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We know that the funding space has undergone extensive change during the last decade, so what’s in store for the future?
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The future of alternative lending
07 July 2017
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The introduction of fintech lenders has given SMEs more choice, and also spurred traditional lenders to update their offerings according to Scottish Pacific CEO Peter Langham.
“The funding options for SMEs have definitely increased and that is fantastic for the whole sector. Disrupters like the fintechs have prompted the larger, established players to adapt and offer similar facilities. Options are increasing, with the new players introducing new products and innovations,” Mr Langham said.
“Given the range of funding options is now much broader, it’s important for accountants to be aware of and understand the pros and cons of all that is on offer – and it’s important for SMEs to leverage their accountants’ expertise to find the right funding solution, not just the quickest and easiest short-term solution.”
Ondeck CEO Cameron Poolman believes that “the evolution of alternative finance for small business is at a tipping point.”
“What was once an unknown territory is now a much more acceptable proposition. There is a lot of room for improvement in awareness, and we are working towards that, and making progress,” he says.
Mr Poolman anticipates further streamlining of operations and consolidation in the sector moving forward.
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“The emergence of fintech has led to businesses having a greater ability to use information to make vital decisions. Financial advisers and accountants are also moving away from compliance and transactional services to advisory, streamlining interactions and relationship building with their customers,” he says.
“By the time we reach a maturity stage for this sector, there will be some serious consolidation. The market will inevitably be whittled down to a handful of players who are able to push the envelope – survive the initial upfront investment and scale up to become profitable, sustainable businesses for the long term.”
While believing that the “future is very bright” for SME funding and alternative lenders, The Invoice Market managing director and CEO Angus Sedgwick does have some words of caution.
“Some of the lenders, if you look internationally at what has occurred there's been a lot of these start ups that have come into the lending space and tried to get money out the door quickly and their credit risk assessment has been less than satisfactory which has resulted in some big losses,” he says.
“So I’m sure we will see some of the players fall by the wayside and go out of business as they suffer some credit losses.”
Mr Sedgwick says it’s a balancing act and striking the right risk appetite can be difficult.
“It’s a culmination around being sensible around your origination and getting money out the door, versus putting smart money out the door. Businesses will try, if they know the writing is on the wall, in the next six weeks they will come to every single financier in the market and say can you lend me some money in the hope of trying to get out of the position,” he says.
“It’s a bright future for the good players, the good operators, and I think there will be some carnage for some of the players that are a bit loose with their credit, they will suffer some big losses and go out of business.”
Rate Setter CEO Daniel Foggo also hopes to see accountants improve their knowledge of the alternative lending options.
“It would be valuable for accountants to really look at the alternative finance options in the Australian market. I think a lot has happened in the last 18 months and so I think it's good that they’re aware what their clients and themselves have as funding options,” he says.
“I think there's an education process to go through because all of the non-bank lenders and fintech lenders, they're not all the same and one does have to invest some time and understand the differences.”
Mr Foggo is also calling for further transparency in the alternative lending market.
“Hopefully in Australia we'll soon have more transparency in business lending so that it's much easier seeing exactly what the true cost of finance is,” he says.
“We have that in consumer lending but not in business lending yet, but I think that's coming down the pipeline soon, and so I think that will be really helpful for accountants and for themselves and even dealing with their clients.”
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