Getting the right funding is always a challenge for SMEs. The ABA and CPA Aust have developed a new website to help. Its really good for larger traditional banking relationships. But ignores fintechs which might be the best option for smaller businesses. Cross posted with permission from Neil Slonim, The Bank Doctor.
If you are an SME or you advise SMEs a free new online resource centre Small Business Finance could be of real benefit in establishing and maintaining better relationships with banks.
This website has been developed and funded by the Australian Bankers’ Association (ABA) in conjunction with CPA Australia. Support for the website has also been provided by the Council of Small Business Australia (COSBOA) and the NSW Business Chamber.
It guides users through the three main stages of obtaining bank finance starting with what to do before applying for a loan, how to complete a loan application and finally what to do once you have the loan. There are several useful templates that small business owners can download to prepare documents like a business plan, a business case assessment and a cash flow forecast.
The main limitation of the website is that it is premised on the traditional business banking relationship model which no longer works for smaller businesses that have borrowings of less than around the $250k level.
Many of these customers don’t have a relationship manager or if they do that individual has several hundred customers to look after, lacks experience or authority plus they seem to stay in their roles for very short periods of time.
For business loans of less than $250k banks simply cannot afford to have a manager sitting behind a desk reviewing business plans, business cases and cash forecasts. When assessing your creditworthiness, their primary focus is in how much equity you have in your home because this is the quickest, easiest and safest way for them to lend money. But if you don’t have a home, or have no equity in your home or you and/or your partner are just not prepared to put it at risk then, until recent times, your options have been very limited.
The future of business banking particularly at the lower end is all about Fintech. According to ABA statistics, the total market for small business bank loans is about $260b and almost half are for less than $100k. Within the next few years some experts are predicting fintech lending to SMEs will rise to around 10 per cent of the total SME lending market. In 2015 fintech lending to the SME sector was around $0.25b coming from a base of zero in two years. This means it could rise to around $26b, an increase of 100 times current levels. Its just too big to ignore.
Small Business Finance is a useful tool for larger businesses which still fit the relationship business banking model. It is much less relevant to those smaller businesses which don’t fit this model. Hopefully over time the website will be updated to reflect how technology can be leveraged to provide better outcomes for both SME borrowers and lenders.
To learn more on this subject you may like to read this SmartCompany article Banking resource centre aims to help SMEs but fintech is still the elephant in the room
