Banks are an integral part of the Australian marketplace. They are able to offer SMEs competitive rates limiting their risk by securing their loans against property.
With interest rates currently the lowest they have ever been it is easy to see why banks continue to be popular with SMEs who are willing to provide a high level of security for the lower interest rate.
However as the economic climate changes so does the risk appetite of a bank. As property values fluctuate, banks can require that debts be paid down by a certain amount or in its entirety. When this happens SMEs may find that they’ve put all their eggs in one basket.
While most SMEs would consider a non-bank lender, keeping up with 30+ non-bank lenders is no easy task – it’s a full time job, ask any broker! However this means that SMEs lean towards banks because they haven’t (couldn’t) make the time to consider their options.
Understanding the funding appetites of non-bank lenders in different industries should be something to consider as a business owner. “Over securitisation” for the benefit of a low interest rate can be more constricting than beneficial for SMEs that need to be able to access funds quickly and flexibly in the near future.
As new lenders enter the marketplace and focus on improving different aspects of lending by avoiding over-securitisation, Australian SMEs are becoming increasingly reluctant to enter into loan facilities where they are required to provide property security. Or perhaps it is travelling the other way, there is an increasing demand for lenders to consider the changing appetite of SME borrowers which has paved the way for new lenders to enter the market.
While it is understandable that lenders need to balance their appetite for different industries with appropriate lending parameters this can be frustrating for SMEs, particularly those in specialised industries where some parameters appear to be arbitrary.
With interest rates being at their record low and debt levels at a record high, where to from here? At the risk of being clichéd, there is only one thing that is absolutely certain – things change. SMEs don’t usually make considered efforts to diversify debt but it is a worthwhile exercise in managing liquidity risk. Furthermore, although they’re broadly grouped together non bank lenders are far from homogeneous. Building relationships with a variety of funders that can act quickly, have diverse lending appetites and think outside the box can humanise lending policy. As such, SMEs and brokers need to consider short term lenders as a key piece of the funding puzzle in navigating uncertainty.