SME Funding an Issue Says New Report

The latest edition of the Scottish Pacific SME Growth Index has been released. It gives an interesting snapshot on the critically important SME sector in Australia. Once again, as in our own SME surveys, cash-flow is king. 90% of SME owners said they faced cash-flow related issues.  That said, the non-bank sector, including Fintechs need to do more to raise awareness of the solutions they offer.

SME business confidence is on the rise finds small business owners forecasting revenue to improve during the first half of 2018.

There appears to be a splitting of the pack in SME fortunes, with a greater number of previously “unchanged” growth SMEs moving into positive or negative growth.

For most SMEs cash flow has improved compared to 12 months ago, however one in 10 say they are worse off now. The number of SMEs reporting significantly better cash flow (27%) and better cash flow (42%) will hopefully act as a major driver of new capital expenditure and business investment demand.

Despite this reported rise in cash flow, nine out of 10 SMEs say they had cash flow issues in 2017 and nine out of 10 say these issues impacted on revenue. On average, small businesses say that better cash flow would have increased their 2017 revenue by 5-10%.

For SMEs with plans to invest in expansion over the next 6 months, 24% of them report they will fund that growth by borrowing from their main relationship bank – continuing a downward trend, and well short of the high of 38% who nominated this option to fund growth in the first round of the Index in September 2014.

21.7% of SMEs say they plan to use non-bank lenders to fund upcoming growth (with 90.8% planning to use their own funds). Non-bank lending intentions have trended upwards since the first Index, closing the gap between bank and non-bank lending intentions. Despite these intentions, more than 91% of SMEs responded in H1 2018 that in the previous 12 months they had not accessed any non-bank lending options to provide working capital for their business.

So while SMEs seem unsatisfied with traditional banks, they are not yet fully accessing opportunities available to them in the non-banking sector.

Results show that growth SMEs are five times more likely to use alternative lending options than declining growth SMEs, with debtor finance the most popular option. The growth potential for the non-bank lending sector is significant, given that 48% of SMEs who didn’t use non-bank lending in 2017 are considering it for 2018.

With SME owners revealing a solid reliance on personal credit cards to give their business the working capital required for day to day operations, those with better business solutions must find a way to reach these small business people.

Businesses implementing appropriate working capital solutions to get on top of cash flow impediments are well placed to realise their growth ambitions.

ASIC reports on changes to small business loan contracts by big four banks

ASIC has today released a report setting out the details of the changes made by the big four banks to remove unfair terms from their small business loan contracts of up to $1 million.

The report, Unfair contract terms and small business loans (REP 565),  provides more detailed guidance to bank and non-bank lenders about compliance with the unfair contract terms laws as they relate to small business.

The report follows the announcement in August 2017 that the big four banks had committed to improving terms of their small business loans following work with ASIC and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO). (See 17-287MR).

ASIC Deputy Chair Peter Kell said, ‘The UCT report provides further guidance to help banks and other lenders ensure that their small business loans are fair, and do not breach the rules prohibiting unfair contract terms.’

The report:

  • Identifies the types of terms in loan contracts that raise concerns under the law
  • Provides details about the specific changes that have been made by the banks to ensure compliance with the law
  • Provides general guidance to lenders with small business borrowers to help them assess whether loan contracts meet the requirements under the unfair contract terms law

‘ASIC will review small business lending contracts across the market. There are no excuses for failure to comply with the UCT laws, and we will consider all regulatory options available to us if we identify lenders whose unfair contracts break the law.’

ASIC will monitor the four banks’ use of the clauses to ensure they are not applied or relied on in an unfair way. ASIC will also examine other lenders’ loan contracts to ensure that their contracts do not contain terms that raise concerns under the unfair contract terms law.

ASIC and ASBFEO will continue work together to ensure small business loan contracts comply with the unfair contract terms law.

Download REP 565


Unfair contract terms protections were extended to small business from 12 November 2016.

ASIC and the ASBFEO have been working with the big four banks to ensure their small business loan contracts meet the standards that are required by the unfair contract terms law (refer: 17-139MR).

Small business loans are defined as loans of up to $1 million that are provided in standard form contracts to small businesses employing fewer than 20 staff are covered by the legal protections.

