isn’t something you can pin on smashed avo. Australia’s youngest small business owners struggle to get access to finance because they’re less likely to own their own home.
“Many of us have believed tying business loans to home ownership has been a problem with the lending system that has existed for years, but for the first time we’re now seeing the generational impact.”
Gen Y-run small businesses were more inclined to apply for finance than their Gen X (23 per cent) and Baby Boomer (15 per cent) counterparts, with MYOB foreseeing this trend to continue in the next 12 months.
According to the accounting software firm’s report, 36 per cent of Gen Y small business owners are expected to apply for finance in the coming year, compared to 16 per cent of Gen Xers and 8 per cent of Baby Boomers.
The MYOB CEO echoed the view that small businesses should not have to use residential property as security to access the finance needed to support trading activities and growth, further noting the long-standing lack of competition in the small-business lending market.
“We believe the birth of a new generation of small business financiers, as well as the bipartisan support for the federal government’s Australian [Business] Securitisation Fund, is in response to this market need,” Mr Reed said.
The Business Monitor findings also indicate that Gen Y-run small businesses are feeling the consequences of the banking royal commission, such as tightened credit conditions.
The MYOB chief executive cited recent data from the Reserve Bank of Australia showing negative growth in bank loans of between $100,000 and $500,000 for the last three quarters, compounding the frustrations of small-business owners.
On the other hand, Gen Y small-business owners were most likely to report generating more profits over the last year, at 42 per cent, compared to the national average of 26 per cent, and were also more likely to expect a profit increase in the 12 months to come, at 44 per cent, with the national average being 33 per cent.
This is compared to 26 per cent of Gen Xers and 23 per cent of Baby Boomers reporting improvements in profits in the last 12 months, with 33 per cent and 26 per cent, respectively, expecting profit growth to continue.
Gen Y-run small businesses are also more likely to diversify their product or service range in the next 12 months, at 33 per cent, compared to the national average of 25 per cent, according to the MYOB Business Monitor.
Additionally, they are likely to be more aggressive with their customer acquisition strategy moving forward, with 31 per cent of Gen Y small-business owners looking to increase investment in this area, versus the national average of 21 per cent.
Earlier this week, the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, called for the re-elected government to “follow through” on the commitments it made to the business sector, which she said played a role in Coalition’s election victory.
These promises include the establishment of the Australian Business Growth Fund to facilitate up to $1 billion in capital investment to the SME sector and the introduction of a $2 billion Australian Business Securitisation Fund to improve SME access to funds on competitive terms.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.