The bad news is that it’s very hard to get a short-turnaround bank loan for an established business. The good news is that there are now alternatives in play.
One of the pain points felt by small businesses is that it can be hard to get funding for a short-term challenge or opportunity.
We’re talking things like covering a cash flow gap, or beefing up the stock room ahead of the Christmas season to take advantage of favourable trading conditions.
While banks may be able to offer a lower rate, they can take a few weeks to finalise your loan application and get the money into your account – at which point the opportunity may be gone.
The short-term lending market for SMEs has been somewhat of a gap in the market for decades, but a raft of new entrants has entered the market to take advantage.
The banks are getting better at this, but it could take about six weeks to secure a loan. This has opened the way for a raft of new tech players to provide a solution where there was none before.
Data, data, data
These news players, such as OnDeck*, are able to use data to simplify the business lending process.
Take MYOB Loans Powered by OnDeck for example.
Through our partnership, OnDeck provides MYOB with a pre-set of criteria around cashflow, credit history and other factors.
MYOB is then able to pre-qualify businesses that have made an application for credit and are also MYOB customers. This all happens in a matter of moments and no customer data is actually provided to OnDeck.
It also helps that Australia is a small business economy, with around 97 percent of all businesses in those countries SMEs.
That gives any new fintech player on the scene the potential to get a lot of customers, a bigger pool to build scale.
What does this all mean?
With a whole crop of new players now competing in the SME loan market, there’s never been a better time to be a small business looking for short-term finance.
The multiplier effect of this is hard to quantify exactly, but it’s potentially huge.
For example, let’s say you’re in retail and you’re getting ready for the Christmas rush and really want to take advantage by having as much stock in as possible.
The supplier of the stock may be able to offer you a discount on the order if you do so within the next fortnight.
By ordering the stock, you’ll create potential margin opportunity in excess of loan fees – creating a net benefit to the business.
However, a traditional loan may take three to four weeks to process and approve – meaning you miss the opportunity to access the discounted rate from the supplier.
If you have to wait and pay more as a result – the potential margin may even be eroded entirely.
One the other hand, if you have that stock readily available to cater for customer demand, you also create an opportunity for additional/upsell purchases.
The additional margin may also allow you as an employer to hire another casual salesperson to cater to demand, creating additional employment and leading to a more positive customer experience in your store (nothing’s worse than not being able to find a salesperson when you need them, right?).
These are all possible flow-on effects – and the kind of opportunity that can be created with ready, short-term access to capital.
*Loans are issued by On Deck Capital Australia Pty Ltd ABN 28 603 753 215. Loans subject to lender approval.
MYOB holds a 30 percent stake in OnDeck Australia and has a referral agreement under which it earns a commission on loans referred to OnDeck Australia.