SME Banking Insights 2021.

Volume 3 | February 2021 A tumultuous year for lives and businesses yet, despite In fact, this report found that one in four SMEs were unable to secure funding in 2020 during the pandemic. all the claims of support, a glaring hole remains in banking service standards for Australian SME businesses. It is sadly unsurprising, therefore, that SMEs’ trust in the big banks has fallen even further, from an already low 2.4 on a 10-point scale in 2019, to 2.26 in the last year. Less than a year after gaining our banking license, was met with the worst recession in a generation and a public health crisis that shook the world. What remains clearer now more than ever, is that broader business banking practices need a fundamental rethink – especially as we face the challenges of recovery and operating The 2021 SME Banking Insights Report is the third in a series undertaken by Judo Bank, in a world reshaped by COVID. and highlights once again, ongoing gaps in lending, relationship quality, and ultimately trust that SMEs are experiencing from the major banks in Australia. Australian SMEs deserve a bank that believes in them, that understands them, and that boldly backs them in the face of adversity and is dedicated to their success now and into the future. In a year when they needed support the most, Australian SMEs with a turnover of $1 million-$20 million faced a widening gap in their lending needs of $94.3 billion, $4.6 billion from 2019. That’s where Judo comes in. Purpose built to support SME businesses. Our research this year was expanded to also include businesses with a turnover of $20 million - $50 million, but the data told a similar story, revealing a $119.2 billion lending gap for SMEs As we continue to bring back the craft of relationship banking, our goal is to challenge and in this category. disrupt the SME banking market with the sole purpose of providing SME businesses with the funding they need and the service they deserve. We are on a mission to become Australia’s If there was ever a year for the major banks to step up and fully support SMEs, it was 2020. most trusted SME business bank, and like previous years, the results of the 2021 SME Banking Insights Report reinforce the critical need for a better alternative to the incumbent banks. Government support was readily available and abundant in response to the COVID crisis through a range of targeted measures such as improving Responsible Lending laws and greater access to low-cost funding for ADIs and non-bank lenders.

Yet, despite the admirable efforts by the government, businesses that form the backbone of Australia’s economy were left out in the cold yet again by the major banks during the pandemic, with a retraction in SME lending over the period. Chris Bayliss, Chief Financial Officer, Judo Bank

2 SME Banking Insights Report 2021

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3 SME Banking Insights Report 2021

Contents

Introduction ...... 6 List of Exhibits

Key Market Insights ...... 8 SME FINANCE GAP

1 Amount of Funding Sought ...... 19 Demographic SME Customer Profile ...... 9 2 Amount of Funding Sought by Application Success ...... 20 SME Finance Gap ...... 10 3 Planned Purpose for Borrowings ...... 21

Looking Ahead ...... 11 4 Top Banking Relationship Requirements ...... 22 LOOKING AHEAD Best Practice ...... 13 5 Best Advice given to Navigate COVID-19 Crisis ...... 24

Trust Index ...... 15 6 Biggest Challenge Faced Pre-COVID (Pre-March 2020) ...... 25

7 Biggest Challenges Faced - Currently ...... 26 Key Go-to-market Themes ...... 16 8 Most Important Factor in Companies COVID Recovery ...... 27

SME Finance Gap ...... 18 BEST PRACTICE

Looking Ahead ...... 23 9 Current Business Phase ...... 29

10 Number One Post-Crisis Business Focus ...... 30 Best Practice ...... 28 11 Most Important Banking Relationship Attributes – Post COVID Recovery ...... 31 Trust Index ...... 34 12 Relationship Attributes Offered That Would Prompt You to Switch Providers ... 32

Research Methodology ...... 37 13 % of Total Saying “Yes Definitely” ...... 33

TRUST INDEX Interview Questionnaire ...... 42 14 Primary Lender Trust Index ...... 35 15 Frequency and Quality of Bank Engagement ...... 36

4Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking Insights Report 2021

RESEARCH METHODOLOGY

16 Customer Segment Distribution ...... 38

17 Geographical Distribution ...... 38

18 Interviewee Distribution ...... 38

19 Industry Sector Distribution ...... 39

20 Business/Financial/Management Experience of Interviewee ...... 39

21 Annual Enterprise Turnover ...... 39

22 Enterprise FTE / Headcount ...... 40

23 Age of Enterprise ...... 40

24 Value of Current Debt Facilities ...... 40

25 Current Primary Lender ...... 41

26 Age of Primary Lending Relationship ...... 41

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Introduction.

6 SME Banking Insights Report 2021

The Australian small to medium sized enterprise (SME) segment remains numerically SMEs remain focused on cash flow and working capital; this is what small businesses the largest battleground for revenue, profit and growth. The segment is firmly on the devote most of their resources upon and represents the single biggest business risk for radar of all banks, non-bank lenders and financial service providers. them. The primary goal of an SME is actually being in business to create wealth in terms of shareholder and owner wealth, business growth and profitability. To support this East & Partners have developed a customer-centric, demand side research and insights program in collaboration with Judo Bank covering Australian Judo is one of an SME’s greatest supporters and is actively seeking to uncover SME companies to generate a set of diagnostics including: and address what are the most profound issues facing SMEs amid the devastating COVID-19 pandemic and beyond. » SME Demographics and Client Profiling » SME Finance Gap and Implications » Looking Ahead to 2021 and Beyond ‘Post-COVID’ » Best Practice Relationship Banking Examples » Bank Trust Index

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Key Market Insights.

8 SME Banking Insights Report 2021

Demographic SME Customer Profile

» For Round Three of the Judo Bank SME Banking Insights Report, an interview screen » The exception to this is firms with turnover of A$10 million or more where the survival was again applied to ensure only enterprises with debt facilities in place were rate of these firms (83.5 percent) is lower than for firms with turnover of A$5 million captured as part of the research, matching the methodology used for earlier to Q$10 million (84.2 percent). rounds of reporting conducted in 2018 and 2019. » The financial management experience of small business owners, CFOs and » As a result, 2,793 enterprises were required to be approached in order to fill the corporate treasurers varies significantly by business size. Key decision makers hold final qualified sample of 1,753 SMEs with turnover of A$1 to 50 million, resulting in a on average 15 years of experience managing corporate treasury and associated ‘rejection rate’ of 37.2 percent mainly encountered in the Microbusiness segment business banking interaction. The minimum level of experience is five years with under A$5 million turnover. extending to as much as 34 years for larger sized SMEs.

