There’s been a lot of talk recently about the struggles SMEs can go through to get a traditional business loan, and why alternative sources of finance are becoming so attractive. Here’s why.
One of the unfortunate consequences of the Financial Service Royal Commission that several people in the industry feared is that lending criteria to small business would become even tighter than it has been.
At the best of times, it can be a struggle for a small business to secure a loan without needing to put up their family home as collateral.
And we’re not talking about house-sized loans either – sometimes smaller loans would require large pieces of financial security to take out the loan.
The Government has also recently looked at the problem, promising a $2 billion fund to effectively back business loans from alternative lenders to get more loans into the hands of the people who need them.
At the time, MYOB CEO Tim Reed hailed the move, saying opening up more avenues of funding for small businesses was a great outcome.
“Our research has found cash flow to be a major pressure point for SMEs, with 30 percent reporting this a top concern,” he said.
“Providing non-bank lending through innovative fintech companies opens up a whole new ecosystem of financial services.
“Ensuring business owners have access to the capital they need to invest will help grow and strengthen the whole economy. It’s a great move.”
But even without the injection of Government capital, securing funding outside the big four banks has become more popular with small businesses.
Take the case of Arzal, owner of the Little Kindy early childhood learning centre in NSW.
He moved to Australia with a PhD in Early Childhood Learning and wanted to apply his knowledge to help the community.
His solution wasn’t just to join an existing business, but to open a centre of his own.
But he found securing the funds from the banks a tough process – so he turned to MYOB Loans powered by OnDeck*.
He was successful with his application and is now onto his second loan, which is helping him open two more centres.
While Arzal may have been able to open two more centres eventually, this easy access to capital is allowing him to move his business forward at a much more rapid pace – and that’s great for the whole community.
Anybody who’s had to enroll their child in pre-primary or kindy would know that competition for places can be cut-throat.
So, whatever helps operators like Arzal take the plunge and open more centres to cater to demand is a good thing for both his business and the community alike.
*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.