SMEs turn to non-banks for funding

The SME Growth Index research is conducted independently by banking analysts East & Partners, on behalf of national working capital funder Scottish Pacific. The owners, CEOs or senior financial staff of 1,257 SMEs across a range of industries and all states, with annual revenues of $1-20 million, are interviewed.

For the first time in the five years and 10 rounds of the Scottish Pacific SME Growth Index, the number of SMEs that turn to their main bank to fund new business growth has dropped below the 20 per cent mark. 

In March 2019 Index findings, for the first time SMEs are about as likely to turn to an alternative lender as they are to ask their main bank to fund growth.

Scottish Pacific CEO Peter Langham said there were many reasons behind this trend, including banks’ credit conditions tightening, business owners looking for more flexibility and funding that allows them to grow, as well as the tightening property market and SMEs’ dislike of having to use property as security for their business loans. 

"Small business owners traditionally have been ‘rusted on’ to their banks, but they are becoming increasingly open to non-bank alternatives to fund their operational and strategic growth needs," Mr Langham said.

"Alternative finance is building momentum, underlined by the clear reluctance of business owners to borrow against property. The SME Growth Index found that nine out of 10 SMEs would be willing to accept a higher interest rate if it meant they didn’t have to provide property security," Mr Langham stated.

The research also found that business owners are more optimistic about growth than they have been for three years. More than 53 per cent of SMEs are expecting to grow in the first half of 2019, at an average revenue increase of 4.9 per cent.

But despite the growth forecasts, SMEs reported they are already seeing an impact of the royal commission on their access to funding. More than half of all SME respondents say the royal commission has made it harder, or will make it harder, for them to access business funds.