Money Australia – July 2017

S

mall business is a

cornerstone of the

economy, a fact supported

by Australian Bureau of Statistics

figures released in February

showing that the entry rate of

new businesses into the market

has never been higher.

As of June 30, 2016, the number

of actively trading businesses in

the market sector was about 2.2

million, an increase of 2.4% from

June 30, 2015. Despite the impor-

tant role small business plays,

the struggle to secure finance

• often needed to expand and
  grow – from traditional lenders, including
  the big banks, continues. There is an esti-
  mated $60 billion of unmet lending demand
  from small and medium-sized businesses
  in Australia, according to a recent industry
  report.

What the lenders want

Traditional lenders require security, a

business plan and a 12-month profit and

loss report, which is difficult if you need

working capital or wish to buy a commer-

cial property but haven’t been in business

for long. “The challenge has always been

security,” says Tony Haworth, senior part-

ner at AAP Finance Brokers. “It’s also real-

ly hard for start-ups that have no profit and

loss financials.”

The situation has opened the way for dis-

rupters such as OnDeck Australia, Prospa

and Spotcap to fill the void by offering busi-

ness finance based on cash flow rather than

Lenders rethink strategies

MALL BUSINESSAnthony O’Brien

security or risk factors. These fintech firms

can be a good short-term solution for secur-

ing business finance but Haworth warns

there can be traps for the unsuspecting.

“Banks can take at least six weeks to

approve finance,” he says. With strict

criteria, score checking and a tick-a-box

approach, it can be a slow and frustrat-

ing process, whereas companies such as

OnDeck, Prospa and Spotcap will look

at accounting programs such as Xero or

MYOB and lend on a firm’s cash flow.

“They can do a 30-day temporary facility

or they can do up to 12 months or more,

and it can be really quick, just a 24-hour

process,” says Haworth. The catch can be

the cost, because the finance isn’t secured

against personal or business assets. A tem-

porary 30-day facility will cost around 1.5%

a month, which is a relatively expensive

18% over 12 months, according to Haworth.

Suncorp, in comparison, offers an interest

rate of 4.2%pa for a secured business

loan, according to AAP.

“Unlike traditional financial insti-

tutions, we don’t charge application

fees, nor do we charge early repay-

ment fees,” says managing director

of Spotcap Australia & New Zealand,

Lachlan Heussler. Spotcap’s interest

rate charges varies according to each

client’s business data and risk profile,

and ranges from 1% to 2% a month.

“Spotcap only charges interest on the

amount borrowed, and a drawdown

fee which is paid when a client bor-

rows against their approved credit

line,” says Heussler. “If a client is

approved for a credit line that they do not

use, there are no fees or charges.”

Spotcap lends between $10,000 and

$250,000 to its business clients. OnDeck

lends up to $150,000 and Prospa offers

$5000 to $250,000.

Cutting the red tape

At OnDeck, CEO Cameron Poolman says

small business owners needed regular cash

injections to grow but spent much of their

time either applying or waiting for their

banks to approve loans. “We want small

businesses to be able to get on with it, elimi-

nating mountains of paperwork and stream-

lining the application process from four-six

weeks to one business day when compared

to traditional lenders,” he says.

Haworth agrees that traditional lenders

ask small businesses to jump through many

hoops. “It’s a very frustrating banking envi-

ronment, and as a small business you can’t

go and talk to a bank manager like you used

to. It’s all centralised now and if you don’t

fit the square it can be a real struggle.”

Haworth says that for small businesses

to succeed long term, they need a good

team behind them, as well as a business

plan to impress a lender. “You need a good

solicitor, accountant, finance broker and an

insurance broker, which ticks a lot of the

risk boxes lenders will look at,” he says.

Anthony O’Brien is a small business and

personal finance writer with 20-plus years’

experience in the communication industry.

SM

Fintech firms take the frustration out of securing funds

A SELECTION OF SMALL BUSINESS LOANS

INSTITUTION INTEREST RATE MAX. LVR FEES ANNUAL REVIEWS

IMB 4.89% 75% Nil Nil up to $750,000

ING 5.05% 75% $1000 establishment fee No

ANZ 4.99% 65%

$750 establishment fee

Up to $750 ongoing fees

annually

Ye s

Suncorp 4.20% 70% Nil No

Based on loans below $1 million and excludes valuation fees, which can be as high as $1500. All loans secured by commercial property.

Source: AAP Finance Brokers