Again and again we hear the same story: the banks don’t understand my business; the banks won’t give me enough money; the banks won’t lend to me because I don’t have a property, the banks make it too hard to do anything.
It wasn’t long ago that we sat down with a customer, and he said, verbatim, “I don’t care what you charge me, as long as I don’t have to deal with the banks again.”
General business sentiment and research confirms what we’re being told: the Financial System Inquiry report, set to establish a direction for the Australian financial system, noted a severe inability for SME’s to access sufficient credit, and also recognised their comparatively increased security requirements compared to both consumers or large businesses.
Firstly – Why? Why do the banks seem so against lending to SME’s? Their rhetoric in the press and marketing material seems to directly contradict the way they act.
It’s first important to note that while it’s easy to be critical of the banking environment, we’re privileged in that we have four very successful, very profitable, and very safe banks. This doesn’t always exist elsewhere in the developed world, and they’re one of the material reasons Australia remained relatively insulated from the worst effects of the GFC.
So, why don’t they make it easier to lend to SMEs? Quite simply, in our opinion and experience, because they don’t have to. It’s much easier to lend $100 million to one customer than $1 million to 100. When you’re already profitable and successful, like the Australian banks are, you can be a lot pickier about who your customers are. Except for the very lowest risk customers (i.e. those with hard unencumbered property assets), the banks don’t need to lend to SMEs. And as every business owner would understand – who doesn’t want to make the most profit from the least amount of work?
We’d propose that another reason there’s a reticence to inject genuine funds into the SME channel is the rise of the non-bank lenders. There’s been an enormous growth in the asset-based lending space (which includes Trade Finance, Debtor Finance and Leasing) and in line with the hypothesis above: banks would rather lend to the non-bank lenders doing the lending than lend to the SME’s themselves – one customer, less work.
Secondly – What can you do about it?
The good news is there is now a myriad of financing options outside the traditional “bank overdraft”. The banks are like the department stores of the financial world – they have everything available, but specialise in nothing.
Non-bank lenders live and breathe the same air as SME’s – their lifeblood is the SME market, so they understand it. And increasingly, SME’s are learning that these financing options are more than just alternatives, they’re the best option for realising their growth aspirations.
Understand your alternatives. Read about what Debtor and Trade Finance are. Learn about the players in the market. Ask other SME owners and operators how they finance their business. What was once a taboo topic is now a much more acceptable discussion, as the negative connotations regarding non-bank finance often do not apply.
Today, banks aren’t the only option for healthy businesses.
Moneytech is an Australian commercial finance organisation specialising in Trade Finance (Credit Express) and Debtor Finance (Confirmed Capital). We aspire to become trusted partners of our customers. We support their growth by both understanding their business, and creating innovative financial products based on their feedback which fulfils their needs. Continue to our web site to learn more, or call us on 1300 858 904.