Traditional banks could be being put on notice in the competitive commercial lending niche with latest Scotpac data showing non-bank lending steadily increasing its Small-to-Medium Enterprise (SME) loan market share.
From capital equipment expansion to writing off post-lockdown Australian Taxation Office debt and comparatively uber-fast turnaround times from lodging to approval – usually next day and increasingly via the broker channel – this is right in a non-bank lender’s remit.
According to Scotpac’s latest bi-annual SME Growth Index Survey (conducted September 2022) non-bank borrowing demand has again increased to a record high of 33 per cent ‘market wide’, up 14 per cent year-on-year – more than doubling since September 2018.
Interestingly in context, the index found 3.4 per cent of small businesses do not know specifically how they will finance new business investment, with Scotpac underlying the importance of the third-party broker channel to correctively address the issue.
As a snapshot of how and why many SMEs are rebuilding and re-growing their businesses post-pandemic – underlined by current supply line issues, headline inflation and a rising rate environment – the index unearthed insightful data.
All businesses surveyed had experienced supply chain disruptions, with two-thirds of SMEs increasing prices as a direct result of supply chain disruptions – on average by 14.5 per cent. Nobly, one third confirmed they were absorbing cost impacts.
Fortunes were fluctuating on a state-by-state basis, though. As Scotpac CEO Jon Sutton described, “Australia is made up of many economies.”
While 87 per cent of West Australian SMEs forecast positive revenue growth in the next six months, only 15 per cent of Victorian businesses could match it, with conversely 62 per cent expecting a “negative decline”. Queensland businesses were second most “upbeat” with 77 per cent projecting growth, NSW middled expectations with 41 per cent forecasting growth, while elsewhere 32 per cent expected no change in business revenue, the survey found.
Market forces and the power of the broker
When The Adviser asked Mr Sutton what was driving the commercial-sector take-up in non-bank lending, whether it be business expansion or tax-debt consolidation – or both, he replied: “It’s quite a challenging time for business owners to get their head around all of these sorts of things that are coming at them, but at the heart of any business is cashflow.”
“Cash flow is king and making sure that you have adequate working capital to be able to meet the needs of your business and plan ahead.
“And that’s where [brokers] play such a huge role because they can bring to bear their expertise and bring non-bank lenders like Scotpac into the picture.”
Scotpac confirmed it has thousands of broker relationships and it does it at an aggregator level and at an individual level with brokers, as well.
In terms of the pick-up in non-bank lending, Mr Sutton appraised: “It’s been a trend for quite a while, but I think what we’re seeing here at the moment … it does feel that as we move into probably what are more difficult economic times, particularly in Australia and globally, some of the larger banks may start to think about where their exposures lie and whether they want to fund increasing loans.”
“Over the last five or six years there’s been a real vibrancy to the non-bank lending market.
“There’s no doubt that non-bank lending is increasing and, particularly the groups … of advisers, brokers, accounting firms, they’re all reaching out to non-bank lenders to see if there can be more bespoke solutions.”
“Two things that drive [non-bank lender growth] is speed to market,” he explained.
“Often with non banks – Scotpac can actually lend money up to $250,000, do the application and have it in the customer’s bank account 24 hours later – driving that [non-bank lending] is flexibility, speed to market.
“And often when you’re dealing with SMEs they will have opportunities and … sometimes the bigger banks they’re a little slower to respond, but SMEs need to know that they’ve got certainty around their cash [flow].
ATO chasing pandemic tax debt
In terms of where many SMEs stand after JobKeeper ended, Mr Sutton explained: “So 45 per cent of them are raising equity now that they’ve lost the government stimulus, 40 per cent are borrowing and 33 per cent are reassessing their funding needs. “
“There’s no doubt that JobKeeper really stimulated the economy and kept a lot of business alive.
“Now that’s been withdrawn, people [are] having to really think about how they’re going to fund their businesses.”
“There’ll be some companies that are staring into [after JobKeeper ended] tax debt and all sorts of different things, so they really need to be thinking about how they reorganize their business to survive and carry on.”
[Related: The rise and rise of the non-bank borrower]