» Across the expanded sample set, turnover increased from a cap of A$20m in » SMEs are characterised by a full-time employee count (FTE) average of 128, down Rounds One and Two to A$50m in Round Three, 1,051 enterprises reported turnover sharply from 143 last round with the smallest sized SME managing a workforce of of A$1-10m with the remaining 702 reporting turnover of A$10-50m. three staff to larger sized corporates with 388 headcounts.

» SMEs had average debt facilities in place of A$3.2 million across a broad range » The average SME was established as recently as 2009, noting the youngest from A$200,000 to A$12.2 million. Of the 1,753 enterprises with debt facilities in businesses interviewed had only been in operation for two years whereas the place, 985 identified themselves as the business owner, 297 operated in a defined longest running SME had maintained continuous operations for over 32 years. CFO role while the remainder were either company accountants / financial controllers (283), corporate treasurers (95) or other (93). » Three quarters of the entire SME segment nominated a bank as their primary lender (76.0 percent), split by NAB (27.5 percent), CBA (20.8 percent), » Businesses with annual turnover of A$2 million to less than A$5 million had the (15.9 percent) and ANZ (11.8 percent), with further relationship share for largest annual percentage business count increase of 5.3 percent. Comparing the CBA group attributed to (2.9 percent) and Westpac for St George business count figures via the Australian Bureau of Statistics (ABS) from 2014 to 2018 (4.3 percent). indicates that survival rates generally increased with business size / annual turnover. Which raises the question, what impact will COVID have on business » SMEs average primary lending relationship stands at six years, with the most recent count numbers as stimulus measures are wound back in 2021? credit facilities set-up in the last year and the longest borrower relationship lasting for 22 years.

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SME Finance Gap

When applying for new finance in the last twelve months, how much funding were you What purposes do you plan to use borrowings for in the next 12 months? asking for? » Easing working capital constraints is the primary purpose for sourcing new funds » Just under one in two enterprises sought funding in the last 12 months (45.4 (69.1 percent), nominated more prominently among the A$1-10m segment (80.6 percent) for an average sum of A$1.2 million. SME finance applications fell in a percent) who perennially struggle with cashflow. broad range from A$300,000 - A$4.4 million, marking a significant increase on last round’s range of A$200,000 - A$2.6 million. » COVID-19 related provisions such as closing down or qualifying for JobKeeper also rated highly (39.9 percent) ahead of capital expenditure for plant and equipment » The proportion of firms seeking new funding reaches as high as 64.4 percent for the (38.2 percent), retirement of existing debt (32.4 percent) and COVID-19 related A$1-10m segment but falls to 40.0 percent for the A$10-50m segment. growth opportunities (20.2 percent).

» Three quarters of all loan applications were successful (74.0 percent) for an » Significant variance exists by business size, exemplifying the challenge lenders average sum sought of A$700,000 in a range of A$300,000 - A$1.5 million. Of the face servicing SMEs reeling from the full impact of COVID-19 enforced shutdowns one in four SMEs turned away for new finance (26.0 percent), the average value and revenue loss. was almost four times greater than successful applications at A$2.6 million.

» COVID-19 has clearly impacted SME lending demand at the ‘extremes’ while funding demand by number of businesses seeking credit and the value of loan balances have remained relatively steady year-on-year.

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Looking Ahead

Relative to before the COVID-19 crisis, what are the top three requirements of your What was the biggest challenge facing your business pre the COVID-19 crisis (pre- banking relationships now? March 2020)?

» Removal of personal covenants as loan security (64.2 percent), specific business » In the lead up to Q1 2020, SMEs grappled with how they planned to fund new insights (41.7 percent), accepting historical performance is less relevant now (41.7 growth (27.0 percent) over cash flow management (20.8 percent), hiring and staff percent) and sector based benchmarking insights (32.5 percent) are the top retention (11.2 percent) and navigating red tape (9.8 percent). requirements. » Interestingly minimal variance exists by business size, suggested the market as a » Independently nominated relationship factors (62.2 percent) included more whole were similarly impacted by the need to select the correct business funding proactive ideas and guidance (21.5 percent), greater engagement generally methods, liquidity concerns and simply ‘getting good help’. (20.5 percent) and having a ‘proper’ relationship manager (20.2 percent). What is the biggest challenge currently facing your business? » SMEs face a long and uncertain recovery path out of the COVID-19 pandemic. Relaxed collateral requirements, already proposed by the Australian government » Post Q1 2020, businesses are mainly confronted with uncertainty which is have a and in high demand given SMEs reluctance to lend against their family home, severely detrimental impact on their ability to forecast how their business are a key factor alongside greater support and old-fashioned relationship environment will be in the short to medium term. Again, cash flow management banking. SMEs have been crying out for greater support and attention from their remains a key hurdle (21.0 percent). banks, now more than ever. » Although just under one in five enterprises market wide report no challenges What is the best piece of advice you have received to navigate the COVID-19 crisis? specifically at all (17.2 percent), this is restricted almost entirely to larger A$10-50m sized enterprises (29.5 percent) with only one in ten smaller A$1-10m sized » Concerningly, 40.7 percent of SMEs could not determine any specific advice they enterprises not currently facing any challenges whatsoever (9.0 percent). have received to help navigate the COVID-19 crisis. The top four pieces of advice are evenly split across guidance to reduce outstanding debt (10.2 percent), retain » The analysis confirms anecdotal evidence that the smaller the business, the quality staff (10.1 percent), be proactive with debtors and reduce debtor days (8.7 greater the negative impact of COVID. percent) and renegotiate outstanding debt (7.6 percent).

