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The challenge of securing bank finance is seeing a growing number of SMEs turn to online lenders

by OnDeck Australia,   Jun 17, 2019

 

  • One in four SMEs have been knocked back for bank finance.
  • Among SMEs rejected by a bank, one in three have turned to family/friends or a credit card for funding.
  • Of those SMEs that have secured bank finance, 29% of SMEs have had their business negatively impacted by the time taken to organise funding.
  • One in four SMEs plan to apply for finance in the future.

 

Our recent research highlights the problems that small businesses face trying to secure finance.

 

Two out of five SMEs have sought finance in the past. However, almost one in four (23%) have been knocked back by their bank.

 

Rejection rates rise to 37% among businesses that have been in operation for less than five years.

 

Noah Breslow, our Global CEO, says, “What is particularly concerning, is that one in three SMEs rejected for bank finance have had to reach out to family or friends for funding, or have simply resorted to using a credit card.”

 

Lengthy finance approvals hurt SME operations

Federal Treasurer, Josh Frydenberg may have described Australia’s small business sector as the “engine-room of our economy”[1]. But our study confirms that bank finance can be a time-consuming source of funding for SMEs, often bringing with it the burden of a lengthy application and approval process.

 

Close to one-third (30%) of SMEs that have applied for bank finance say their business was negatively impacted by the experience.

 

The chief impacts reported by SMEs include:

  • 57% – normal business activities were slowed or halted
  • 42% – had to delay the delivery of products/services
  • 40% – were forced to delay debt payments
  • 39% – had to delay buying new equipment
  • 12% – were forced to postpone hiring new staff.

 

Mr Breslow says, “For SMEs time is money, and the number of hoops that SMEs need to jump through to secure bank finance is clearly adding to the cost, and stress, of gaining much-needed funds.

 

“As an online lender, OnDeck streamlines the finance process for SMEs, requesting far less information, and expediting the application and approval process by allowing key documents such as bank statements, to be uploaded directly to OnDeck online.”

 

One in four SMEs will seek finance in the future

One in four (25%) SMEs plan to seek additional business finance in the future, a figure that rises to 39% of SMEs with 6-10 employees, and 56% of those with 11-49 employees.

 

“Clearly, there is strong demand for finance among the SME community. This offers a strong business opportunity for mortgage brokers to diversify their revenue base by expanding into SME lending,” noted Mr Breslow.

 

Growing numbers of SMEs turn to online lenders

Among those SMEs likely to seek finance in the future, 65% would still try their luck with a bank; 27% would dip into their personal funds.

 

There is growing awareness of online lenders as a source of finance, especially among those businesses that have had a poor experience with mainstream banks.

 

One in five (22%) SME owners would consider an online lender, with the level of interest in online lenders rising to 42% for SMEs that have previously had an application for finance rejected by a bank.

 

Commenting on the findings, Mr Breslow notes, “Large numbers of Australians SMEs may not be reaching their full potential either because they cannot secure bank finance, or because an inefficient and lengthy lending process is adding to the cost burden. It is important for brokers and SME owners to realise that more efficient funding options are available through online lenders.

 

“I encourage the broking profession to engage with online lenders and diversify their revenue base to include SME lending. By helping SMEs access the finance they need, this would be a win-win for brokers and the small business community,” concluded Mr Breslow.

 

About the research

AltFi research conducted online in April 2019 by Honeycomb Strategy, on behalf of OnDeck, across 430 SME owners Australia-wide. SMEs interviewed had less than 50 employees, an annual turnover of $50,000-$5 million, and have been in operation for at least 12 months.

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