SMEs looking beyond banks for finance

This is an important point for brokers to consider when they are assessing the finance needs of their small business clients.

Whether it’s to fund the replacement of outdated equipment, to increase their marketing spend, add new staff or enter new offshore markets, business owners are increasingly keen to avoid tying their personal real estate into the business funding equation.

This reflects a broad-based dissatisfaction, a better understanding of the risks attached to real estate- secured funding solutions, and suggests considerable openness to alternative and innovative funding solutions such as debtor finance.

In our experience, this also talks to businesses increasingly not wanting to wed themselves completely to one lender, which can cause funding stability issues.

As our index indicates, small business owners want more flexible lending terms, including debtor finance and invoice discounting, as an alternative to a standard term bank debt.

In the past year, there has been a 20.6 per cent increase in the use of non-bank lending demand, from 13.6 to 16.4 per cent of SMEs.

More than two thirds (67.9 per cent) of SMEs are willing to pay a higher rate to obtain finance if it means they don’t have to provide real estate security.

Almost one in three small businesses would definitely pay a higher rate (29.6 per cent), with a further 38.3 per cent indicating they would “probably” pay a higher rate in lieu of extensive asset/collateral assessments.

The ability to speak directly to the lending decision-maker was also deemed as highly important, rating ahead of the lender’s industry expertise, credit approval turnaround time and the interest rate.

We suspect this result points to continued demand from business owners for the traditional elements of service from a financier, such as wanting to access and deal with someone who can understand their situation and factor that into decision-making.

The number of SMEs intending to use their own funds to finance growth plans has increased from 81.1 to 92.7 per cent since September 2014.

Since September 2014, the Scottish Pacific SME Growth Index has twice a year tracked the optimism for growth of a range of small business across many industries in Australia.

Brokers and others interested in the SME sector wanting to make sure they have access to what is on the minds of Australian small business owners and managers can register to receive a free copy each September and March here.