The hateful eight: Major challenges for SMBs in FY25

Small-to-medium businesses (SMBs) will face increasing challenges across the board next financial year, with economic growth staying muted until the end of 2024.

Founder of Small Business Loans Australia Alon Rajic says challenges for SMEs will include high interest rates, slowing household consumption, increasing cyber-attacks, and mounting pressure for businesses to run sustainably.

“Small businesses account for more than 95 per cent of the Australian business sector and, in turn, the economy,” Rojic says. “They are now facing particularly challenging times. More than ever, it’s important business owners review their operations.

“Most importantly, business owners should get to know what supports and solutions – from government to private finance providers – are available to them. Understand the landscape, prepare early, and you will navigate tough times easier.”

Eight challenges to consider

The eight challenges facing SMEs in 2025 identified by Rojic are:

1. Absorbing financial pressures: Forty-three (43) per cent of small businesses failed to make a profit in the last financial year and 75 per cent of owners took home less than the average wage. Yet SMBs continue to absorb the cost of inflation, higher interest rates and wage increases, forcing them to tighten budgets and be conservative about investing in capital to sustain and grow their business.

2. Cyber-attacks ramping up

Data breaches rose 19 per cent in the second half of 2023 with malicious or criminal attacks accounting for 67 per cent. Email compromise, business email fraud and online banking fraud are the top business cybercrimes, costing businesses $214,800 in FY22/23, 14 per cent higher than the previous year. As cyber criminals become more sophisticated, SMEs will need to invest more in protecting their business.

3. Lower investment in business assets: Another recent study found that 90 per cent of Australian businesses are pulling back on borrowing, with 69 per cent holding off on investments that would improve or grow their business. The caution among businesses comes as the RBA holds the cash rate at 4.35 per cent, indicating interest rates will remain high and the economic outlook uncertain for longer than expected. 

4. Job mobility highest in a decade: Employers are under pressure to attract and retain staff, as one-third (36 per cent) of occupations assessed by the federal government were in national shortage.

5. Consumers rein in spending: Consumers became more selective in their spending in the first quarter of 2024, with discretionary buys such as home furnishings, household equipment and other miscellaneous goods and services all experiencing a downturn.

6. Rising cost of car ownership: Vehicle running costs are rising, with petrol prices jumping an average 23.3 cents per litre since May last year and maintenance averaging $900 annually. Wait times on new cars are also strained, averaging 63 days, and with Ford recording wait times of 193 days, and Toyota recording 198-day waits.

7. Sustainability pressure mounting: 2025 marks the five-year countdown to Australia’s 2030 emission reduction target of 43 per cent, and the first phase of a pending climate reporting regime requiring businesses to report decarbonisation plans and targets. Once the Treasury Laws Amendment Bill that is before Parliament is approved, it will mandate sustainability reporting – starting with large companies and flowing on to SMBs with over 100 employees by 2027. Authorities are advising businesses to start preparing for these changes now, adding another pressing matter to the SME to-do list.

8. Hidden costs in overseas buying: Goods may be cheaper overseas but buyers are missing the hidden costs in doing business this way. In a recent study, nearly half (49 per cent) of SMBs say they make international purchases of $2,000 or more on credit cards, which are now the largest source of bank fees. In FY23 credit card revenue came mostly from foreign currency conversion charges, which can be up to 3.5 per cent. Add annual administration fees and high interest on unpaid balances, and an international bargain quickly loses its shine. Yet, in the same study, 63 per cent of SMEs say they use credit cards on international purchases for convenience, while 31 per cent say they do not have time to research other payment methods. Rojic suggests exploring specialised transfer providers.

To access the Small Business Loans Australia study, click here.