The small business appetite for non-bank lending is on the rise. We take a look at why.
Traditionally, small business owners have looked to banks for loans, but the rise of the non-banking sector has seen a strong change in the market.
According to East and Partners March 2016 Business Banking Index, long approval times and poor satisfaction with banks is causing small business owners to consider alternative lenders. 39 per cent of the SMEs surveyed were actively considering using non-bank lenders, while 25 per cent of respondents had considered applying for loans from non-banks in the last six months.
Another report by fintech loan matching app eBroker echoes this sentiment, finding that wholesale retail, trade and construction industries are turning to non-bank lenders.
“Many businesses (that) can’t get credit are now turning to non-bank lenders to get them through this period of transition,” said Simon Isaacs, CEO of eBroker. “It’s an ominous sign for construction firms that the banks are pulling back on lending to them. Time will only tell if this only compounds future bank losses in this area.”
And, a huge 75 per cent of survey respondents said the demand for credit products was ‘increasing’ or ‘strongly increasing.’
So the appetite for non-bank lending is clearly there, but some might be wondering why. After all, non-bank lenders are smaller than banks, not as established, and could be more vulnerable to economic downturns. But it all comes down to speed and efficiency.
While the process of getting a business loan from a bank differs from lender to lender, it generally involves providing detailed information about your business. This could include a business plan, profit and loss statements, cash flow forecasts, annual sales, as well as personal and business financial statements. For a secured loan, collateral information is also required – details about personal property, business property or business equipment. Approval turnaround can vary from a few days to a few months.
On the other hand, when it comes to non-bank lending, business information can be filled out in a matter of minutes, business data can be plugged in from existing software and online sources, and turnaround times can be as little as one day.
One of the first non-bank lenders in Australia, Moula can approve small business loans online within 24 hours. Launched in 2014, Moula uses sources – including banks and Xero – to analyse real-time sales data and performance history to determine whether applicants can repay a loan.
“We want the process of getting funding to be easy, automated and accessible to every small business in Australia,” said Aris Allegos, Moula CEO and co-founder.
“To grow and build their businesses, owners need a fast and simple alternative to traditional lending, whether to buy inventory, invest in new equipment or spend on marketing. The challenge is getting access to that capital in a timely manner, which can often drive them to other high cost alternatives.”
Non-bank lending isn’t just a move supported in theory. The latest Disruption Index showed that the number of data-approved loan applicants has doubled over the past year, indicating an increasing comfort in sharing data online and borrowing from non-bank lenders. The Index also showed that small businesses expect access to unsecured finance in 6.5 days, falling from the previous 7.5 days.
“Small business owners know that to survive in business you need to meet customer expectations,” Allegos said. “We live in an age of instantaneous transactions with the increasing availability of data at our fingertips. This means that the pace of business has increased exponentially and in line with that, so too have customer expectations. The lending space is no different.”