CEO of First Class Capital, Brad Prout gives his take on the current landscape of SME lending and the role his business is playing in helping keep SME’s of all shapes and sizes funded and growing.

Australian Banks are facing interesting times. Core revenue streams are threatened by the slowing housing market and increased competition from overseas, mainly Asian, banks pursing Australian corporate lending.

Emerging trends

Rapid advancement in payments technology has the potential to undermine merchant revenues from cards and the emergence of alternative SME lenders threatens traditional business banking relationships. While SME lenders only have a tiny percentage of the $800+ billion business credit market in Australia, the emerging trends have caught the banks attention. Positively, the increased number of non-bank lenders and the growing awareness amongst business owners that there are alternative forms of finance available is making the banks stop and think.

Online SME lenders typically provide unsecured loans. Banks generally do not provide unsecured business loans to micro and SME businesses. What banks are concerned about is the loss of client relationship. That has led several banks to establish referral partner relationships with non-bank lenders.

Legacy IT platforms and adverse regulatory capital requirements make it difficult for banks to compete with the new, nimble participants in the unsecured business loan market. The bank branch networks don’t provide as much of an advantage in business lending as they do with consumer lending.

SME business needs

Interestingly, while SMEs play a crucial role in the Australian economy, business owners are fairly conservative when it comes to their use of business finance. Only a small percentage of businesses seek external finance and an even smaller percentage chose not to deal with, or are declined by, their banks. What business owners do need is convenience, transparency and credit solutions that can assist them trade and grow their business. 

Some but not all lenders deliver on these points. Increasing the awareness of alternative business finance is very good for the economy and has underpinned the opportunity First Class Capital to rapidly expand. At First Class Capital, we use a combination of leading technology to efficiently deliver the funding and real people, through our Franchise Partner network, to provide services and support to our clients. We are all about forming relationships with business owners, educating them around the benefits of using funding in their business and then delivering a solution that facilitates trade and profit growth.

The landscape for small business finance has changed forever. More choice and alternative finance solutions means business owners are the ultimate winner.