Melbourne and Victoria are two of the fastest-growing hubs for startups and small businesses in Australia. In fact, there are more than 600,000 small businesses in Victoria alone, comprising 98% of all businesses in the state.
As our governments move to minimise the impact of the Coronavirus health crisis on the population, many Victorian businesses are facing significant challenges. In numerous cases, they’re facing an existential crisis.
Are you at the helm of a small-to-medium enterprise (SME)? If so, it pays to know suitable lenders who can help you weather unexpected financial storms or simply finance your capital expenditures.
Not sure who to call? That’s where we can help. Today, we’re taking a close look at a few of our preferred SME finance options that may help you get a business loan that suits your burgeoning enterprise.
Ready to learn more? Let’s get started.
Big Bank Lenders
When researching SME lenders, you can begin by taking a look at what the biggest local banks can offer. The Big Four banks in Australia include:
- National Australia Bank (NAB)
- Australia and New Zealand Banking Group (ANZ)
- Westpac Banking Corporation (Westpac)
- Commonwealth Bank of Australia (CBA)
Traditionally, these institutions were reliable sources of SME financial lending. However, they’ve tapped the breaks recently, slowing down on these loans.
Why? The answer lies in the recent reform of the banks’ serviceability tests, initiated by the Hayne Royal Commission.
In short, these reforms removed the serviceability buffer that once prevented many prospective homeowners from obtaining a mortgage loan. In July 2019, the Australian Prudential Regulation Authority (APRA) eliminated the requirement that all authorised deposit-taking institutions (ADIs), including banks, have to assess borrowers against their ability to pay back their mortgage loan at 7%.
Instead, these ADIs can now set their own minimum interest rate floors to perform serviceability assessments. They can also leverage a revised interest rate buffer of 2.5% or more above the loan’s interest rate. In response, Westpac lowered its floor test rate from 7.25% to 5.75% while ANZ lowered its floor to 5.5%.
How Regulatory Changes Affect SME Loans
While some interest rate floors are now lower, banks still have to assess a borrower’s lending capacity. As such, they’ll require more details about a borrower’s income, expenses and liabilities during the application process.
This can work against SMEs seeking business loans, as they might not have all of the documentation at hand that a typical home buyer would to prove they can service a loan. In addition to other business loans, they might only have:
- Overdraft accounts
- Equipment financing
- Personal accounts (e.g. home mortgage)
Thus, a bank’s loan verification process for an SME can take weeks to perform. Across the board, post-Hayne caution has taken effect. From what we can see, some of the big banks simply aren’t lending as freely as they did before the Hayne commission.
Choosing a Bank Based on Business and Cash Flow Requirements
Before you pursue a business loan from one of the major banks listed above, it’s important to fully understand your lending requirements.
In order to identify the loans that could suit your business, you’ll need to make a few decisions at the outset about what you need. These decisions can include:
- Long-term loan or short-term loan?
- Unsecured loan or secured loan?
- Which kind of collateral (e.g. equipment finance, invoice finance, etc.)?
With those answers in hand, you can start comparing your options. Head to each bank’s website and navigate to the business loan sections. Here, you’ll find key data including:
- Loan terms
- Loan types (e.g. business loan, business mortgage loan, agri-finance loan, etc.)
- Minimum and maximum loan amounts
- P.A. fixed interest rates
- Breakdown of fees
- Eligibility requirements
Not getting anywhere with the big bank lenders? You’re not alone. Fortunately, you may have another option. Enter, the financial and technology (Fintech) lenders.
Less hampered by the raft of regulatory reforms that are binding the hands of the state’s financial power players, these organisations are able to operate more flexibly.
How does this benefit SME leaders looking for a business loan? It means that Fintech companies can make better use of their credit information, using it to process loans more quickly and efficiently.
Benefits of Borrowing from Fintech Companies
Increasingly, SMEs are eschewing mainstream lending options and turning to non-bank lenders, including Fintech companies, to get the capital they need. By the end of 2020, it’s predicted that the Australian Fintech market will surpass AUD $4 billion.
This quick-turnaround process can allow them to move forward financially while still maintaining their current cash flow, paying employee wages and remaining operable. In addition, borrowers may be able to reap the fast, unsecured loans offered by Fintech lenders without putting valuable property, such as their family home, on the line.
Our favourite part? Melbourne is home to a red-hot Fintech scene that shows no sign of slowing down. In 2017, the Victorian Government officially partnered with two local Fintech hub operators (Stone & Chalk, YBF Ventures) to expand the state’s Fintech sector.
Considering what you need in a business loan, one from a Fintech organisation could prove to be a more sound investment. There are now many such lenders accessible completely online, creating many more options for you to get the money you need. These companies range from small startups to those listed on the Australian Securities Exchange (ASX).
Some of the more in-demand Fintech lenders in the local Melbourne market include:
While these are quickly gaining steam, they aren’t your only options. Have a chat with us to explore more.
Find the SME Finance Support That Suits You
As you advance your small business, grow your customer base, and build your bottom line, you might need a little help along the way.
Want to find out more? See how our insights could help you identify suitable loans for your Melbourne business. Get in touch today for an introductory consultation call that’s tailored for your situation.
We’ll explain what loans could work well for your business and give you the rundown on how we could help. Then we’ll leave it up to you to decide whether we’re a good fit and how you’d like to move forwards.
Disclaimer: This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.