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Fintech lenders eye bigger slice of SME market

Australian fintech lenders have welcomed a new report which found that SMEs are continuing to turn to fintech and other non-bank lenders for their growth fund needs.

The latest Scottish Pacific SME Growth Index shows that between 2014 and 2018, the proportion of SMEs intending to use banks for funding has dropped from 38 per cent to 24 per cent.

Over the same period, the report has found that non-bank funding is now the first option for 22 per cent of SMEs, up from 11 per cent in 2014.

In addition, 47.6 per cent of SMEs, who have not used any non-banking lending options in the last 12 months, would be interested in using these options in the future.

However, 91 per cent of SMEs still rely on their own funds.

Of the SMEs that used alternative working capital options in 2017, their funding choices were: debtor finance (used by 77 per cent), merchant cash advances (23 per cent), P2P lending (10 per cent), crowd funding (9 per cent) and other online lending (5 per cent).

“For growth SMEs using alternative funding options, debtor finance is by far the most popular working capital choice,” Scottish Pacific CEO Peter Langham said.

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He said the growth potential for the non-bank lending sector is significant, given that 48 per cent of SMEs who didn’t use non-bank lending in 2017 are considering it for 2018.

“Yet 43.5 per cent of SMEs reported that they were are not using or considering non-bank lending options to improve their access to finance. Despite the Productivity Commission and ASBFEO inquiry findings on the need for more small business credit options, it seems many SMEs are “rusted on” to their bank, to the potential detriment of their business,” he said.

“While access to small business funding options could be improved, the fact is that viable, credible business funding alternatives are already out there, and the onus is on not just the providers, governments and SME lobby groups to promote these options, but also on SME owners and their financial advisers to make the effort to look beyond the banks for options that might be better suited to their business needs.”

Speaking after the release of the report, FinTech Australia chair Stuart Stoyan said: “Australia’s 2.1 million small to medium enterprises are the backbone of the nation’s economy, employing more than 7.3 million people or about 68 per cent of Australia’s overall workforce.

“This report is yet more evidence of the extremely important role that our lenders are playing to help Australian businesses to grow.”

SME lender Prospa’s joint-CEO, Beau Bertoli, said that the report is proof that the government’s focus on developing competition is working.

“It shows increasing awareness among small businesses they have a way to access finance, if they want to. And it means a vital part of the economy is being enabled to grow,” Mr Bertoli said.

“Finally, it’s positive for the fintech industry as we continue to build the credibility of our new industry.”

Alistair Lamond, co-founder of Sydney-based cash-flow management start-up Skippr, said that what sets fintechs apart from the banks is how they use data to improve customer experience and manage risk.

The Scottish Pacific report’s findings comes after the release of the 2nd Asia Pacific Region Alternative Finance Industry Report in September 2017, which found that Australia had leapfrogged Japan to become the largest alternative finance market in the Asia Pacific after China.

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