Index highlights change in the commercial lending market

New research from commercial aggregator FAST shows moderate signs of growth in the business loan market, despite the ongoing challenging operating environment.

Comprising data from 24 business lenders and a survey of over 150 experienced finance brokers within the FAST network, the inaugural research found that the business loan market remained steady with a slight increase of 0.5 per cent to $6.68 billion in FY19, including $1.34 billion written through private funders.

FAST’s inaugural Business Lending Report highlighted that trends in the commercial market are playing out the same way as the residential mortgage sector. According to the report, major banks are facing a capability challenge from non-banks, fintechs and neo banks, which continue to gain market share due to their nimbleness and innovation.

Small business struggling

It appears that small-business owners are also constantly struggling to gain access to business bankers for much-needed finance to help them to grow and operate.

Moreover, increased regulatory scrutiny and a fall in trust in the broking industry following the Financial Services Royal Commission, means 94 per cent of the surveyed FAST brokers writing commercial loans and 92 per cent of those writing residential mortgages say they are operating in an increasingly complex world. Increased regulation and more stringent compliance requirements have escalated their cost of doing business.

Commenting on the research, FAST CEO, Brendan Wright, said, “Recent developments have only highlighted the increasingly important role of brokers, as customers and business owners demand trusted advice and greater choice in the financing market.

“This explains the significant shift we continue to see from the proprietary to the third-party channel, and from major banks to fintechs, neobanks and non-banks.”

Small lenders and non-banks claim larger market share

The research found that many large lenders have lost market share as a result of higher funding costs and market capitalisation caps for specific business lending in areas such as commercial real estate construction and investment.

Larger lenders saw their market share decline by 10 per cent to 67 per cent, while small lenders increased market share from 23 per cent to 33 per cent in FY19.

In line with this trend, banks saw a 6 per cent fall in market share while non-bank players more than doubled their market share (from 5 per cent to 11 per cent) in one year, with settlements growing at 112 per cent for the latter.

“2019 clearly played out as the year of the fintechs and neo-banks, who are leveraging data and technology to meet the needs of businesses in an efficient and agile way,” Wright said.

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