Small, newly formed, fast-growing businesses say they’ve been having a tough time taking out traditional bank loans and have been forced to rely on credit cards and overdrafts instead.
A report, commissioned by COSBOA and the Australian Bankers’ Association last month, found that 11% of small businesses struggled to borrow money and finance further growth, including 4% of businesses that did not have a loan.
Businesses with smaller turnovers found it particularly difficult to secure a business loan, with almost 1 in 5 businesses making less than $50,000 a year reporting that they were “concerned about access to finance” although they expected their revenue to increase.
A majority (63.4%) of Australia’s 2 million small businesses relied solely on banks to meet their financing requirements, while 2.3% used a non-bank only and 4.9% used both a bank and non-bank, according to the report.
Non-bank lenders could include peer-to-peer lending, crowd-funding platforms like Kickstarter and Indiegogo, and alternative lenders that have less stringent credit record requirements in exchange for far higher interest rates.
Those cater to a wide range of borrower profiles: Australian peer-to-peer lending platform SocietyOne made some 150 loans totalling $2 million in the year since launching in August 2012 and approved only about 11% of applicants.
On the other end of the spectrum, alternative lender AusVance boasts of a 95% approval rate for merchant cash advances, which are most popular in the food and hospitality, retail and hair and beauty sectors.
ABA chief executive Steven Münchenberg said banks were “very keen to lend to viable businesses” but needed to do so prudently.
“While banks are actively marketing their products to the small business sector, banks have to heed warnings from the regulators not to let lending standards slip,” he said.
“Banks are prudent lenders. They have to comply with prudential and responsible lending regulations, as well as meeting commercial objectives for their shareholders.”
There’s more in the COSBOA-ABA report.
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