Nearly half of SMEs that didn’t use non-bank lending in 2017 are considering it this year, according to a new index
The latest SME Growth Index of Scottish Pacific shows business owners are optimistic about revenue growth, had improved cash flow in 2017, and are increasingly looking at non-banks’ lending options to fund growth. More than one in five SMEs plan to tap alternatives to their main banks.
If Australia's SME owners had a collective social media page, their relationship status would most likely be “it’s complicated”, according to the Scottish Pacific news release. That’s because small business owners are frustrated with traditional banks’ processes to access cheap financial sources.
With non-banks trending upwards since the first Index in 2014, the gap between bank and non-bank lending is closing.
Not having to submit real estate security to fund business growth is one of the biggest advantages of borrowing from a non-bank, Langham said. There are three reasons behind it:
- It doesn't bring in additional debt to business owners
- It allows business owners to receive money already owned to them from outstanding invoices
- It allows business owners to gain better control of their cash flow, and to boost their working capital levels with a facility that grows in line with their business revenue
"The smart-growth businesses are already onto this fact," Langham said. "Index results show that growth businesses are five times more likely to seek alternative funding than their stable or declining peers."
Being aware of available alternative products is as important as knowing the right questions to ask clients in order to effectively arrange suitable funding. Langham suggests three:
- Do you have unusual levels of growth or seasonal issues to deal with?
- Are you trying to expand by acquisition, perhaps with a big new client who needs capital to fill orders?
- Are you moving into a succession phase?
The removal of real estate security from business funding also opens new opportunities for brokers to help clients with home loans, lease finance, and other potential products.
Langham and his team are always happy to meet brokers who are interested in diversifying. "It's not complex. They don't need to learn complex formulas or regulations," Langham said. "It's just a matter of knowing what to look out for."
