As the big banks become more risk-averse and conservative, Australia’s small and medium businesses are often being forced to look elsewhere for capital. More Australian SMEs are turning to non-bank providers for their funding as the emerging players grab a bigger market share in the lending sector.
Why? Because non-bank lending is more willing to take a chance on entrepreneurship and innovation for businesses with strong bona fides. Now, the business community is waking up to the potential of the non-bank space – which in turn is driving growth in that sector.
As an expert in securing funding opportunities for business, I’m seeing this shift happen in real time. There’s been a seismic shift towards private and non-bank lending, driven largely by investors seeking higher yields of seven to ten per cent. Previously, this investor interest was from other sources such as commercial property, but with lower returns now in these types of investments, the focus has shifted. There are 2.5 million SMEs in Australia, which represents a significant proportion of the national economy.
According to the Reserve Bank of Australia (RBA), non-bank business credit is experiencing a sharp rise, reaching an annualised growth rate of 25 percent by early 2023. The Reserve Bank of Australia noted that “non-bank lending supports economic growth by providing an alternative form of funding and increasing competition for lending”.
This growth is fueled by several factors. Non-bank and private capital lenders have filled the void left by banks, especially in higher-risk lending sectors such as construction, property, and vehicle financing. Banks have retreated from these areas due to regulatory pressures and a strategic focus on minimising risk on their balance sheets.
Take the case of Providior, a company based in Queensland that specialises in funding for legal firms.
“Personal injury law is a sector that is largely overlooked by the big four banks because of the long tail cashflow cycle,” says Providior Managing Director and CEO Jo Cope.
“There is real financial pressure on a law firm running these cases as it’s at often 18 months before a law firms sees a cent of their professional fees.”
As a result, Providior turned to non-bank funders iPartners, who provided a significantly larger facility with scope to more than double the business over the next three years.
It’s an example of how non-bank lenders are stepping in to fill a void. When applying for funding from the banks, in many cases rejections are due to just one or two criteria not being met. It would be a case of ‘computer says no’ and once an application for funding was rejected, that was it.
It can be a difficult process to navigate, but non-bank lenders can take a more bespoke, collaborative process which is much easier for small and family businesses to handle.