By Zilla Efrat 

ScotPac’s most recent SME Growth Index reveals that four in every five small and medium businesses have a secondary working capital provider, and the proportion with all their lending in one place continues to dwindle. 

The many benefits of nonbank lending are luring most businesses away from traditional lenders. The research suggests that many businesses keep their traditional banks because of the wide range of services they offer and the need to have a traditional bank account. Here are the top seven reasons why nonbank lending is on the rise – and how it can help boost cash flow and growth for your business. 

Flexibility

The Reserve Bank of Australia reports that smaller businesses have typically found it difficult to access finance through traditional banks on terms that suit their needs.   

Business owners often must put up personal collateral, such as their homes, to secure the loans. They can also face other borrowing barriers because of their smaller scale, lack of business histories and less diversified nature.   

Nonbank lenders, on the other hand, are not bound by the same strict regulations as banks. Some lenders, offer unsecured loans so borrowers don’t need to put up valuable assets as collateral. Some also offer more flexible terms and conditions than traditional banks. 

Competitive rates

Many small and medium business owners have become more price-sensitive in the current high-interest rate environment. They have also become more digitally savvy, which means they can explore alternative funding options. 

Because nonbank lenders often borrow funds at wholesale rates, they can sometimes pass those savings on to consumers via competitive interest rates. Their costs are also lower than traditional banks because many only offer services online without big overheads and branch networks.  

Easier applications

One local study has found that a quarter of small businesses have had their finance applications rejected by a major bank. This figure was higher for small businesses that had been in operation for less than five years. 

In contrast, 67% of businesses in ScotPac’s study listed the ease of credit approval as a leading factor for moving to multi-banking.  

Indeed, small and medium businesses have traditionally struggled for funding when they have fallen outside the traditional standardised loan criteria of the big banks. 

Nonbank lenders don’t just scrutinise credit scores and balance sheets. Instead, they tend to take a wider view of their customers and focus on their exit strategies rather than on their loan serviceability or credit history.  

Nonbank lenders also tend to be more accommodating to those who are self-employed. Plus, they are more prepared to look at customers with messy paperwork – for example, those without standard documentation such as pay slips or who have yet to lodge their latest tax returns.  

Faster approvals

The non-traditional banks’ accommodating approach means they can offer SMEs faster approvals and easier onboarding than the big banks.  

ScotPac research shows that businesses have found that nonbank lenders generally twice as fast at approving loans than big banks. Indeed, the average bank loan approval can stretch to 35 days and sometimes beyond 55 days. 

Better service

Because nonbank lenders are smaller and less bureaucratic than banks, they can offer more personalised and bespoke services to busy and time-poor business owners.  

Their levels of proactivity appealed to more than half of the businesses polled in ScotPac’s study. 

Their relationship managers are also often seen to provide more support to SMEs and have a better understanding of their services. 

Specialty solutions

Nonbank lenders offer businesses specialty lending solutions previously considered only suitable for large companies. These include Invoice Finance, Asset Finance and Trade & Supply Chain Finance, products that help businesses unlock working capital that would otherwise be tied up in their businesses. They help businesses smooth out cash flow cycles and secure working capital to pursue growth opportunities. 

Creative financial solutions

Nonbank lenders are also innovative in developing products that serve their target markets. ScotPac, for example, recently launched Cash Line. It removes many of the obstacles businesses face in securing finance and helps them to “turbocharge” their cash flow. 

It doesn’t require business owners to put up assets as security. Instead, it operates like a flexible line of credit, providing a fixed-limit credit of up to $250,000 over a minimum 12-month period. Its loans are approved within 24 and it doesn’t require any minimum repayments or excessive documentation.