A worrying number of Australian business owners are risking the family home as they try to secure lending

Business owners are risking their own homes during Australia’s pandemic recovery.
  • Almost two in three business owners are risking or would risk their own home in a bid to get additional funding.
  • As almost half of all small businesses consider taking on debt to grow or simply stay afloat, the figures suggest owners are taking on significant risk during economic uncertainty.
  • “We may be looking at a situation where Australian small business owners are putting both their present and future personal security on the line to fund their business,” financing firm CEO Linden Toll said.
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A growing number of Australians are literally betting the house on the future success of their businesses, as they try to secure lending for a COVID-19 recovery.

Nearly two-thirds of business owners either have used their home as collateral or would be willing to, according to exclusive data provided to Business Insider Australia.

The uncertainty surrounding the economic recovery combined with the the potential for future virus outbreaks and restrictions however puts those same businesses at risk of losing it all.

The findings, derived from a survey of more than 500 small businesses, suggest that plenty of Australians may have put themselves into a precarious financial position should their business take a turn, according to invoice financing firm Apricity.

“These findings show a continued perception that accessing home equity is the easiest way to secure finance,” CEO Linden Toll told Business Insider Australia.

“Couple this with new rules enabling access to higher amounts of super for home ownership and we may be looking at a situation where Australian small business owners are putting both their present and future personal security on the line to fund their business.”

The risk-taking appears to be exacerbated by a lack of confidence among the small business community. Six in 10 owners said they weren’t confident they would be able to get a loan for immediate expenses. This despite the fact that almost 40% had borrowed during the pandemic or were intending to by the end of next year.

Given almost half of those said they would need to money to simply stay afloat, and one in five would need it to pay off debts, the house might be none too safe.

Business loans taking longer than ever

At the same time loan approval times have become stretched. Separate data from the Finance Brokers Association shows delays have blown out waits of a few days prior to the pandemic to several weeks today.

“With business lending demand growing since 2020, severe delays in accessing much needed capital can have a knock-on effect to customers, employees and ultimately the Australian economy,” Mathew Demetriou, a general manager at credit analyst Experian, said.

Figures from CreditorWatch meanwhile emphasise just how the appetite for debt is continuing to grow. Credit enquiries rose by around 40% in the three months to June, in a positive sign that businesses are looking to invest again.

The business outlook however remains complicated, CreditorWatch chief economist Harley Dale said, as payment delays grow and government support is removed. Business defaults for example have fallen year on year but have begun to rise again in 2021.

“The sting is defaults rose by 18% in the three months to April 2021 compared to the three months to January 2021. We are certainly seeing mixed results for defaults and will have a watchful eye on these figures for the June 2021 quarter. These results will be far more telling in terms of how businesses are really performing,” said CreditorWatch Chief Economist Harley Dale.

Dale notes the businesses at highest risk of failing are in the accommodation and food services, and transport, postal and warehousing industries.

A complete picture of exactly how Australian businesses are faring won’t be available for some months yet. But with businesses taking on big risks, there’s clearly plenty at stake.