» Small businesses in most instances are simply ‘going it alone’, raising legitimate questions of how informed they are about ever-changing government support measures and the quality of their strategic plans to get on top of their existing debt load, identified as the leading reason for SMEs to bring in external advice and support.

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What is the most important factor enabling your company's recovery from the Covid-19 crisis?

» Achieving strong cash flow is the most important factor required for a sustained recovery (22.9 percent) as lock downs ease and unprecedented revenue pressures slowly subside as trading conditions gradually adapt to ‘COVID normal’ settings. This factor was rated narrowly ahead of open borders (22.4 percent), 18.1 percent directly targeted getting revenues back up again as an important element for getting back on their feet.

» Despite record breaking fiscal stimulus, much of those funds may not be circulating back into the economy given 14.6 percent of SMEs are more intent on shoring up their cash reserves in the bank as opposed to investing in new equipment, staff or product development.

» Businesses demand open border certainty and improved economic confidence in order to prop up cash flows and replenish their savings buffers. While the COVID-19 recovery is now not expected to be as deep or long as originally forecast, many industries face an uncertain path back to profitability in 2021.

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Best Practice

What phase is your business in currently? What will be the number one focus for your business post-crisis?

» Apprehension is clearly evident in the SME sector given one in ten enterprises » An alarmingly high one in four SMEs do not know what they plan to focus their cannot accurately determine what business phase they are currently in (13.1 business strategy on post-crisis (25.9 percent). One in three will consolidate and percent). take stock following the worst economic downturn since the Great Depression (33.0 percent). » 3.7 percent of firms are in a Start-Up phase, surprisingly almost exclusively registered in the A$1-10m segment (5.8 percent) while entrepreneurial activity is nascent in » One in ten are bringing forward succession plans (12.3 percent) while 7.5 percent the A$10-50m segment (0.4 percent). are sadly exiting the market altogether, registering twice as high in the A$1-10m segment relative to the A$10-50m segment at 9.3 percent and 4.7 percent » Pleasingly the majority of SMEs are in an expansive Growth phase (45.2 percent), respectively. weighted more towards the A$10-50m end of the market (55.3 percent) as opposed to the A$1-10m segment (38.4 percent). » One in five SMEs are planning initiatives such as investing in new product and service development and innovation (11.0 percent) and new market expansion » In contrast a greater number of A$1-10m firms are in an Exiting phase (31.2 domestically and abroad (10.2 percent). percent) than A$10-50m firms (20.4 percent) with an equal proportion characterised by a Contracting business phase (11.2 percent). » This is one of the clearest examples of how much harder the COVID-19 downturn has impacted small businesses, with a much higher proportion of A$1-10m » Start-Ups are likely finding funding pressures and staffing concerns even more enterprises forced to face the possibility of insolvency after an extended period elevated than usual as a result of COVID-19. of depressed revenues relative to the more insulated A$10-50m segment.

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What are the top three most important attributes of a banking relationship to help your Based on your response above, would the availability of this offering prompt you to business successfully navigate a post COVID-19 recovery? switch to another provider?

» To speed up the COVID-19 recovery, the top three factors SMEs need their Bank to » Interestingly the order of response priority altered substantially when posed in the deliver is a more intimate understanding of their business operations and expertise context of another provider winning their business using that option. Debt funding (48.4 percent), their unique industry sector vertical characteristics (37.5 percent) flexibility emerges as a key new customer acquisition advantage, previously and more streamlined compliance, know your customer (KYC) and ranked sixth when offered by an existing provider to navigate the COVID recovery documentation requirements (35.3 percent). (35.8 percent).

» Bank Relationship Manager accessibility (31.4 percent), debt funding flexibility » Banker accessibility also jumped up the rankings from fifth to second (24.7 percent) (29.2 percent), peer group networking events (24.8 percent) and government ahead of peer group networking (22.9 percent) and the top ranked COVID stimulus qualification advice (18.7 percent) also registered as important elements recovery factor of a deeper understanding of their business (19.0 percent). to reducing the time taken to revert to pre-crisis business performance. » 45.4 percent of SMEs would switch providers for the express availability of their » General business banking advice will not suffice given the scale and scope of nominated key offering, split by over one in three SMEs who would definitely switch the COVID impact to businesses bottom line and future growth prospects. banks based on the above factor (35.8 percent) and 9.6 percent who would likely Specific advice relevant to their own business, and their sector, are needed switch. Four out of ten not switch to another provider on those factors alone (38.0 urgently alongside simplified onboarding and documentation requirements. percent).

» With digitisation of document heavy processes jumping ahead in line with the » Although the majority of SMEs would be prompted to switch provider in response push online to cope with COVID restrictions, it is clear customer expectations of to their key needs being met, a surprisingly high number would require a ‘better seamless loan processing and refinancing have increased significantly. offer’ to shift their banking relationship elsewhere, reflecting the traditional holistic way in which SMEs prefer to bank with a single provider for cash management, credit and other functions.

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Trust Index

On a scale of 1 - 10, where 1=no trust and 10=complete trust, how much trust do you What is your recent experience with the frequency and quality of engagement with extend to your current primary lender? your bank?

