SMEs turn to non-bank lenders to fund growth

ScotPac's SME Growth Index has been released, providing insight from over 1,200 small business owners.

A key finding in the half-yearly research was that 46 per cent of SMEs introduced new funding options in 2020, while 54 per cent retained their existing style.

Of those who did take the plunge, 31 per cent wanted to develop new products and services to diversity revenue, while 24 per cent needed funding to buy new or replacement equipment or machinery and 21 per cent felt the need for increased cash reserves.

A further 20 per cent said they took up a new option as they had to refinance existing loans, 15.5 per cent did so because they found traditional bank funding was unable to meet their business needs, and 7 per cent said they did because they could not rely on equity in their home to fund business requirements.

Commenting off the back of the findings, ScotPac CEO Jon Sutton said he's witnessing an increasing amount of SMEs using a non-bank lender to fund growth.

“Small business owners are time-poor and often don’t have or make time to research something new, even when it might be a product that better suits their style of business,” Mr Sutton said.

“I think it is a positive for Australia’s growing non-bank sector that in 2020 so many business owners tried new options, such as invoice finance.

“Having tried new styles of funding that might allow more flexibility and support better cash flow, business owners might think twice about traditional funding in which they have to take on more debt and potentially have to use their personal property as security.”

Indeed, the results coincide with Mr Sutton's comments, with 24 per cent of SMEs noting they intend to utilise non-bank funding options, compared with 16 per cent who plan to take out a loan from their main bank.

Mr Sutton said this SME sentiment “was reflected in the low uptake of bank loan initiatives in 2020 and 2021, with business owners reluctant to simply add more debt on to already over-leveraged balance sheets”.

“This SME sentiment is understandable, however, the result will likely be that many businesses who need an injection of funds just kick the can further down the road, instead of sourcing more appropriate business funding solutions,” he said.

“Some parts of the SME sector, depending on the state they are based in and their industry sector, are anxious about the end of JobKeeper so they should be mindful of funding and talk to professional advisers about the best way forward.

“... Small businesses are in need of funding methods that smooth out cash flow gaps and allow them to take on new opportunities.”