SMEs will be increasingly looking to brokers to source alternative finance, with banks expected to have “more hurdles to jump over” off the back of the Hayne royal commission, a lender CEO has said.
According to the CEO of SME lender Scottish Pacific, Peter Langham, finance brokers are set to play a key role in the aftermath of the financial services royal commission.
Mr Langham said that he expects traditional banks to be placed under increased scrutiny over their lending practices, providing alternative financiers with an opportunity to fill the void.
“What has changed, as a consequence of the royal commission, is the banks themselves will have more rigor and more hurdles to jump over,” he said.
“This means that business owners need to seek out alternative financiers to the banks, and there are plenty of these (mostly funded by the banks).”
The CEO cited Scottish Pacific’s most recent SME Growth Index, which found that 96 per cent of SMEs could name a key reason to borrow from an alternative lender, noting that fast credit approval and reduced compliance are the “main drawcards”.
Mr Langham added that commercial brokers and accountants would help facilitate access to alternative finance for borrowers.
“The best way for SMEs to get suitable advice on funding options is via trusted business advisers, such as accountants and commercial finance brokers,” he said.
“These advisers, with a day-to-day understanding of their clients’ businesses, can help SME clients find their best funding option by making them aware of how the different products work and what the risks and benefits are, especially when it comes to some of the newer market entrants.”
Mr Langham’s comments follow the release of a study involving a survey of 1,750 business owners nationwide, commissioned by SME lender Judo Capital and conducted by East & Partners.
The study revealed that the gap in SME funding, which has emerged from an inability to access finance that they would otherwise utilise, has surpassed $83 billion.
According to the survey, the average SME applied for $800,000 in new borrowings in the last year, with those that successfully obtained finance securing $600,000 in new credit, while the average unsuccessful credit application was $1.1 million.
Respondents stated that the main reason SMEs were prevented from accessing credit in the last year was as a result of collateral requirements (34 per cent), slow turnaround times (16 per cent), inappropriate terms/structure (11 per cent), interest rate (8 per cent) and an unsatisfactory credit rating (4 per cent).
Conversely, SMEs that accessed the full amount of new capital they sought cited credit approval speed (63 per cent), ring fencing of security needed away from personal assets (58 per cent), actual availability of the full debt sum being sought (50 per cent) and mitigating terms and conditions (42 per cent) as the most important factors in completing the application.
Further, the survey revealed that approximately 90 per cent of SMEs would rather seek lending advice from friends and colleagues than a bank.
When asked to rate their trust in banks on a scale of 1 to 10, where 10 is the highest level of trust, SME respondents scored banks at just 2.5 points.
[Related: $83bn SME funding gap exposed]