» Despite an active concerted response to the COVID pandemic in the form of loan » One in two SMEs rated their most recent bank interaction frequency and deferrals and emergency lending support, trust in banks has only continued to engagement quality as less than intermittent and low quality (53.9 percent), a diminish further. serious indictment on the responsiveness of banks to small businesses funding concerns. » Trust extended to primary lenders has decreased from 2.52 in 2018, to 2.40 in 2019 and now plumbed a new record low of 2.26. » One in five firms reported no interaction recently whatsoever (18.8 percent), split by 12.2 percent who are actively seeking more engagement and 6.6 percent who » The A$1-10m segment assigned a critically low rating of 2.09 in a relatively narrow are happy to ‘go it alone’ and do not need support from their Bank. range of 1.58 to 3.27, whereas the A$10-50m segment rated their primary lender marginally higher at 2.51 in a slightly stronger range of 1.75 to 4.93. » Two thirds of SME interactions are low frequency (61.0 percent) with only a fifth reporting a high level of engagement recurrence (20.1 percent). Only 15.3 percent » Banks are discovering the tough way that trust is hard won and easily lost. The of small business bank dealings are high quality, leaving a mere 8.2 percent of smaller the business, the higher the level of antagonism towards their primary enterprises reporting their most recent experience as regular and high quality. lender. » Despite the difficult demographic challenge of servicing over two million SMEs in » Cheaper and easier credit alone will not rebuild lost trust in the banks stemming the Australian market, Banks are continuing to fall below expectations in terms of from the Royal Commission findings which continue to remain front of mind for interaction frequency and quality. In fact, a high proportion are not interacting smaller sized SMEs in particular. with their bank whatsoever despite the proliferation of digital channels and new service offerings available to small businesses.

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Key Go-To Market Themes.

16 SME Banking Insights Report 2021

» The proportion of SMEs applying for new finance in the last year has declined » Over one in two A$1-10m sized SMEs are exiting, reporting contracting growth or sharply from 60.4 percent in 2019 to 45.4 percent during 2020 as many firms unsure what their future will look like, in stark contrast to a similar proportion of entered a period of hibernation following the immediate impact of lockdowns. A$10-50m enterprises preparing for growth and expanding. Numerically this has a much greater impact on businesses market wide as the recovery timeframe » Although less firms were applying for fresh funding, the average sum sought appears ‘lower for longer’ for A$1-10m SMEs. jumped notably higher. This is especially the case at the ‘extremes’, with the largest average sum sought increasing from A$2.6 million to A$4.4 million. » The number one focus for SMEs post-crisis is consolidation noting a significant 25.9 percent of SMEs are unsure or cannot plan that far ahead yet. An education, » Perhaps explaining the relatively subdued uptake of government SME funding support and advice challenge remains for most. initiatives, new borrowings are primarily intended for easing working capital constraints by shoring up poor cashflow and accounting or COVID related » Relationship Managers are advised to delve deeper into SMEs specific business provisions that far outweigh borrowings for COVID related opportunities in key and sector challenges for all customer dealings, in addition to streamlining sectors. perennial concerns over compliance and red tape.

» Banking relationship needs and expectations are transforming rapidly in the » Surprisingly when required to crystalise their advice responses in terms of whether wake of the coronavirus pandemic. Customers now need more flexibility around they would switch providers for it, debt funding flexibility, peer networking events personal agreements and loan security types, insights specific to their own and banker access emerged as the key new client acquisition factors. In terms of business and an acceptance historical performance is no longer relevant. SMEs level of conviction, over 45 percent of firms would be likely to switch in response to the availability of these key factors. » Before COVID, SMEs were grappling with growth funding options, cash flow management and staffing headaches. Fast forward to now, and SMEs are more » Trust in Banks continues to deteriorate from already low levels, despite a largely concerned with their inability to forecast demand in 2021 and beyond, cashflow positive reaction to the scale and scope of funding made available to SMEs. This and the withdrawal of crucial government stimulus measures such as JobKeeper is not the primary concern they are facing however, with many firms raising and JobSeeker. concerns about their existing gearing leading into the crisis, raising the importance of old-fashioned relationship banking to help navigate the » Promising signs that border restrictions will be eased will be warmly received by challenging COVID-19 recovery through 2021 and beyond. the SME sector who identify this factor alone as the most pressing challenge for enabling their recovery, rated ahead of cash flow recuperating, increasing » Bank interactions are predominantly too infrequent and low quality, requiring revenues and increasing their savings buffer ahead of the next crisis. immediate review in the context of digitisation arguably increasing the potential number of channels and ease of customer dealings for time poor and uncertain CFOs, corporate treasurers and small business owners.

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SME Finance Gap.

18 SME Banking Insights Report 2021

Exhibit 1 Amount of Funding Sought No funding sought % of Total Funding sought Average sum sought ($m)

70 2.8 A$1-10m A$10-50m Total Market (N: 1051) (N: 702) (N: 1753) No funding sought in last twelve 64.4 40.0 54.6 months 60 2.4

Funding sought in last twelve 35.6 60.0 45.4 months Average sum sought ($m) 0.8 1.6 1.2 50 2.0 Range 0.3 - 1.4 0.8 - 4.4 0.3-4.4

40 1.6

30 1.2

20 0.8

10 0.4

0 0.0 A$1-10m A$10-50m Total

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Exhibit 2 Amount of Funding Sought by Application Success % of Total Funding sought Average sum sought ($m)

80 4.0 Total Average A$1-10m A$10-50m Range Market sum sought (N: 374) (N: 421) (N: 795) ($m) Successful — — 74.0 0.7 0.3 - 1.5 Application Unsuccessful — — 26.0 2.6 0.3 - 4.4 Application 60 3.0

40 2.0

20 1.0

0 0.0 Successful Unsuccsessful

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Exhibit 3 Planned Purpose for Borrowings % of Total

Total A$1-10m A$10-50m Total Market (N: 371) (N: 411) (N: 782) Other Cashflow/working capital 80.6 58.6 69.1 A$10-50m Business equipment/plant 29.9 45.7 38.2 Expansion /growth 7.0 9.7 8.4 A$1-10m Exporting/offshore business Covid-19 related 14.8 16.1 15.5 development opportunities Retirement of other/existing debt 33.2 31.6 32.4 COVID-19 related provisions (JobKeeper bridging finance, 45.3 35.0 39.9 Covid-19 related business closure) provisions COVID-19 related opportunities (staff, operations, growth, 14.8 25.1 20.2 purchases) Other 0.5 0.2 0.4 Retirement of other/existing debt