In August 2017, ASIC and the ASBFEO welcomed the changes to small business loan contracts by the big four banks (refer 17-278MR) that have:

  • Ensured that the contract does not contain ‘entire agreement clauses’ which prevent a small business borrower from relying on statements by bank officers (e.g. about how bank discretions will be exercised)
  • Limited the operation of broad indemnification clauses
  • Addressed concerns about event of default clauses, including ‘material adverse change’ events of default and specific events of non-monetary default (e.g. misrepresentations by the borrower)
  • Limited the circumstances in which financial indicator covenants will be used in small business loans and when breach of a covenant will be considered an event of default
  • Limited their ability to unilaterally vary contracts to specific circumstances with appropriate advance notice.

Fintech Code For Small Business Lenders

Today Kate Carnell, the Australian Small Business & Family Enterprise Ombudsman (ASBFEO), Danielle Szetho, CEO of the industry association Fintech Australia (FA) and published a detailed report on improving transparency in the fintech business lending sector.

This is an excellent piece of work, and will reinforce the legitimacy of SME lending from Fintechs, which from our analysis is growing fast, as the major banks continue to fail in their support of the SME sector in Australia.

The key resolutions are:

  • FA and its industry working group will consult with stakeholders to develop a Code of Conduct by June 2018 to cover unsecured business loans by fintech balance sheet lenders.
  • FA and its industry working group will work with the ASBFEO to ensure they comply with 
the Unfair Contract Terms legislation.
  • by June 2018 FA and the industry working group would agree on a common set of plain 
English key terms and conditions to be highlighted in a summary page in all loan 
  • ASBFEO will facilitate a discussion between fintechs and the Australian Financial 
Complaints Authority to explore alternative external dispute resolution services in 
early 2018.
  • ASBFEO will work with the FA to ensure they comply with the Unfair Contract Terms legislation.
  • will write an education piece, in conjunction with ASBFEO, specifically for SMEs to help them understand the “ins and outs” of borrowing from a fintech.

I asked TheBankDoctor Neil Slonim what was the most significant outcome from the report:

“The biggest challenge now is for the the fintech lenders to actually work together to meet the commitments agreed upon. It will not be an easy task given the large number of participants (around 30) and the fact that their business models can be quite different. Compounding this is the fact that not all lenders are members of the industry association Fintech Australia so there is only so much FA can do. The final sentence in Kate Carnell’s foreword is telling … I will keenly monitor progress against the resolutions in this report”

Neil also provided some background on the initiative:

This collaborative and ground breaking project has been twelve months in the making and represents a line in the sand on industry self regulation which is needed to ensure this rapidly emerging sector fulfils its potential of becoming a significant source of funding for Australian SMEs.

I started researching fintech business lending some three years ago when I recognized these lenders could help the large number of businesses unable to access bank funding. These SMEs typically want to borrow less that $250,000 and lack property which could be offered as security.

Through the use of technology, fintech business lenders can make a real difference to small businesses but access to funding is one thing, understanding all the terms and conditions is another. It is almost impossible to make apples with apples comparisons between the wide range of offerings, especially in relation to the total cost of borrowing where annualised rates of interest can range from 14% pa to 80% pa. I figured that if someone like me with 30 years experience in business finance struggled with this, what hope do time poor and often financially unsophisticated SME have?  So I decided to conduct a survey of fintech business lenders to help SMEs answer three simple questions:

1. Is this the right product for my needs?
2. Do I know exactly what it is going to cost?
3. Do I know that I can’t get a better deal elsewhere?

But as an unauthorized, unelected and unpaid SME advocate, my capacity to get lenders to participate in the survey was limited and then any findings would be unenforceable anyway. That’s when I reached out to Kate Carnell and Danielle Szetho who willingly agreed to conduct this joint project.

Fintech Australia brings its authority and membership base although not all fintech lenders are members of FA and lenders, whether members of Fintech Australia or not, operate different business models and have diverse views. One of the most telling responses in the survey was that lenders were evenly divided on the question of the adequacy of the current level of industry transparency and disclosure. This provides an insight into the challenges of self regulation.

I applaud the lenders who have embraced this opportunity to drive self regulation. With initiatives like the Glossary of Terms, which is published as an appendix to the report, fintech lenders are now setting standards for other non-bank lenders to follow.

Kate Carnell and her team have been constructive and collaborative in helping fintech lenders reach agreement on areas in which more can be done to improve transparency and disclosure.  As the banks have learned, Ms Carnell is a no nonsense champion of the small business sector and she can be relied upon to follow up on her commitment to “keenly monitor progress against the resolutions in this report” .

