Small businesses risk insolvency without access to finance
SMEs are facing tough times as the cost of living continues to rise and commercial rents skyrocket. Despite this, only half of them know what lenders to turn to for help, according to a new industry report.
The latest survey findings from SME non-bank lender Prospa found many small to medium businesses waited months for traditional banks to approve their loans or they had abandoned the application process altogether because they didn’t have the required documentation.
Prospa national sales manager Paul Evans (pictured above) said many businesses were not aware of and didn’t understand the alternative funding options available to help them keep their businesses afloat.
“Current economic conditions have meant SMEs are increasingly seeking external funding to help manage their cash flow and future growth,” Evans said. “In fact, research reveals that a large majority of SMEs are using external funding to buy new equipment, purchase inventory and support business expansion.”
Evans said the survey found SMEs ran the risk of becoming insolvent without access to funds, with only 54% of SMEs aware of alternative lenders.
“While the knowledge gap is particularly alarming given SMEs run at a higher risk of insolvencies than their enterprise counterparts, the alternative finance community has a clear opportunity to remedy this by working closely and collaboratively with its broker network.”
According to Evans, brokers played a vital role in making business happen for SMEs and he said that was why Prospa helped mortgage brokers diversify their revenue streams and get involved in the business lending space, which enabled them to raise cash flow issues and opportunities for growth.
Evans said it was vital brokers were equipped with the knowledge and resources needed to provide tailored advice about the alternative finance products available on the market for their SME clients.
“This enables brokers to help their clients make well-informed decisions that are best for their business – not ours,” he said.
“To support this, Prospa offers an extensive resource library, including product guides and case studies. Our local BDMs also get to know your client’s businesses and provide a tailored solution that creates greater awareness amongst SMEs.
“While brokers need to be well-versed in the various lenders and how their unique offerings serve their SME clients optimally, it's up to the lenders themselves to ensure brokers have all the tools and information they need to make that happen.”
Evans said there were three common barriers – a lack of understanding and education about alternative lending solutions could hinder brokers' ability to effectively present tailored offerings to SMEs; the complexity and time-consuming nature of the application and approval process; and the fact that SMEs needed to trust both the broker and the lender.
“As awareness of alternative lenders rises, so too does the opportunity for brokers to drive success and growth both for SMEs and brokerages,” he said.
The survey also found that business owners continued to cut costs, with 48% of businesses actively looking for ways to increase margins to manage resources and business priorities, and that 46% of businesses aim to increase cash reserves which are vital when big enterprises don’t make real-time payments.
Prospa's Jaime Aplin was an excellence awardee in the Mortgage Choice Best Non-Bank BDM category at the Australian Mortgage Awards 2023.
Earlier this year, Prospa teamed up with Trace, a Sydney-based climate tech startup, in a move that strengthens its commitment to transition towards net zero emissions. As a result of that partnership with Trace, Prospa will measure, reduce and offset its carbon emissions.
Do you think there are a lot of SMEs who don’t know about all the lending options available to them? Please comment below