Note: sums to over N count due to multiple responding enabled Exporting/offshore business development Note: no statistical variation by state, sector or lender

Expansion /growth

Business equipment/plant

Cashflow/working capital

0 20 40 60 80 100

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Exhibit 4 Top Banking Relationship Requirements Industry insights Business insight % of Total Advice on treasury Access Government support Understanding Flexibility/agility A$1-10m A$10-50m Total Market Export market support Removal of personal covenants Regular engagement More proactive (N: 1051) (N: 702) (N: 1753) Having a "proper" RM Industry insights/sector-based 80 31.0 34.8 32.5 advice/peer analysis/ benchmarking

Business insight 38.4 46.6 41.7

Advice on treasury and accounting 70 1.2 5.4 2.9 (tax, regulatory) Access to small business 15.8 13.8 15.0 grants/Government support 60 Understanding that historical 39.8 44.6 41.7 performance is less relevant now

Flexibility/agility 28.5 26.8 27.8 50

Export market support/international 10.0 14.5 11.8 markets advice 40 Other independently nominated

Removal of personal 75.0 48.1 64.2 covenants/assets as loan security 30 Regular/closer 22.0 18.4 20.5 interaction/engagement More proactive with ideas and 20.1 23.6 21.5 20 guidance Having a "proper" Relationship 18.1 23.4 20.2 /Account Managers 10

Note: sums to over N count due to multiple responding enabled 0 A$1-10m A$10-50m Total

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Looking ahead.

23 SME Banking Insights Report 2021

Exhibit 5 Best Advice given to Navigate COVID-19 Crisis % of Total

100 Take personal time A$1 - 10m A$10 - 50m Total Market out (N: 1051) (N: 702) (N: 1753) None specifically 40.4 41.2 40.7 Concentrate efforts on best customers Retain quality staff 10.4 9.7 10.1 80 Reduce outstanding debt 9.8 10.7 10.2 Insert additional Be proactive with debtors and 8.3 9.4 8.7 equity outstandings Renegotiate outstanding debt 7.5 7.7 7.6 Negotiate with Guidance on accessing 7.2 4.8 6.3 workforce Government support options 60 Negotiate temporary pay 5.8 6.8 6.2 reductions with workforce Guidance on support options Insert additional equity to business 4.2 3.0 3.7 Concentrate efforts on best/highest 4.0 5.3 4.5 value customers Renegotiate outstanding debt Take personal time out 2.4 1.4 2.0 40 TOTAL 100.0 100.0 100.0 Be proactive with debtors

Note: no statistical variation by state, sector or lender Reduce outstanding 20 debt

Retain quality staff

0 None specifically A$1-10m A$10-50m Total

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Exhibit 6 Biggest Challenge Faced Pre-COVID-19 (Pre-March 2020) % of Total

100 A$1-10m A$10-50m Total Market Bandwidth/overwork (N: 1051) (N: 702) (N: 1753) issues None specifically 16.7 18.2 17.3

Funding our growth 27.4 26.4 27.0 Accessing debt funding on Cash flow management 20.2 21.8 20.8 80 acceptable terms Securing quality staff/talent 10.6 12.3 11.2 Regulatory/statutory reporting/red 9.8 9.8 9.8 Late/slow debtor tape payments Late/slow debtor payments 7.5 5.8 6.8 Accessing debt funding on 6.8 5.4 6.2 60 acceptable terms Regulatory/statutory Bandwidth/overwork issues 1.1 0.3 0.8 reporting/red tape TOTAL 100.0 100.0 100.0

Securing quality staff/talent Note: no statistical variation by state, sector or lender 40

Cash flow management

20 Funding our growth

None specifically

0 A$1-10m A$10-50m Total

25Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 25 2021

Exhibit 7 Biggest Challenges Faced - Currently % of Total

100 A$1 - 10m A$10 - 50m Total Market Accessing debt (N: 1051) (N: 702) (N: 1753) funding on None specifically 9.0 29.5 17.2 acceptable terms

Not being able to plan/forecast Sheer survival where our business environment will 39.1 31.8 36.2 80 be Cash flow management 22.6 18.7 21.0 Dealing with the coming reductions 9.2 6.3 8.0 in support measures Lack of certainty Lack of certainty around our around our revenues 8.1 4.6 6.7 and customers revenues and customers 60 Sheer survival 6.0 1.6 4.2 Accessing debt funding on 5.9 7.7 6.6 Dealing with the acceptable terms coming reductions in TOTAL 100.0 100.0 100.0 support measures

40 Cash flow Note: no statistical variation by state, sector or lender management

Not being able to 20 plan/forecast where our business environment will be

None specifically

0 A$1-10m A$10-50m Total

26Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 26 2021

Exhibit 8 Most Important Factor in Companies COVID-19 Recovery % of Total

100 A$1 - 10m A$10 - 50m Total Market Unsure/no view (N: 1051) (N: 702) (N: 1753) Certainty around intra-state and 24.7 18.9 22.4 inter-state border restrictions Strong cash flow 24.6 20.2 22.9 Accessing debt Getting our revenues back up 17.6 18.9 18.1 80 funding on again acceptable terms Cash in the bank 13.2 16.7 14.6 Being able to get our people back 4.9 6.3 5.5 into the business Being able to get our Accessing debt funding on people back into the 5.3 6.3 5.7 acceptable terms business 60 Unsure/no view 9.5 12.7 10.8 TOTAL 100.0 100.0 100.0 Cash in the bank

Note: no statistical variation by state, sector or lender 40 Getting our revenues back up again

Strong cash flow 20

Certainty around intra-state and inter- state border 0 restrictions A$1-10m A$10-50m Total

27Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 27 2021

Best Practice.