I am pleased our work has brought the issue of transparency and disclosure in fintech business lending clearly into the public arena and look forward to continuing to work with all parties to enable these lenders to become significant, transparent and trusted alternative sources of debt finance for Australian SMEs.

ANZ refunds $10 million for failing to disclose credit card charges

ASIC says the ANZ bank will refund $10.2 million to 52,135 business credit card accounts, after it failed to properly disclose fees and interest charges for the product.

ANZ reported to ASIC that for some of their ‘Business One’ business credit card customers they either failed to disclose, or incorrectly disclosed (in some cases from as early as 2009):

  • Applicable interest rates
  • The interest-free period
  • The annual fee
  • When an overseas transaction fee might apply
  • The amount payable for overseas transactions with foreign merchants or financial institutions.

ANZ has contacted eligible customers to advise they will receive a refund with interest.  Former customers will receive a bank cheque and current customers with an open account will receive a refund paid into their account.

ANZ has since updated its procedures and fee information for Business One.

Customers with queries or concerns about this matter should contact ANZ on 1800 032 481.


No consumer credit card accounts have been impacted by this matter.

Many of the ‘Business One’ credit card customers were small businesses. In 2017 ASIC launched a small business strategy to assist, engage and protect small businesses.

ASIC acknowledges the cooperative approach taken by ANZ in its handling and reporting of this matter.

Building sub-contractors worry about tough 2018

From Smart Company.

There could be troubled times ahead for small businesses and contractors working in construction, with property analysts and economists kicking of the year with predictions the residential apartment sector slowdown could cause pain.

“There is absolutely no question we have seen a considerable softening in the construction end of the residential apartment space,” Watpac managing director Martin Monro warned in The Australian today.

While data from the Australian Bureau of Statistics shows new housing starts in the year to September rebounded, experts and industry leaders have been divided in commentary on the state of the sector and what the next 12 months will hold for builders and their suppliers.

Digital Finance Analytics principal Martin North says while it’s not a uniform trend across the country, there are troubling signs on the eastern seaboard in particular.

“What I’m noticing is that those in the construction sector – from small builders to sub-contractors – have significantly lower confidence levels than they did six months ago,” he says.

“Their forward pipeline of work is wilting, especially across Brisbane and Melbourne.  And now I’m seeing it in and around Sydney for the first time.”

And it’s demand for high rise apartments, he says, that is seeing the biggest drop.

“Investors are quite concerned because capital values look to have stalled and could be reversing.  It’s also much more difficult to get financing now and foreign buyers have defected,” he says.

North says there could be more pain to come in Queensland.

“Brisbane is where the pain is most extreme, but I’m seeing it in and around Melbourne and Sydney now.”

Sub-contractors concerned over risks of non-payment

Weakness in the Brisbane market has already claimed its casualties, with several builders having liquidated in the last year.

Among the 2017 collapses was Queensland One Homes back in August and CMF Projects in June. 

With several other builders having suffered a similar fate, there are fears any continued slowdown could see more sub-contractors not getting paid. Those working as contractors in the building space are worried more pain could be to come this year.

“The industry is a shambles and is overseen by an inept QBCC who are hamstrung by poor legislation,” says Subbie United’s John Goddard.

Goddard claims sub-contractors have a difficult time recovering what they owe in the event a building company collapses.

“You then have pre-insolvency advisors telling these builders how to hide assets before they recommend a friendly liquidator to defeat creditors who are in the main, subbies.”

Housing a cyclical industry

However, small business ombudsman Kate Carnell says while weakness exists in some parts of the building sector, small businesses and contractors should not be alarmed.

“The thing about the industry is it’s cyclical.  There’s big ups and downs and that’s how it works. And in some places there’s an oversupply in that space,” she says.

“But if you look at some of the figures around new home starts, there’re looking pretty good and strong.  There’s still a dearth of new homes in the markets as we’ve got quite strong population growth.”

ABA Says Small Business Saves Billions With Lowest Rates in Decades … But

The ABA says there is some great news for Australian small businesses who are now paying $9 billion less in interest on current loans than compared to the same time in 2011, with the average interest paid the lowest in 20 years.

According to RBA data, the past six years have seen significant falls in interest rates for small business, with average rates paid on their loans now at the lowest levels since RBA data commenced in 1993.

We assume this is the chart the ABA is referring to – larger business are getting better rates by far!

But it is not that simple, as this chart also from the RBA shows. Advertised rates from both term residential security and overdraft are rising (despite no change to the cash rate).  So the ABA is choosing the chart to fit their narrative.

