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New lenders entering the SME lending market have opened the doors for small businesses seeking finance, but more must be done to spread awareness and increase confidence, says the Productivity Commission.
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SME lending options on the rise, awareness lags: Productivity Commission
04 October 2021
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8 minute read
A new report by the Productivity Commission has found that access to finance is now easier than ever, with the emergence of new and established non-bank lenders that no longer demand the security of property as collateral.
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The report found that extensive accounting and banking data now provides lenders with richer and more reliable information about potential borrowers, allowing more creditworthy businesses to access finance at a lower cost or on better terms.
“Every year, one in six small and medium enterprises seeks finance to fund and grow their business,” Productivity Commissioner Catherine de Fontenay said.
“Traditional SME loans are usually secured by property. But spurred by new technology and new data, lenders now have more capacity and confidence to lend to SMEs using other forms of collateral or even lending unsecured.”
However, despite the broader range of lending options on the market, 91 per cent of the $423 billion of total outstanding lending to SMEs continued to be issued by the banks.
The report believes the imbalance comes from a lack of awareness of new lenders and products and a lack of trust.
“Given the historical dominance of banks in the Australian market, some other lenders have stated that ‘low awareness with SMEs [and a] lack of trust’ are significant challenges in lending to these customers,” said the Productivity Commission report.
“Even if they are aware of the diverse range of lending options available in the market, SME borrowers need to have confidence in a particular lender and product before applying for finance.”
The Productivity Commission believes broker and other referral channels, such as accountants, can play a bigger role in informing SME borrowers on the wide range of lenders and products in the market.
“Finding the right product may be challenging, but the benefits can be significant,” Productivity Commissioner Malcolm Roberts said.
“A broader range of products can provide SMEs with finance more quickly and flexibly, allowing them to seize opportunities. Some SMEs may even be able to borrow for the first time.”
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