Non-banks set to pass main banks in funding new SME growth
(15 April 2019 – Australia) For the first time in the five years and 10 rounds of the Scottish Pacific SME Growth Index, the number of SMEs who turn to their main bank to fund new business growth has dropped below the 20 percent mark.
The SME Growth Index research released on Thursday is conducted independently by banking analysts East & Partners, on behalf of national working capital funder Scottish Pacific. The owners, CEOs or senior financial staff of 1257 SMEs across a range of industries and all states, with annual revenues of $A1-20 million, are interviewed.
In March 2019 Index findings, for the first time SMEs are about as likely to turn to an alternative lender as they are to ask their main bank to fund growth.
Scottish Pacific CEO Peter Langham said there were many reasons behind this trend, including banks’ credit conditions tightening, business owners looking for more flexibility and funding that allows them to grow, as well as the tightening property market and SMEs’ dislike of having to use property as security for their business loans.
“Small business owners traditionally have been ‘rusted on’ to their banks, but they are becoming increasingly open to non-bank alternatives to fund their operational and strategic growth needs,” Mr Langham said.
“The research shows that when it comes to funding growth, traditional bank borrowing keeps trending downwards, as more businesses ‘shop around’ for a customised funding solution.”
“Alternative finance is building momentum, underlined by the clear reluctance of business owners to borrow against property. The SME Growth Index found that nine out of 10 SMEs would be willing to accept a higher interest rate if it meant they didn’t have to provide property security.” Mr Langham said.
Other key findings:
• Nine out of 10 SMEs would be willing to accept a higher interest rate if it meant they didn’t have to provide property security.
• A high proportion of SMEs relying on ‘dumb debt’ (such as personal credit cards) or owners’ equity to fund new productive capacity - strategies that can actually limit new business investment opportunities.
• Business owners are more optimistic about growth than they have been for three years. More than 53% of SMEs are expecting to grow in the first half of 2019, at an average revenue increase of 4.9%.
• Regardless of any long-term financial services regulatory changes which may flow from the Royal Commission, in the short-term SMEs are already seeing an impact on their access to funding. More than half of all SME respondents say the Royal Commission has made it harder, or will make it harder, for them to access business funds.
Read the full report: https://www.scottishpacific.com/news/research