Australian Bankers’ Association Chief Economist Tony Pearson said small businesses are a significant driver of the Australian economy, so anything that assists them is good news.

“Less interest paid by small business on their loans will help drive economic growth, create new jobs and tackle unemployment,” Mr Pearson said.

“The average interest rate paid on all current loans held by small businesses has fallen in the past six years from 8.40 per cent in 2011 to 5.30 per cent now. Based on a loan of $100,000 that equates to an interest saving of around $3,000 per year.

“When you look at the bigger picture the story is even more positive. As of September, there were a total of $282 billion in outstanding loans to small businesses in Australia, and based on the lower rates, they’re now paying almost $9 billion less a year in interest compared with the same time in 2011.

“With two million small businesses in Australia, employing nearly five million people, we need to ensure this sector continues to flourish,” Mr Pearson said.

Kevin Taylor runs ProActive Chartered Accountants and says for himself, and his 200 plus small business clients, low interest rates are good for the bottom line.

“Every dollar saved means extra profits or a chance to help the business grow by reinvesting in new equipment or hiring more staff,” Mr Taylor said.

“Additional cash flow, through low interest rates, means you can pay down the loan sooner, or put it away for a rainy day. Whatever you choose to do it’s a positive for the business and the economy.

“While business interest rates are at record lows, electricity prices are at the other end of the scale. Higher electricity prices are a double negative for businesses, as they have to pay the bills and their clients have less money to spend on other things,” Mr Taylor said.

For larger businesses, the average interest rate has fallen from 7.10 per cent to 3.40 per cent over the past six years. As of September, there were a total of $747 billion in outstanding loans to large businesses. The amount of interest being saved annually, when compared with six years ago, is a staggering $27.6 billion.

“That’s a lot of extra money that can be invested into growing a business and creating jobs,” Mr Pearson said.

Our Top Reports Released In 2017

As we tie the ribbons on 2017, here are our most popular reports from 2017, all of which are still available free on request.

The Property Imperative Volume 9 Report Released Today

Time For “Digital First” – The Quiet Revolution Report Vol 3 Released

DFA’s SME Report 2017 Released


Behind the 500% increase in small businesses using marketplace lending

From SmartCompany.

The number of small business customers signing onto loans through marketplace lenders has increased more than 500% over the past year, but experts say scrutiny must be put on the alternative finance sector now to ensure smaller operators get the best deal.

The Australian Securities and Investments Commission (ASIC) released its 2017 survey of marketplace lending practices this week, crunching the numbers of 12 key lenders in Australia. Marketplace lending covers a range of models, including peer-to-peer systems and other structures where investors put up funds on which they get returns when consumers and businesses borrow.

In 2015-16, ASIC’s survey of the sector put the total value of loans through this kind of model at $156 million, but that figure has doubled over the past year to now sit at $300 million. Total borrowers for the year jumped from 7,448 last year to 18,746 this year.

The pool of small business borrowers through these schemes has historically been small, but over the past 12 months there was a 509% increase, from 33 SME borrowers in 2015-16 to 201 in 2016-17. Seventy-seven percent of these business loans carried interest rates of between 12% and 16%.

Business customers borrowed $47 million through marketplace lending platforms in 2017, compared with $26 million in the year prior, according to the report.

The numbers come as regulators and Australia’s Small Business Ombudsman continue to focus on the challenges SMEs are currently experiencing when applying for finance from the big banks. In an era where property is hard to secure in Australia, Kate Carnell has told SmartCompany young business owners face big challenges ahead when applying for a bank business loan.

While options like marketplace lending provide an alternative to small businesses, Carnell has raised concerns that these models don’t always make it clear what businesses are signing up for.

The small business and fintech communities have started discussions to address these concerns, with Carnell, Fintech Australia chief executive Danielle Szetho and independent banking consultant and founder of, Neil Slonim, holding a roundtable on the issue of transparency in SME lending this week.

Slonim tells SmartCompany that while the pool of business borrowers using marketplace lending is still very small, conversations must be had about it and alternative finance models more broadly.

“The main thing businesses need to understand is that borrowing through one of these models is different from borrowing through a bank,” he says.

The larger lenders have less room to move on their loan terms and are often “more transparent” when it comes to fees than their newer fintech competitors, Slonim says, while alternative lenders can find it “difficult to convey the true cost” of a loan.

He says it’s important to find a balance when discussing these concerns with fintech companies, because areas like marketplace lending will be valuable for small businesses into the future.

