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Reserve Bank cash rate decision good for small business

February 9, 2017 Business News No Comments Email Email

Today’s Reserve Bank of Australia decision to leave the cash rate on hold will help the country’s two million small and medium sized businesses grow, one of Australia’s leading fintech financiers said today.

The Invoice Market CEO Angus Sedgwick said Australian SMEs were the backbone of our economy, contributing more than $343 billion to industry each year[1], and employing more than seven million people.

“Today’s decision by the RBA to leave interest rates on hold is good news for Australian small businesses, as variable rates are currently as low as 3.26%[2],” Mr Sedgwick said.

“Reliable, cheap funding is important in helping SMEs grow, as they employ almost 70 per cent of all Australians in the private sector, or 7.4 million people.

“By comparison, large companies only employ about 32 per cent of all private sector workers, or 3.2 million people[3].

“Therefore, small and medium sized businesses are the engine room of job creation, and the creative heart of its future prosperity.

“If banks can provide lower costs of funds to small business, the entire economy will benefit.”

According to the Australian Bureau of Statistics, half of all businesses go out of business in the first three years of operation[4].

And according to the Australian Securities and Investment Commission, poor cash flow is cited as a factor in 40 per cent of business failures.

Recent Invoice Market research found that Australian SMEs were drowning in a sea of unpaid customer bills, with $76 billion worth of outstanding invoices crippling their ability to grow.

If the problem can be fixed, up to half a million jobs can be created, reducing Australia’s unemployment rate to almost zero.

“Almost half a million small and medium sized businesses say they would employ more people if they could improve their cash flow position, reducing Australia’s 715,000 unemployment queue to 200,000 people or fewer,” Mr Sedgwick said.

“That equates to an unemployment rate of about 1.5 per cent, or the lowest in the developed world.

“Having an additional 500,000 Australians in work would in turn take pressure off federal public spending and usher in a new era of national productivity growth, putting the country on a path to a more sustainable fiscal future.”

Alarmingly, almost half of all SMEs have no strategies in place to protect themselves from cash flow headaches.

The Australian Government’s 2015 Financial System Inquiry found that SMEs typically sought external funding from a range of sources to grow, including extra equity or debt from family and friends, debt from financial institutions, or equity from venture capital funds[6].

Mr Sedgwick said maintaining interest rates at historically low levels would assist Australian SMEs grow, but cash flow strategies were up to individual companies to manage.

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