28 SME Banking Insights Report 2021

Exhibit 9 Current Business Phase % of Total

100 A$1-10m A$10-20m Total Market (N: 1051) (N: 702) (N: 1753) Start-up 5.8 0.4 3.7 No view Growth/expansion 38.4 55.3 45.2 Contracting 11.2 11.3 11.2 Exiting 31.2 20.4 26.9 80 Unsure/no view 13.3 12.7 13.1 TOTAL 100.0 100.0 100.0 Exiting

Note: no statistical variation by state, sector or lender 60

Contracting

40

Growth / Expansion

20

Start-up

0 A$1-10m A$10-50m Total

29Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 30 2021

Exhibit 10 Number One Post-Crisis Business Focus % of Total

100 A$1-10m A$10-20m Total Market (N: 1051) (N: 702) (N: 1753) Unsure Innovate - invest in new 9.8 12.7 11.0 product/service development Expand - domestic/international 8.6 12.5 10.2 new markets and segments Other Consolidate - holding pattern 27.8 40.9 33.0 80 Succession planning - bring forward 15.8 7.0 12.3 handover plans Exit - sell or wind down the business 9.3 4.7 7.5 Other 0.3 0.1 0.2 Exit Unsure/don't know yet 28.4 22.1 25.9 TOTAL 100.0 100.0 100.0 60

Succession planning Note: no statistical variation by state, sector or lender

40 Consolidate

Expand 20

Innovate

0 A$1-10m A$10-50m Total

30Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 31 2021

Exhibit 11 Most Important Banking Relationship Attributes – Post COVID-19 Recovery Understanding Reduce compliance burden % of Total 100% cash visibility Flexibility Navigating regulatory changes Accessibility A$1-10m A$10-50m Total Market Speed of decision making Knowing the sector (N: 1051) (N: 702) (N: 1753) Deploying risk management Digitising Deep understanding of my business 47.4 50.0 48.4 Reduce compliance burden/red Networking Unsure 35.1 35.6 35.3 60 tape/documentation issues Understanding my real time cash 30.5 37.9 33.5 position/100% cash visibility Flexibility with debt funding (term adjustments, higher limit, 30.3 27.5 29.2 50 alternative facilities Navigating regulatory changes/qualifying for 19.7 17.1 18.7 Government stimulus measures Accessibility to my banker 29.1 34.8 31.4 40 Speed of decision making 16.6 15.0 15.9 Other Understanding/knowing the 37.1 38.0 37.5 sector we work in Deploying risk management and 16.8 19.8 18.0 cyber solutions 30 Digitising the bank connections 2.6 7.0 4.3 with our ERP Networking with peers and 30.0 17.0 24.8 customers Unsure/no real view 4.9 0.4 3.1 20

Note: no statistical variation by state, sector or lender 10 Note: sums to over N count due to multiple responding enabled

0 A$1-10m A$10-50m Total

31Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 32 2021

Exhibit 12 Relationship Attributes Offered That Would Prompt You to Switch Providers 100 % of Total Unsure/no real A$1-10m A$10-20m Total Market view (N: 1051) (N: 702) (N: 1753) Yes, definitely likely 34.3 38.0 35.8 Yes, likely 9.8 9.3 9.6 80 No, definitely not Possibly 14.1 14.5 14.3 likely No, unlikely 27.6 26.8 27.3 No, definitely not likely 11.2 10.0 10.7 Unsure/no real view 3.0 1.4 2.4 TOTAL 100.0 100.0 100.0 60 No, unlikely

Note: no statistical variation by state, sector or lender

Possibly 40

Yes, likely

20

Yes, definitely likely

0 A$1-10m A$10-50m Total

32Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 33 2021

% of Total Saying "Yes Definitely" Understanding Reduce compliance burden A$1-10m A$10-50m Total Market 100% cash visibility Flexibility (N: 1051) (N: 702) (N: 1753) Navigating regulatory changes Accessibility Deep understanding of my business 18.4 19.9 19.0 Speed of decision making Knowing the sector Reduce compliance burden/red 6.3 6.4 6.3 tape/documentation issues Deploying risk management Digitising Understanding my real time cash 14.2 18.2 15.8 Networking Unsure position/100% cash visibility 40 Flexibility with debt funding (term adjustments, higher limit, 34.3 38.0 35.8 alternative facilities Navigating regulatory changes/qualifying for 9.6 7.0 8.6 Government stimulus measures Accessibility to my banker 24.4 25.2 24.7 30 Speed of decision making 7.4 4.6 6.3 Other Understanding/knowing the 13.5 15.5 14.3 sector we work in Deploying risk management and 1.8 3.3 2.4 cyber solutions Digitising the bank connections 2.0 5.7 3.5 with our ERP 20 Networking with peers and 22.5 23.6 22.9 customers Unsure/no real view 5.6 0.7 3.7

Note: no statistical variation by state, sector or lender 10 Note: sums to over N count due to multiple responding enabled

0 A$1-10m A$10-50m Total

33Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 34 2021

Trust Index.

34 SME Banking Insights Report 2021

Exhibit 13 Primary Lender Trust Index Average Rating Reported Total A$1-10m A$10-50m

Average Rating Reported 10 1 — — 3 — 5 — 7 — — 10 (no trust) (complete trust) 9 A$1 - 10m A$10 - 50m Total Market (N: 1051) (N: 702) (N: 1753) 8 Average Rating Reported 2.09 2.51 2.26 Range 1.58 - 3.27 1.75 - 4.93 1.58 - 4.93 7

6 Note: no statistical variation by state, sector or lender 5

4

3

2

1

0 Average Range (Low) Range (High)

35Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 37 2021

Exhibit 14 Frequency and Quality of Bank Engagement % of Total

100 A$1 - 10m A$10 - 50m Total Market (N: 1051) (N: 702) (N: 1753) No interaction - do not need more High frequency - high quality 6.2 11.3 8.2

low frequency - high quality 4.2 11.5 7.1 80 No interaction - need High frequency - low quality 11.3 12.8 11.9 more

Low frequency - low quality 56.9 49.4 53.9

60 Low frequency - low quality

No interaction - but we need more 12.3 12.1 12.2 engagement High frequency - low No interaction - and we do not 40 9.1 2.8 6.6 quality need more engagement

TOTAL 100.0 100.0 100.0 low frequency - high quality 20 Note: no statistical variation by state, sector or lender

High frequency - high quality 0 A$1-10m A$10-50m Total

36Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 38 2021

Research Methodology.

