Unsecured lender Lumi is calling on government and the banking community to partner with fintechs in a move to “avoid finance bottlenecks” arising from recently announced SME lending support packages.
As a result of the COVID-19 pandemic, which has been causing business disruptions of an unprecedented scale, support packages totalling $189 billion – the equivalent of 9.7 per cent of gross domestic product (GDP) – have now been announced by government and the RBA to protect the economy.
Federal Treasurer Josh Frydenberg announced last week that the Commonwealth government will invest up to $15 billion to enable smaller lenders to continue lending to consumers and businesses.
Noting the $15-billion injection, the CEO of alternative lender Lumi has called for lenders to put aside their differences and create partnerships to avoid “finance bottlenecks” and ensure the new initiatives are effective.
According to Lumi, these bottlenecks could be caused as a result of banks’ difficulties to “engage remotely, process large volumes of applications (relative to size), underwrite SME risk efficiently, originate, underwrite and settle transactions online; monitor and service portfolios of small loans efficiently; and manage hardship and other rescheduling and non-performing loans (NPL) activities flexibly”.
However, Lumi CEO Yanir Yakutiel suggested that, due to the data and technology capabilities Lumi and other fintech providers have built to compete with the big banks, these platforms are now the “ideal conduit” for providing small-business owners with finance quickly during these challenging times.
“With the banking sector getting large amounts of liquidity from the government to support SMEs, it still remains technologically and institutionally unprepared to lend this money out to SMEs to implement the government’s policy efficiently and quickly enough,” Mr Yakutiel said.
“We’ve seen this kind of bottlenecking countless times before, both in Australia and around the world. We can’t afford to see this happen again. Now is the time for fintech lenders like ourselves to do our part and show how the platforms we have built can help banks scale to the size of the challenge, quickly, in a challenging operational environment,” he said.
He continued: “To help the government and the banks implement their policies, Lumi is able to act as a conduit. Lumi has the origination, underwriting and servicing capacity, as well as the distribution channels, to reach the SMEs that need the policy loans the most and most urgently,” he said.
As such, the Lumi CEO is calling on the government and/or the banks to create pools of capital/warehouse facilities to achieve various policy tools, such as establishing distinct pools for specific geographies and industries.
He suggested that this would enable the government and/or the banks to define underwriting, pricing and term parameters with alternative lenders, who can then originate the loans.
“SME lenders like Lumi have the origination, underwriting and servicing capabilities to handle a large volume of small ticket specialised business loans that banks simply do not have. The implementation of the policy will undoubtedly have to rely on the fintech lenders,” he said.
“If we work together, fintechs will become a catalyst for the stimulus package, massively increasing the effectiveness and speed with which the funds are distributed. We all need to put aside business rivalries and do our part,” Mr Yakutiel concluded.
Fintechs welcome SME package
Several fintech lenders have welcomed the government’s moves to support SME lending with its $15-billion investment, particularly noting the need for fast access to unsecured business loans during the COVID-19 crisis.
Greg Moshal, Prospa CEO, said: “As innovators, we are well placed to distribute government funding quickly without any long application processes or excess documentation. A fast response is exactly what small-business owners need right now. Our government has stepped up and provided that fast response, and we stand ready to do the same,” he said.
Mr Moshal added that the measures would have a “direct and tangible effect on Australian jobs and the economy”.
“By maximising their cash flow, small businesses – like the ones we serve – can continue to pay their staff and suppliers and crucially, keep their businesses and the economy running,” he said.
Prospa research has previously shown that for every $1 billion of loans written, there is a corresponding flow of money through the economy leading to a $4 billion increase in GDP and 57,000 jobs maintained.
“That’s the kind of help that Australia needs right now,” he said.
The chief product officer of SME lender Finstro, Tom Whitworth, also commented, stating: “Small businesses are the engine room of the Australian economy, employing over 7 million people.
“By focusing on keeping these businesses resilient and staff on the books, the government is working towards ensuring there is a solid foundation for the economy to eventually rebound,” Mr Whitworth said.
“By proposing to guarantee 50 per cent of new short-term unsecured small-business loans, the government is enabling lenders to support business owners when they need it most. Importantly, with many Australian small businesses turning to the fintech sector for cash flow support in recent years, it’s crucial these measures are extended to lenders in this category,” he added.
“During this time, we know many Australian SMEs are solely focused on keeping their doors open. At Finstro, we are working to ensure all clients are aware of the government announcement and feel our support,” Mr Whitworth concluded.
‘Will the funding go far enough?’ asks HashChing CEO
However, others – such as lending marketplace HashChing – suggested that more could be done to support SME lending in the longer term.
Arun Maharaj, CEO of HashChing, noted that it was “critical that measures are in place to support this vital sector during these very difficult times”.
The HashChing CEO continued: “This much needed financial support will definitely help in the short term and be an immediate sugar hit. Injecting this funding specifically to smaller lenders will help them to stay nimble and further support their ability to be quick and efficient at getting out the necessary loans to SMEs. SMEs desperately need quicker access to funds, which is what the smaller lenders are able to provide.
“The question is, will the funding go far enough?
“I think the government needs to go further and consider tax relief such as extensions of time to lodge and pay tax obligations. Additionally, the government should look to make it easier for SMEs on a quarterly GST cycle to elect and change their GST reporting to monthly, if that assists with obtaining quicker GST refunds,” Mr Maharaj said.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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