The fintech explosion means there have never been more lending options for SMEs. But how can you determine which type of lender is right for your business?
According to economist and The Australian Financial Review columnist Christopher Joye, Australian businesses have a comparatively low default rate on loans and the Australian economy is in “rude health”, which is making business loans an increasingly attractive prospect – in turn providing business owners with an ever-increasing range of choices of where to obtain capital.
“Super funds are trying to invest in business loans, pouring billions and billions of dollars in cash into direct business loans,” says Chris.
“We’ve got P2P [peer-to-peer] lenders, so these online businesses that are now offering money to SMEs, that are emerging all the time, and I think that that's going to continue.
“And then you've got more conventional non-banks, the Liberties, the Peppers and others, La Trobe, who are out there in the market offering attractive residential loans and business loans – particularly for people who don't necessarily have standard employment circumstances. So they might be self-employed or they might have had some bad debts on their records.”
Chris says loyalty to financial institutions, particularly the major banks, is a thing of the past, and business owners should be shopping around as much as possible to find the best deal.
“As long as the cash is secure, then I think you just want to hunt as aggressively as you can for the best possible rates and I don't think there should be any sort of intuitive loyalty to the major banks because they seem safer or sounder,” he explains.
“And I think you have to look for regional banks but also look for the non-bank lenders that … are emerging. And the reason these non-bank lenders are coming back into the market is [that] financial markets are very keen to invest in business loans.”