12 trends of Christmas: SME lending

by AB17 Dec 2018

According to Scottish Pacific, more businesses are in growth mode than at any time since March 2016 and as many as 51% of more than 1,200 surveyed SMEs around Australia are expecting revenue growth in the next six months. However, for 79% of these SMEs, cash flow issues are causing sleepless nights.

“What we see is a growing SME prosperity gap, with those who are performing poorly now in significantly worse shape than they were four years ago,” says Wayne Smith, head of debtor finance at Scottish Pacific.

“This is where brokers can play a key role, in educating themselves and putting a wide range of funding options in front of their clients,” Smith continues.

Helping brokers with that education is a new generation of Australian fintech SME lenders who in 2018, signed the Code of Lending Practice (CoLP); a document designed to bring transparency and clarity to the online balance sheet lending space.

As a signatory and architect of the code, OnDeck has conducted extensive research into the space, which has shown that approximately 70% of Australian small business owners access capital via brokers or intermediaries.

Michael Burke, head of sales at OnDeck Australia, says, “We are very passionate that brokers play a very valued and important part in helping SMEs be successful and we want to make sure they are supported with competitive and compelling funding alternatives.”

On the back of this demand, OnDeck Australia witnessed a 346% increase in the broker channel and more than 100% growth in total originations in 2018. Burke reports the lender and its US parent company have funded in excess of $10bn of loans for 100,000 SMEs in the last decade.

“As people continue to see the changes and challenges on the back of the royal commission, alternative finance has continued to grow. As we see more challenges through the traditional lines of finance, we think that is going to continue to provide the alternative finance space with another growth opportunity as we go into 2019,” he says.

Observing similar growth, CoLP co-signatory Prospa, saw a 70% increase in loan originations in the last financial year. GM of sales and business development, Matt Bauld says, “Awareness and consideration of online small business lenders is higher than ever.

“With enhanced government support for small business and a focus on improving access to finance, we only expect this trend to continue,” he adds.

Initiatives like the $2bn Australian Business Securitisation Fund will lower the cost of capital for alternative lenders such as Prospa and, according to Bauld, provide even more affordable funding options.

“It’s definitely an exciting time, with significant opportunities for the intermediary market in 2019,” he continues.

“The brokers who embrace a holistic approach to servicing more of their customer’s needs, are not just growing their business but also creating a more sustainable one that’s better protected from legislative and market changes,” Bauld says.