The inability to secure finance is a significant barrier to SME winning tenders in the resources industry, a new report commissioned by Australia’s export credit agency (EFIC) has found.
The survey of 2,000 Australian SME showed that while resources sector growth has created opportunities for SME across the country, obtaining finance, fulfilling lenders’ security requirements and a drawn-out credit process are major impediments to SME successfully bidding on resource contracts.
The research also showed that of those SME that had secured a tender, 85 per cent required extra finance to win or execute the contract.
EFIC director, SME and mid-market Robert Dravers said it was concerning that such a large proportion of SME faced financial barriers in securing business opportunities in the resources industry and that they seemed unaware of the finance options available.
“Greater awareness of other financing options, including the support that EFIC can offer onshore contractors assisting in the delivery of an export, is needed in order to ensure that SME can take advantage of Australia’s strong resource sector, join the supply chain and potentially take on larger contracts than they would otherwise be able to,” he said.
The survey also showed that networks are vital to securing contracts, with 66 per cent of SME finding out about tenders through word-of-mouth.
Mr Dravers said that while winning tenders can be tough, planning, preparation and access to suitable finance in a timely fashion are the keys to success.
Despite the difficulties associated with obtaining finance, the opportunity to join Australia’s resources industry is attracting interest from SME nationwide.
“Surprisingly, the research showed that more than two-thirds of SME looking for resource sector contracts are based in either New South Wales or Victoria, even though most projects are in Western Australia or Queensland,” Mr Dravers said.
Key findings of the survey included:
77 per cent of SME actively seeking to get involved in the resource supply chain, who haven’t succeeded, cited an inability to secure financing as one of the major barriers. Networks are vital: 66 per cent of SME find out about tenders through word-of-mouth. Almost a third of SME trying to secure contracts are in the supply chain for resource projects. The most common areas for SME tendering are services, with only six per cent involved in exploration. The average value of contracts tendered for is just under A$1 million. Close to a third of SME who have not yet been successful in securing a tender said a lack of readiness was a contributing factor to their failure. Four out of five of SME that have won contracts in the supply chain said they subsequently faced financial constraints which prevented them from looking for other opportunities or additional contracts.
