Economic pressures drive credit card use among SMEs

This year, Australian consumer credit card spending has achieved a significant milestone, surging to an unprecedented $33.5 billion in monthly purchases.

This marks a remarkable 17% increase compared to the previous year, as reported by the Reserve Bank of Australia (RBA)[1]. Encouraged by this trend, businesses are now emulating this trajectory, with nearly 40% of Small and Medium-sized Enterprises (SMEs) planning to amplify their credit card utilization to alleviate financial constraints.

These revelations stem from a comprehensive survey conducted among an independent panel of business owners and decision-makers. The survey, commissioned by Small Business Loans Australia, a prominent business loan comparison platform, delves into the credit card landscape and the strategies employed by businesses during these demanding times. The full survey results, encompassing insights across different states, can be accessed here: Survey Results Link

A noteworthy 40% of businesses are leaning on credit cards as a financial crutch amidst the ongoing economic challenges. While approximately a quarter (23%) of Australian SMEs intend to immediately curb credit card expenditures by reducing their card count, a significant 39% of SMEs foresee navigating tough financial scenarios by expanding their credit card usage. Furthermore, 25% of businesses are gearing up to augment the number of credit cards in their possession, while 14% plan to apply for increased credit limits on their existing cards.

Alon Rajic, the founder and CEO of Small Business Loans Australia, remarks on the shifting credit landscape: “Businesses seeking to increase credit card counts or credit limits might be grappling with the implications of rising interest rates or seeking ways to alleviate immediate financial pressures. However, it’s important to acknowledge that relying on credit cards, which carry substantially higher interest rates compared to alternatives like loans, will ultimately translate to increased costs for businesses in the long run.”

A substantial 70% of businesses are determined to transition toward more disciplined spending practices. Given the current average credit card interest rates hovering around 20%[2], businesses are poised to explore alternative payment options where financial feasibility permits. Notably, Small Business Loans Australia’s findings indicate that 67% of Australian SMEs are considering shifting toward more cost-effective alternatives like direct bank payments or EFTPOS to enhance expenditure tracking.

Alon Rajic further emphasizes, “While credit cards might offer temporary relief for businesses grappling with challenging circumstances, SMEs should consider the broader benefits that payment methods such as EFTPOS and direct transfers provide when their cash flow allows for it. These advantages encompass lower to zero transaction fees, immediate settlements, simplified expense tracking, enhanced privacy and security, and diminished credit risk. Businesses contemplating credit limit expansions should contemplate trimming unnecessary expenses, bringing their card balances under control, and transitioning toward payment methods that do not hinge on extending their line of credit.”

Looking at different regions, Western Australia (83%), Victoria (76%), and New South Wales (72%) are positioned as frontrunners in embracing more prudent payment habits over the upcoming six months. Alon Rajic attributes these transitions to the aftermath of the pandemic and varying regional impacts: “Certain regions, such as Western Australia, Victoria, and New South Wales, endured the brunt of the pandemic’s impact and may now have a heightened appreciation for direct payment methods, which contribute to maintaining positive cash flow.”

As the economic landscape continues to evolve, Australian businesses are strategically navigating credit card usage and exploring alternative payment avenues to ensure financial resilience and growth.

The full survey results, including breakdowns across States, can be found here: https://smallbusinessloansaustralia.com/business-reduce-credit-card-usage/

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