Technology is dramatically changing SMEs' ability to secure finance, as the number of alternative lenders in Australia booms in 2016 – bringing unparalleled business growth opportunities.
Statistics and studies have long shown that small businesses often rely on credit cards or loans from friends and family to fund growth opportunities, or owners are forced to leverage against their personal property to borrow from a bank.
Yet developments in loan application processing and credit scoring has given rise to a booming new alternative finance industry, and established overseas players as well as local start-ups are seeing Australia as an enormously untapped market for providing finance to small businesses.
“The operating system of small business is changing, like in the US we see it all over the place – point of sale, marketing, lead generation and then accounting software is moving into the cloud instead of running it on your desktop, and the financing should be a part of that too,” Noah Breslow, the founder and CEO of US-based online lender OnDeck, told My Business.
“The way [people] buy a plane ticket today is different than it was 20 years ago: they go online. The way they shop for goods and services, the way they look for real estate is different, the way they look for a job is different. So people are used to now going online in so many other aspects of their lives.
“I think as they go online in these other areas of their lives, it makes sense to go online for financing, and so I think that behavioural shift is something we will see a lot of in the next couple of years.”
OnDeck was launched in the US in 2007 and has since listed on the New York Stock Exchange. Yet as Cameron Poolman, the head of OnDeck’s Australian arm which began lending in November last year, said, SME operators in Australia are only just catching onto the concept of online lenders.
“There is a sense of discovery in Australia, because they just haven't heard about this type of product,” he said.
As the duo point out, online lenders don’t have the overheads of traditional banks and are also much more nimble, meaning they can provide same-day approvals and deliver funds typically within 24 hours.
Alongside overseas players such as OnDeck are the establishment of many local players trying to leverage off the gap in lending to SMEs.
“We took a view that we needed to build a platform that was bespoke to Australia,” Moula Money’s CEO, Aris Allegos, told My Business.
“The challenges small businesses face is really in the tactical financing, ie, we're heading into Christmas or into Halloween or Valentine's Day, for example, and they need extra inventory to deal with a growth opportunity or getting cyclicality might have an impact on working capital.”
According to Mr Allegos, the challenge is to raise awareness of the diverse range of funding options now available to small business owners, to grow both the alternative finance industry and also to empower SMEs to drive broader economic growth.
“The reality is the small businesses who are out there day to day doing what they do don't know about us. They still, when thinking of their finance, think pretty much about banks, credit cards and occasionally […] a bigger non-bank. So our role is to really work hard to create awareness,” he said.