Research by online lender Ondeck has found small business owners are increasingly struggling to secure finance from traditional lenders. In response, SMEs are turning to online lenders, family, friends and credit cards to supply the funds they need to grow their business.
The study found one in four SMEs have had their loan applications rejected by traditional banks. Of those SMEs who were lucky enough to have finance approved, more than a quarter (29 per cent) said the lengthy loan approval process negatively impacted their business. Loan rejection rates were even higher for those small businesses in operation under fiver years (37 per cent).
The findings are alarming when considered in the wider context of the impact of Australia’s SMEs on the nation’s economic growth. When one in four businesses surveyed suggested they would apply for finance in future, it appears these lengthy processing times and potential knockbacks could be crippling.
Noah Breslow, Global CEO of OnDeck, said of particular concern is the length of time processing a loan can take when using a traditional lender.
“For SMEs time is money, and the number of hoops that SMEs need to jump through to secure bank finance is clearly adding to the cost, and stress, of gaining much-needed funds,” said Breslow.
“As an online lender, OnDeck streamlines the finance process for SMEs, requesting far less information, and expediting the application and approval process by allowing key documents such as bank statements, to be uploaded directly to OnDeck online.”
Breslow suggests many Australian small businesses may not be meeting their potential due to their lack of access to finance.
“They cannot secure bank finance, or because an inefficient and lengthy lending process is adding to the cost burden. It is important for SME owners to realise that more efficient funding options are available through online lenders. Even SMEs that meet bank lending criteria can benefit from the speed and convenience of an online lender, ” Breslow says.
Among those SMEs likely to seek finance in the future, 65 per cent surveyed said they would still try their luck with a bank; 27 per cent would dip into their personal funds. One in five (22 per cent) SME owners would consider an online lender, with the level of interest in online lenders rising to 42 per cent for SMEs that have previously had an application for finance rejected by a bank.