Recent research by East & Partners found that non-banks could become the most prominent financiers of small- to medium-sized enterprises (SMEs) by 2024. They interviewed the owners, CEOs, or senior financial staff of 1 257 SMEs across a range of industries and in all Australian states, with annual revenues of $A1-20 million
Based on the research findings, invoice finance was the second most popular alternative finance vehicle after trade and import finance. Almost all SMEs polled indicated they are looking for finance companies that are quicker to deal with and have less red tape.
East & Partners predicts that non-bank finance companies could have more Australian SME business than mainstream banks by 2024.
There are three reasons behind this anticipated swing in financing to alternative financial services companies: tighter credit conditions, the flexibility offered by alternative finance companies, and the fact that small business owners will no longer have to put up their property as security. The latter is a crucial consideration because small business owners increasingly want to avoid putting personal assets on the line for the business.
Should this trend materialize, it will break business owners' traditional dependency on banks. It will open up other funding options that better suit their needs. Alternative finance gives them access to more customized funding solutions, excellent choices, and flexible financing solutions.
The research confirms that SMEs' traditional reluctance to move beyond tried-and-tested working capital management strategies is fading. Their increased willingness to consider alternative lenders, including invoice finance companies, is gaining pace. In the latest research, less than a third of business owners said they would not consider using non-bank lending compared with almost half the year before.
SMEs are looking outside the banking sector for funding because of the expected funding fallout from the Banking Royal Commission. Research by Apricity Finance found that 70 percent of finance brokers agreed that cashflow is 'definitely more' of a 'problem for small' businesses than it was 12 months ago, and 92 percent of brokers believed that finance has been 'more difficult' to get since the 'royal Commission.
It is little wonder that SMEs are looking outside the banking sector for other sources of finance that are much better suited to their business needs. Access to invoice financing is administratively easier. It is specifically tailored to solve the problem at hand –freeing up the revenue they have already earned so that they don't run into cash don't problems.
Another primary benefit of invoice financing is that the company does not need to use its assets, including property, as backing for the funds extended to it by the lender. Instead, it uses the invoices as security.
Business owners prefer to refrain from borrowing against their properties, and most SMEs are prepared to pay a higher interest rate rather than pledge their property as security.
Invoice finance has seen steady growth internationally. MarketInvoice research found that the most popular SME funding choices in the UK were invoice and asset-backed finance.
It is encouraging to see SMEs considering alternative forms of finance, including non-bank financing of their accounts receivable books. These are convenient and flexible ways to meet their cash flow and allow the business to unlock its growth potential.
It is encouraging to see SMEs considering alternative forms of finance, including non-bank financing of their accounts receivable books. These are convenient and flexible ways to meet their cash flow and allow the business to unlock its growth potential.
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