‘Onerous’ bank terms forcing SMEs to find alternative finance

by Julia Corderoy16 Sep 2014
Australian SMEs are increasingly searching for alternative ways to finance their businesses, due to “onerous” and “inflexible” bank terms, according to new research.

The report, published by The Invoice Market, revealed that two out of the three businesses surveyed said that a lack of finance was affecting their ability to grow. 

Tightening bank credit conditions and long payment terms are the main concerns for Aussie SME owners. Over half of the businesses surveyed (52%) are concerned that reforms to the banking sector are going to make it harder to get a loan, while almost three quarters (70%) said that very long payment terms were negatively affecting their cash flow.

Angus Sedgwick, managing director or The Invoice Market says SMEs are now turning to alternative ways to finance growth, such as peer-to-peer and crowd-funded equity-raising. 

“Just over 40% of the businesses in our survey said they’d turn to traditional debtor finance, with its flexibility compared to bank finance being the key benefit,” he said. 

“But there are another 60% who wouldn’t have access even to this type of factoring, due to requirements that their invoices be spread across a certain minimum number of clients or based on geographical limitations. These are good businesses, but their risk profile is just too high for the institutions. Agility and creativity are key to servicing these businesses. Online models which connect businesses with investors are just one of the ways the issue is being addressed.”

Sedgwick says that tech-enabled finance alternatives available to Australians have doubled over the past two years, and is crucial for future innovation.

“The next boom in Australia could be driven by SMEs access to cash,” he said.