SMEs switch to non-banks during trying times

Indeed, it comes on the back of 10 consecutive rate rises and lending conditions tightening, thus businesses are looking for alternative financing options in the ever-growing competitive market.

With the setbacks of the pandemic behind most Australian businesses, many are making plans for growth and seeking new opportunities, ScotPac’s report confirmed.

The report surveyed 720 SME enterprises with annual revenues of $1 million to $20 million in February 2023 and found 60 per cent were planning to invest in their businesses in the next six months, up from 55 per cent in March 2022.

The data confirmed the March 2023 CreditorWatch Business Risk Index (BRI) findings that revealed credit inquiries increased 28 per cent from February to March, as business confidence grows. 

It also followed recent data from the Australian Bureau of Statistics’ (ABS) Monthly Business Turnover Indicator for February, which showed year-on-year increases in turnover across nine of 13 industries.

However, for those businesses where declining growth is a setback, for example, when ATO debt is outstanding, many are seeking out non-bank lenders for finance support.

Almost 90 per cent of SMEs in this category of ‘declining growth’ are turning away from the banks, the report noted.

Of those SMEs not considering a non-bank lending solution, 41 per cent cited a lack of familiarity with the business or brand as the major factor.

In addition, 10 per cent of SMEs said they didn’t know how they will finance new business investment.

The report also highlighted the biggest barriers to obtaining lending were ‘compliance time and effort’ (43 per cent), ‘personal security requirements’ (33 per cent), and ‘strict bank lending requirements (28 per cent).

The key reasons to seek non-bank lending included ease of onboarding (23 per cent), followed by avoiding using non-property assets (20 per cent) and property assets (16 per cent) as security.

Opportunity for brokers to diversify

Despite slowing economic growth, surging inflation, and rising interest rates, ScotPac chief executive Jon Sutton said there was clear evidence that small and medium-sized business owners were still looking to invest in their businesses.

Mr Sutton said the surge in non-bank lending is providing finance brokers with a golden opportunity to diversify into business lending or expand their existing commercial practices.

“When you couple growing demand for non-bank lending with the time pressures faced by small and medium business owners, the role of the business broker has never been more important,” Mr Sutton said.

The growth in non-bank lending was consistent with the increases in client number and total lending over the past five years, he added.

[Related: Business activity returns to pre-COVID levels: CreditorWatch]