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38% of SMEs considering alternative lenders: FICO

by snichols11 minute read
38% of SMEs considering alternative lenders: FICO

Over one-third of Australian SMEs are open to exploring their funding options with non-traditional lenders, according to a new report.

More than one-third of small and medium-sized enterprises (SMEs) across Australia could be soon veering away from traditional banks, according to new findings released by FICO.

This data – which was included in the US analytics company’s What do SMEs need from their banking providers post-pandemic? report – is derived from an RFI Global analysis of two years’ worth of SME Banking Council surveys, which included responses from 508 Australian SMEs.

According to the results, 38 per cent of the Australian SMEs said they would consider alternative or non-traditional lenders in the future.


The same data also noted that, as of December 2021, 15 per cent of these SMEs said they were interested in taking up new borrowing products over the next 12 months.

One explanation for this trend, as suggested by this report, is that SMEs were growing frustrated with the funding process of traditional banks. 

As referenced in the FICO’s release, 45 per cent of Australian SMEs expressed that competitive interest rates were a top driver when choosing a lender. 

Speed of access to funds (35 per cent), flexibility in repayment options (32 per cent), digital banking capabilities (27 per cent) and the ease and speed of the application experience (24 per cent) were also listed as key decision factors for SMEs. 

FICO senior director of decision management solutions in Asia Pacific Aashish Sharma said that the COVID-19 pandemic put a “sudden, massive burden on SMEs, globally” and that they didn’t believe the banks did enough to assist them over this period.

“Australia’s SMEs have made it clear that should they require financial support in 2022, they are less optimistic about getting it from their main banks,” Mr Sharma said. 

“This is a potentially worrying trend for traditional banks, considering that SMEs account for more than 97 per cent of all businesses in Australia, and contribute around $418 billion to [Australia’s GDP], equivalent to over 32 per cent of Australia’s total economy.”

According to the Australian Small Business and Family Enterprise Ombudsman’s Small Business Counts December 2020 report, small businesses accounted for between 97.4 per cent and 98.4 per cent of all Australian businesses.

Mr Sharma added that these alternative lenders “have the potential to gain ground based on the challenges identified by this research and by our own market observations”.

“However, the opportunity is there for traditional banks to retain borrowers if they understand those key decisioning criteria alongside the challenges and funding support sentiments of SME and the themes that have emerged,” Mr Sharma said. 

Mr Sharma concluded that if traditional banks are to experience continued and sustainable business growth from the SME segment throughout the Asia-Pacific region, including Australia, “they must simplify the application process and improve transparency, as well as customer experience”.

“From the banks’ risk management perspective, they can support these efforts with scalable, well-informed decisioning tools that can both speed up the process for all and minimise risk,” Mr Sharma said.

Find out more about how brokers can access alternative lenders for their SME clients in the April 2022 Broker's Guide to Commercial Finance, here.

[Related: SMEs continue to invest in machinery]

sme small business



Sam Nichols is a journalist at The Adviser and Mortgage Business.


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