We caught up with Stak partner, Adam Welsh, Principle at CreditSME to discuss the business lending marketplace and where it’s heading.
Why did you set up CreditSME? What was missing?
On researching the market, there was a clear perception from businesses that the only funding option available to them was a loan from a major bank that was secured by their home.
This perception was not matched with a large number of non-bank lenders that had entered the market over recent years and starting to provide an attractive product proposition for SMEs. Banks have changed the way they are approaching the SME market (albeit with a clear preference for certain sectors) which cleared a path for our advisory service.
How do you see business lending evolving?
The unsecured business loan market is one area that I think will continue to evolve as this market has seen the entry of a large number of innovative non-bank lenders that are providing a great short-term funding solution for businesses.
The main downside at present is the more expensive nature of these products and limited loan size. Given the increasing level of competition amongst these new lenders, we expect rates to become more competitive over time.
Another area evolving is automated credit decisions by lenders. Lenders are now able to access a greater level of information on a business that can be used to quickly and confidently approve a loan application. One such example is the increasing take up of cloud-based accounting systems and lenders being able to easily access this client financial data as part of the initial loan assessment process and on-going credit monitoring.
Do you think there’s room for more lenders?
Yes, the Australian market is so large and whilst there have been some really good non-bank loan alternatives come to market over recent years, particularly in the debtor finance and unsecured business loan markets, there are still a number of areas that are extremely underserviced.
Lending outside of banks is nothing new, why do you think it’s more publicised now?
The sheer number of non-bank lenders that have entered the market over recent years has helped to raise the profile and awareness of the non-bank business lending market. The increased scrutiny by the government on the bank’s practices and business access to capital have also helped to raise the awareness.
Is it becoming easier or harder to choose between lenders?
More options are good though it does make it harder to choose which one works best for your business. Pricing is one thing, though there are features to consider that are not so straightforward such as the repayment profile, security arrangements, and other fees/costs.
These factors are often just as important as the headline interest rate and need to be fully understood before signing any loan contract. CreditSME and other qualified debt advisors to SMEs can help businesses to better understand these terms and also make it easy for borrowers to choose the lender that’s right for them.
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