37 SME Banking Insights Report 2021

The fieldwork for this inaugural research program took place during the six weeks All enterprises were interviewed on a direct basis using the structured Interview ending 30 October 2020 Questionnaire, reproduced here as Appendix II, through the individual holding primary responsibility for decision making over the organisation’s trade banking relationships, profiled below in Table 17.

Exhibit 15 Exhibit 17 Customer Segment Distribution Interviewee Distribution % of Total % of Total

Nov 2020 Nov 2020 (N: 1753) (N: 1753) A$1-10m turnover segment (Small Enterprise) 60.0 CFO 16.9 A$10-50m turnover segment (Medium Corporate Treasurer 5.4 40.0 Enterprise) Company Accountant / Financial Controller 16.1 TOTAL (SME Segment) 100.0 Business Owner 56.2 Other 5.3 TOTAL 100.0

Exhibit 16 Geographical Distribution Industry sector distribution of the enterprises interviewed directly reflects the % of Total distribution of Australia’s commercial population/universe based on Australian Bureau of Statistics census data. Nov 2020 (N: 1753) NSW & ACT 48.8 VIC & TAS 26.3 QLD & NT 13.3 SA 4.1 WA 7.5 TOTAL 100.0

38Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 41 2021

Exhibit 18 Exhibit 19 Industry Sector Distribution Business/Financial/Management Experience of Interviewee % of Total Average Number Reported

Nov 2020 A$1 - 10m A$10 - 50m Total Market (N: 1753) (N: 1051) (N: 702) (N: 1753) Agriculture, Forestry, Fishing 4.2 Average Years’ Experience 13.3 16.6 14.6 Mining 4.6 Range 5.4 - 21.4 8.1 - 34.2 5.4-34.2 Manufacturing 9.1 Electricity, Gas, Water and Waste Services 0.8 Note: no statistical variation by state, sector or lender Construction 9.0 Wholesale Trade 15.5 Retail trade 20.0 Exhibit 20 Accommodation and Food Services 2.1 Annual Enterprise Turnover Transport, Postal and Warehousing 5.0 Information, Media and Telecommunications 2.6 Average Number Reported Financial and Insurance Services 2.2 Rental, Hiring and Real Estate Services 4.1 A$1 - 10m A$10 - 50m Total Market Professional, Scientific and Technical Services 3.9 (N: 1051) (N: 702) (N: 1753) Administrative and Support Services 0.7 Average 5.3 19.0 10.8 Public Administration and Safety 0.5 Range 1.2 - 10.0 10.1 - 50.0 1.2-50.0 Education and Training 1.5 Health Care and Social Assistance 2.4 Note: no statistical variation by state, sector or lender Arts and Recreation Services 0.6 Other Services 11.4 TOTAL 100.0

39Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 42 2021

Exhibit 21 Exhibit 23 Enterprise FTE / Headcount Value of Current Debt Facilities Average Number Reported % of Total

A$1-10m A$10-50m Total Market A$1-10m A$10-50m Total Market (N: 1051) (N: 702) (N: 1753) (N: 1768) (N: 1025) (N: 2793) Average 36.6 266.2 128.3 No debt facilities being used 40.6 31.5 37.2 Range 3.0-47.0 112.0 - 388.0 3.0-388.0 Debt facilities in place 59.4 68.5 62.8 Average Value (A$m) 1.0 6.4 3.2 Note: no statistical variation by state, sector or lender Range 0.2 - 2.0 0.9 - 12.2 0.2-12.2

Note: no statistical variation by state, sector or lender Exhibit 22 Age of Enterprise Average Number Reported

A$1-10m A$10-50m Total Market (N: 1051) (N: 702) (N: 1753) Average Years Established 7.5 15.5 10.7 Range 2.3-13.9 8.2 - 32.1 2.3-32.1

Note: no statistical variation by state, sector or lender

40Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 43 2021

Exhibit 24 Exhibit 25 Current Primary Lender Age of Primary Lending Relationship % of Total Average Number Reported

A$1 - 10m A$10 - 50m Total Market A$1 - 10m A$10 - 50m Total Market (N: 1051) (N: 702) (N: 1753) (N: 1051) (N: 702) (N: 1753) ANZ 9.1 15.8 11.8 Average Years 5.3 7.9 6.3 BankWest 4.2 1.0 2.9 Range 1.1 - 7.6 4.2 - 22.1 1.1-22.1 Bendigo Adelaide Bank 1.3 0.3 0.9 BOQ 6.4 3.7 5.3 CBA 22.6 18.1 20.8 Note: no statistical variation by state, sector or lender HSBC 0.3 1.9 0.9 NAB 20.3 38.3 27.5 St George 5.4 2.7 4.3 Suncorp 3.0 1.7 2.5 Westpac 18.2 12.4 15.9 Other 9.1 4.1 7.1 TOTAL 100.0 100.0 100.0

Note: no statistical variation by state, sector or lender

41Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 44 2021

Interview Questionnaire.

42 SME Banking Insights Report 2021

Judo Bank SME Insights Report

Round Three – November 2020

Interview Questionnaire

(A$1 – 50 million turnover accounts)

Organisation Principal Industry Sector

Mailing Address Current Annual Turnover

Number of Full Time Staff

Phone Fax Finance Team Size (Headcount)

Website Year Business Established

Interviewee Screening Question Title (Owner / Corporate Treasurer / CFO) Email Value of current Debt Facilities A$ Age (Interviewer note: if no debt facilities terminate interview)

Financial Management Experience (in years) Current Primary Lender

Length of Relationship (Years)

43Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 47 2021

SME Finance Gap Looking Ahead

1. When applying for new finance in the last 12 months, how much funding were 3. Relative to before the COVID-19 crisis, what are the top three requirements of you asking for? your banking relationship now?

