There is a lot of uncertainty being stirred up as a result of the royal commission into the banking and financial services sector, with changes already edging in and certainly more to come.
One change that will impact on small business is the bigger banks’ increased reluctance to stump up for what they consider ‘risky’ lending – although often their perceived risk only really comes from smaller businesses having less financial information to present in their application, or not fitting neatly into an existing category.
On the surface this can be stressful, but you might remember awhile ago I explained that the finance industry is always evolving to meet the needs of small business. This is terrific news for you as a consumer, because it means there are a lot of competitive options open to you.
When you already have an established relationship with your bank (maybe they lent you money for your first car, or currently hold the mortgage for your family home) it can seem like turning to them to borrow for business is the easiest path. You could also be forgiven for assuming that a big bank will be able to offer the most competitive lending options. Unfortunately these are common misconceptions that a lot of small business owners hold.
The good news is a number of non-bank lenders have been growing to fill these gaps, and as an independent finance broker I can do the legwork to find the best option for your needs.
Bigger banks tend to have very strict lending criteria, and they will want to use other assets (like your home) as security. The truth is though that when you’re borrowing to secure new equipment for your business, for example, the equipment itself acts as security for the loan.
With smaller and non-bank lenders, there are often fewer hoops to jump through to secure finance too. Because they accept the asset as security for the loan, these lenders don’t always need extensive financial history to approve a loan. Instead they will consider things like if you have held your ABN for at least 2 years and if you have a good credit history.
Tony Greco, a senior tax advisor at the Institute of Public Accountants, elaborated further: “In the main, it's become easier if you don’t have hard assets to gravitate to some of these new providers who have got a bit more flexible lending terms.”
He went on to say, “if the banks won't lend then absolutely there are other lenders who are prepared to step into that void. They will lend on the basis of cash flow of the business as opposed to tangible assets so there's a fair but more competitive market space” (source).
So while the big banks cracking down on lending to small business might feel like yet another barrier to growth, it’s actually great news for small business owners because it’s creating space for competitive options to flourish – meaning you can get what you need at a great rate, without too much effort.
If it’s time to review your current finance arrangements, call me on 0412 534 503 for a no-obligation chat.