“It’s a really important sector, it needs to be encouraged, but there does need to be more self regulation and the regulators. In particular, ASIC will come in if they’re not satisfied there’s progression [on regulation],” he says.

These discussions will be a long-term process, with the Small Business Ombudsman, Fintech Australia and planning on releasing a report in February 2018 with recommendations for establishing guidelines for interest rates and fees from alternative lenders.

Fintech startup Trade Ledger makes APAC “Top 25 FinTech Companies 2017” list

Trade financing deep tech startup, Trade Ledger, has made it onto the APAC CIOoutlook “Top 25 FinTech Companies 2017” list after just 5 months with its unique digital banking platform for business banks and alternative lenders, who were previously unable to address the challenging SME sector without high expected losses. See our Fintech Spotlight Series note on the firm.

The list recognises promising fintech companies in the Asia-Pacific region that have not only demonstrated the use of technological innovation to solve an urgent and sizeable problem, but who have also shown an ability to commercialise their innovation for rapid adoption and scale.

“Trade Ledger was always intended to be a global end-to-end platform. The working capital problem we are solving is common to businesses and banks everywhere in the world,” said Martin McCann, CEO and Co-Founder of Trade Ledger.

“Finance providers have never been able to accurately leverage quality operational supply chain data to determine business lending risk, due to not having digital data access or suitable technology for credit assessment technology.

“As a result, most of the world’s SMEs are considered too risky for credit, when the truth is actually that credit modelling and underwriting processes are simply designed for multinationals and large corporations, not for our smaller SMEs.

“The unfortunate reality is that despite their smaller size, these SMEs represent an enormous chunk of the global lending opportunity: neglecting this important segment has resulted in a business loan undersupply to the tune of AU$90 billion each year in Australia, and AU$2.7 trillion globally.

“This essentially represents the size of the unaddressed opportunity for any business lenders wishing to use the Trade Ledger technology,” concluded Martin McCann.

Over 500 companies were assessed by the APAC CIOoutlook research team for inclusion in the final 25 fintech companies list.

These companies were all considered to be at the forefront of tackling market challenges and building technologies that greatly benefited other firms in the finance industry.

However, those who made the final cut stood out from their peers in terms of technological innovation, the size and urgency of the problem they solved, and their commercial prowess in bringing their technology to market.

NAB Launches Online SME Unsecured Lending Product

In a nod to the emerging Fintech SME lending sector, NAB today announced $100,000 unsecured lending for Australian small business owners to grow and expand, backing the strength of their business without the need for security requirements such as property or cash, with a decision is around 10 minutes.  As we discussed recently, getting funding for SME ex. security is tough.

The rates look highly competitive at 13.85% relative to many of the other Fintech alternatives.

Customers apply via a fast and simple digital application process, with conditional credit approval granted in minutes. Once application contracts are signed and returned, cash is delivered within 24 hours.

Executive General Manager Business Direct and Small Business Leigh O’Neill said NAB recognises that fast and easy access to funds is critical for small businesses as they grow.

“There is often a perception that access to credit is difficult without a property or other major asset to secure against. That’s why we’ve responded by placing more emphasis on the strength of the business rather than traditional physical bricks and mortar, and we’re doing this at a fair and competitive price,” Ms O’Neill said.

NAB is the only Australian bank to have developed in-house an unsecured online lending tool without a third party referral involved. QuickBiz first launched in June 2016, initially up to $50,000.

The new $100,000 QuickBiz loan is an extension to NAB’s existing unsecured, self-service digital financing facilities, which includes an overdraft and credit card, all unsecured and capped at $50,000 for eligible customers.

“Six months after a QuickBiz loan application, just under half of our customers grew their business turnover by greater than 10 percent. This confirms we have an important role to play by offering finance to businesses with good prospects- it’s the the kick-start they need.”

“Small businesses are the backbone of the Australian economy. We need all parts of the economy – big business, government and industry – to get behind them to move the country forward.”

NAB’s Unsecured Solutions Fast Facts:

  • Unsecured QuickBiz loan, up to $100,000 available for eligible Australian SMEs
  • Direct connectivity to Xero or MYOB data, or simple financial upload from any accounting package
  • Application and decision in under 10 minutes
  • Competitive and transparent annualised interest rate charges, 13.85 % – no hidden surprises

For more information on the entire QuickBiz product suite (loan, overdraft) and Low Rate NAB business cards),