SMEs ditch banks for alternative lenders

By Sarah Stowe | 16 Apr 2019 View comments

Alternative lenders are the first choice for funding SME growth for nearly 18 per cent of business owners according to a recent report.

The SME Growth Index’s March 2019 findings show that for the first time banks and alternative lenders are on a par. Fewer than 20 per cent see banks as their funding solution, a rise from 15 per cent six months ago.

Banking analysts East & Partners conducted the research on behalf of national working capital funder Scottish Pacific.

The research shows 96 per cent of SMEs pick alternative lenders mainly for their fast credit approval and reduced compliance. Business owners also appreciate not having to mortgage their homes to raise funds.

Why alternative funding is an SME trend

Scottish Pacific CEO Peter Langham said there was further reasons for this trend for alternative lending including the tightening of both bank credit conditions and the property market.

“Small-business owners traditionally have been ‘rusted on’ to their banks, but they are becoming increasingly open to non-bank alternatives to fund their operational and strategic growth needs,” Langham said. “The main change we’ve seen in the non-bank lending environment recently is that we are funding larger deals.

“The research shows that when it comes to funding growth, traditional bank borrowing keeps trending downwards, as more businesses ‘shop around’ for a customised funding solution.

“Alternative finance is building momentum, underlined by the clear reluctance of business owners to borrow against property,” Langham said. “The SME Growth Index found that nine out of 10 SMEs would be willing to accept a higher interest rate if it meant they didn’t have to provide property security.”

SMEs optimistic about growth

The research reveals business owners are more optimistic about growth than they have been for three years.
More than 53 per cent of SMEs are expecting to grow in the first half of 2019, at an average revenue increase of 4.9 per cent.
  • The research was conducted through November 2018 to January 2019 with the owners, CEOs or senior financial staff of 1257 SMEs across a range of industries and all states, with annual revenues of $1-20 million.