Small businesses worse off, says RBA

Economic conditions after the Global Financial Crisis were weaker for small businesses than they were for larger firms, according to a Reserve Bank discussion paper released from its first small business finance roundtable.

The Reserve Bank found that there was a "less durable recovery" for small businesses than for larger ones, with conditions dipping below average levels during 2008 and 2009 before returning to average levels in 2010. However, conditions have fallen to below average levels since then.

Small business owners have cited concerns over demand, cash flow and the broader economy as reasons for experiencing weak conditions. Many small businesses in the construction industry find it harder to compete against their larger counterparts, when traditionally their low overheads had generated work for them.

"Many larger firms are reported to not be including a costing for overheads in their bids, so as to generate work for underutilised staff. Concurrently, the average size of construction projects has increased somewhat, favouring larger firms with existing capabilities in place."

The mining industry, too, is challenging for small businesses to operate in, given that projects are usually large-scale and require substantial upfront expenditure to bid for projects. Compliance to miners' accreditation and workplace health and safety requirements can also add further burden to small business resources.

These industry-specific conditions are further exacerbated by tighter lending standards, and the reassessment of risk more generally by banks has also disproportionately affected SMEs, the RBA said.

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