Successful Application A$ 🔿🔿 Industry insights / sector-based advice / peer analysis / competitor benchmarking Unsuccessful Application A$ Business Insight 🔿🔿 Advice on treasury and accounting (tax, regulatory) 2. What purposes did you plan to use borrowings for in the last 12 months? 🔿🔿 Access to small business grants / government support 🔿🔿 Accessibility – proactive support and guidance Cashflow / working capital 🔿🔿 🔿🔿 Understanding that historical performance is less relevant Business equipment/plant 🔿🔿 🔿🔿 Flexibility / Agility Expansion / growth 🔿🔿 🔿🔿 Export market support / international markets advice Exporting / offshore business development 🔿🔿 🔿🔿 Others (please specify) Retirement of other / existing debt 🔿🔿 🔿🔿 COVID-19 related provisions (JobKeeper bridging finance, business closure) 🔿🔿 4. What is the best piece of advice you have received to navigate the COVID-19 🔿🔿 COVID-19 related business opportunities (staff, operations, growth, business crisis? purchase) 🔿🔿 Others (please specify)

5. What business funding method do you plan to use for new borrowings?

6. What is the biggest challenge currently facing your business?

7. What is the most important factor enabling your company’s recovery from the COVID-19 crisis?

44Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 48 2021

Best Practice SME Examples

8. What phase is your business currently in? 10. What are the top three most important attributes of a banking relationship to help your business successfully navigate a post COVID-19 recovery?

🔿🔿 Start-up Deep understanding of my business 🔿🔿 Growth/Expansion 🔿🔿 Reduce compliance burden / red tape / documentation issues 🔿🔿 Contracting 🔿🔿 Understanding my real time cash position across all accounts / 100% cash 🔿🔿 Exiting 🔿🔿 visibility 🔿🔿 Unsure 🔿🔿 Flexibility with debt funding (term adjustments, higher credit limit, alternative 9. What will be the number one focus for your business post-crisis? credit facilities) 🔿🔿 Navigating regulatory changes / qualifying for government stimulus measures 🔿🔿 Innovate – invest in new product/service development Accessibility to my banker 🔿🔿 Expand – domestic/international new markets and customer segments 🔿🔿 Speed of making decisions 🔿🔿 Consolidate – holding pattern 🔿🔿 Other (please specify) 🔿🔿 Succession planning – bring forward handover plans 🔿🔿 Exit – sell or wind down the business 🔿🔿 11. Based on your response to the previous question (Question 10), would the Other (Please Specify) 🔿🔿 availability of this offering prompt you to switch to another provider?

🔿🔿 Yes, definitely likely 🔿🔿 Yes, Likely 🔿🔿 Possibly 🔿🔿 No, unlikely 🔿🔿 No, definitely not likely 🔿🔿 Unsure

45Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 50 2021

Trust Index

12. On a scale of 1-10, how much trust do you extend to your current primary 13. What is your recent experience with the frequency and quality of engagement lending bank? (1=no trust, 10=complete trust) with your bank?

🔿🔿 High frequency – high quality Low frequency – high quality 🔿🔿 🔿🔿 High frequency – low quality 🔿🔿 Low frequency – low quality

🔿🔿 No interaction – but we need more engagement 🔿🔿 No interaction – and we do not need more engagement

46Judo Bank SME Banking Insights Annual Report – November 2020 SME Banking InsightsPage Report 51 2021

East & Partners is a leading specialist business banking market research and analysis firm. The firm’s core expertise is in the provision of analysis and advisory services tailored for the commercial, business and institutional banking markets across Asia Pacific, Australasia, Europe and North America.

The delivery of accurate quantitative analysis on businesses exploding demand for sophisticated transaction, FX, debt, treasury, investment and advisory banking services and products has been uniquely addressed by East's "bottom up" research methodologies since 1987, based on many thousands of customer interviews with CEOs, CFOs, treasurers and business owners.

East's multi-client demand side research and consulting work has enabled the firm to partner virtually every major domestic and international bank present in the geographies the firm operates in.

East & Partners Pty Ltd Level 13, 2 Park Street Sydney NSW 2000 Australia Phone: +61-2-9004 7848 Fax: +61-2-9004 7070

www.eastandpartners.com

47 SME Banking Insights Report 2021

Thank you.

www.judo.bank Level 3, 40 City Road Southbank VIC 3006

So far as laws and regulatory requirements permit, Judo Bank Pty Ltd ABN 11 615 995 581 AFSL 501091 (“Judo Bank”), its related companies, associated entities and any officer, employee, agent, adviser or contractor thereof (the “Judo Bank Group”) does not warrant or represent that the information, recommendations, opinions or conclusions contained in this document (“Information”) is accurate, reliable, complete or current. The Information is indicative and prepared for information purposes only and does not purport to contain all matters relevant to any particular investment or financial instrument. The Information is not intended to be relied upon and in all cases anyone proposing to use the Information should independently verify and check its accuracy, completeness, reliability and suitability and obtain appropriate professional advice. The Information is not intended to create any legal or fiduciary relationship and nothing contained in this document will be considered an invitation to engage in business, a recommendation, guidance, invitation, inducement, proposal, advice or solicitation to provide investment, financial or banking services or an invitation to engage in business or invest, buy, sell or deal in any securities or other financial instruments. All statements as to future matters are not guaranteed to be accurate and any statements as to past performance do not represent future performance. Subject to any terms implied by law and which cannot be excluded, the Judo Bank Group shall not be liable for any errors, omissions, defects or misrepresentations in the Information (including by reasons of negligence, negligent misstatement or otherwise) or for any loss or damage (whether direct or indirect) suffered by persons who use or rely on the Information. If any law prohibits the exclusion of such liability, the Judo Bank Group limits its liability to the re-supply of the Information, provided that such limitation is permitted by law and is fair and reasonable. The Information is governed by, and is to be construed in accordance with, the laws in force in the State of Victoria, Australia.