As Australia heads towards a “living with COVID” future, albeit at a pace that varies state to state, many eyes are on the SME sector, watching how quickly this economic engine can roar back to life. Supporting them in their recovery will be an SME lending sector that is becoming increasingly creative, flexible and customer-centric.
As CEO of Apricity Invoice finance, I recently had the pleasure of bringing together a number of leaders from the growing number of alternative (non-major bank) SME finance providers, including Pepper Money, BizPay and Judo Bank. From our far-ranging discussions about emerging trends in this space, there was a clear consensus – SME’s seeking finance should feel absolutely confident and excited about the future!
One of the most significant legislative changes we have seen in lending in recent years is the Comprehensive Credit Reporting regime, which came into effect a few months ago. Part of that regime mandates larger banks to report positive, as well as negative, credit behaviours.
From an SME perspective, we expect this to be an extremely positive development, as it will make them more informed about their credit profile and put them in a stronger position to leverage those profiles.
To the extent that some traditional providers tend to be a bit ‘cookie cutter’ in their approach, SMEs may find that their ability to leverage their credit profile is much stronger amongst the growing number of alternative providers. These lenders are not only are more prepared to look outside the square, but also take a much more granular approach to credit assessments. Those providers who specialise in the SME sector not only have a greater understanding of small business, but they are also generally more prepared to take the time to work with SMEs as true partners.
On a similar theme, it’s worth noting that the quality of business credit reporting is very high in Australia compared to overseas markets such as the US, and this also creates opportunities. As an example, our national, consolidated approach to regulation and reporting means we are in a strong position to model the correlation between individual and business credit behaviours, opening up further possibilities for those SMEs operated by individuals with strong personal credit histories.
Increased choice is empowering, and as awareness of the “alternative” SME finance market grows, small-business owners will increasingly realise the strong hand they have to play, and the wide array of specialised finance solutions they can now access. Competition in this sector is strong, which will drive innovation and value for borrowers, all of which is great news for SMEs, especially those who may have fallen between the cracks in the traditional system.
And that’s important because it seems many such SMEs, to whom the traditional providers “computers said no”, aren’t aware of who else they can turn to. Indeed, an Apricity Finance SME study from earlier this year showed almost half weren’t aware of any alternative funding sources.
In the UK, it is now mandatory that banks rejecting SME loan applications make the applicants aware of alternative avenues available to secure funds. Although our sector continues to collectively engage with policymakers, we aren’t quite at that point in Australia. But one thing is clear, as the alternative providers continue to grow in voice and reach, the ultimate winners will be SMEs, who can be more confident, more informed, and more able to find a finance partner to power their growth, and Australia’s recovery.