The online small business lending market in Australia is growing at a faster rate than the US market did at a similar stage of development and could reach over $2 billion in annual originations by 2020, Noah Breslow, OnDeck Global CEO told the AltFi Australasian Summit in Sydney this week.
“Having grown at a compound annual growth rate of 151 per cent since 2013, we expect to see continued strong growth in the coming years,” Breslow said.
Breslow said that despite over 6000 banks offering small business lending options in the US, online lending to small businesses has flourished. “When you compare that to Australia with a more concentrated banking system, there is even more opportunity for online lenders to provide innovative lending solutions to SMEs” he said.
Research shows Australia has overtaken Japan to become the second largest alternative finance player in the Asia Pacific region, second only to China.
“In addition, increased access to data, supportive government initiatives and favourable small business sentiment are all likely to lead to further growth for the industry. Furthermore, the Government’s ‘Review into Open Banking’ and the introduction of mandatory comprehensive credit reporting (CCR) will likely promote greater competition in the Australian market,” he said.
Yet despite the Australian market’s growth potential, awareness of alternative finance sources still remains an issue, according to OnDeck’s latest Small Business Owners’ (SBO) Survey, commissioned by research firm YouGov Galaxy.
“Our research shows that despite increasing competition in the Australian alternative finance space, only 30 per cent of small-business owners think the number of lending options has increased in the last five years, compared to 70 per cent in the US,” Breslow said.
The majority of small businesses have been heavily reliant on traditional banks (63 per cent), followed by specialist financiers (29 per cent), credit unions (27 per cent) and family/friends (27 per cent) to source finance.
The research also found signs of unmet demand, with 55 per cent of business owners having been rejected for financing they requested. Difficulties with accessing finance affected the delivery of products and services (37 per cent) and caused layoffs or issues with hiring new employees (32 per cent).
When it comes to future borrowing plans, 33 per cent of Australian small-business owners planning to seek additional finance for their business indicated that they would consider an online lender.
“There is a real opportunity for the online SME lending industry to increase awareness of the innovative products and services that are now available, as an alternative to the traditional loans offered by banks,” Breslow added.