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Small businesses are crucial to Australia’s economic strength, but when it comes to building up their own muscle help can be hard to find. This looks set to change, however, with a new breed of start-up financiers providing small businesses with quick loans to accelerate their growth.
Small businesses rarely need big bucks to expand their operations and this is where the fintech lenders are carving their niche. Fintech financiers are specialist small business lenders that leverage eCommerce and advanced analytics to enhance credit underwriting. This use of technology allows them to loan money faster and more freely than traditional banks.
Key fintech players include Australian start-ups such as Banjo, which was founded by three former NAB executives, and Moula moula.com.au, which raised $30 million last year to fast-track its own growth. International lenders are also having an impact – US start-up Capify entered the Australian market in 2010 and has now provided more than $100 million in unsecured loans to small businesses.
John de Bree, Managing Director of Capify, says Australia’s fintech lending market is maturing. “There is huge demand out there,” he notes. “We lend to every spectrum of the small business community, including eCommerce companies. The biggest obstacle we face is educating people about our processes. SMEs are sophisticated but they want to know that the companies they are lending from are ethical and transparent.”
Recent research from Roy Morgan shows thatlobal investment in fintech grew by just over 200 per cent in 2014 and and that 64 per cent of those who have tapped into fintech offerings will never choose to enter a traditional bank branch again. De Bree says that between 60 and 70 per cent of Capify loans go to repeat customers and it is expanding its customer base through partnerships with eCommerce giants like Alibaba.
Quick cash injections are a vital way of boosting working capital or funding business expansion. When a small business approaches a traditional bank for finance, it is generally expected to present documents such as recent tax returns, a business plan, a cash flow plan and a profit and loss forecast. While this is important documentation, small businesses tend to have shorter financial history and less supporting documentation than larger companies. This can make it challenging for small businesses to borrow money from traditional banks.
Fintech lenders, on the other hand, will often loan money unsecured. Small businesses can generally borrow amounts of between $5,000 and $500,000 through a fintech’s online application process, which takes anywhere from five to 10 minutes to complete and a loan can be approved within minutes. There are no set-up fees or charges for early repayments. However, interest rates can be steep – they can start below 10 per cent a year, but can also range above 45 per cent.
Fintech lenders are able to assess loan applications quickly through the use of technology. Their underwriting platform identifies an applicant’s potential risks, such as length of time in business, revenue and credit quality, and then links in with accounting software such as Xero, to gain a more thorough understanding of their risk profile.
“Small businesses want a simple process and they want speed of funds and that’s why our apply online function makes it so easy,” says de Bree. “But we still have people who applicants can speak to, to guide them through the whole process.”
Rather than competing with banks, fintech lenders are filling a gap in small business lending by providing quick access to cash. De Bree says greater visibility of the fintech market will lead to further growth. “Education and trust are important because it’s a new way of borrowing money,” he says.
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