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Australian SMEs are turning to alternative sources of funding


sme finance

New research shows Aussie businesses are embracing online lending and P2P, but many are still not getting the loan they want.

Australian businesses are turning to crowdfunding, peer-to-peer (P2P) lending and online loans for finance, according to new research from The Small Business Credit Survey, conducted by ACA Research, found that the most sought-after alternative funding source was equity finance (34%), followed closely by online lenders (30%) and P2P business loans (21%).

CEO of GetCapital Jamie Osborn says that the alternative lending sector is at an important inflection point in Australia.

"The sector has moved through the early adopter phase and is now beginning to gain more mainstream attention," he says.

"At the same time, the leading lenders across the alternative lending space are continuing to innovate and offer businesses better products and customer experiences – as long as that continues, you will see the market further embrace the alternative lenders."

However, while small- to medium-sized enterprises (SMEs) are embracing alternative sources of capital, not all of them are receiving the loans they hope for. The survey revealed that while 84.1% of businesses were successful in their applications, less than half of those (38.9%) of those were approved for all of the credit they applied for.

It is interesting to note that the number of businesses which were declined a loan is only 1.6% of respondents. The remaining 14.3% of the "unsuccessful applicant" group was approved for less than half of the loan they had asked for. Over one-third of this group (35%) had applied for more than or equal to $250,000.

The survey found that a rejected application seriously affects a business. Respondents that did not receive the full amount applied for delayed or could not expand their businesses (34%), delayed or were not able to fulfil existing orders or contracts (27%) or did not hire new employees (17%).

Osborn says these responses are due to a combination of factors.

"Some aren't aware of the alternative financing options. Some are aware but assume that if they get knocked back from their bank they will also get knocked back by other lenders," he says.

"One of the main issues applicants raised in the Small Business Credit Survey was that they had insufficient collateral to get financing, yet there are many finance options in the market that don't require collateral. Either way, there's definitely a need for greater awareness and education of financing options for small businesses."

The leading alternative lenders have proven they can move past the startup phase

While the survey still shows that there is work to be done in terms of awareness, Osborn says the results are a good sign for the alternative business finance space in Australia.

"Any sector that is inefficient, with high search costs and low overall satisfaction is a great market for challenger brands," he says.

"The leading alternative lenders have proven they can move past the startup phase, have proven up their business models and are beginning to gain awareness and traction in the mainstream segment. There are strong tail winds for the leading alternative lenders."

Picture: Shutterstock

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