An SME’s best friend in a tough economy

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Lumi has a flexible approach, the industry knowledge and expertise to look past stereotypical assessments of SMEs, and the products to help these businesses leverage funding to work harder and smarter

CONVENTIONAL WISDOM says that certain industries are on the brink when it comes to weathering the tougher economic conditions of late. Food and beverage (F&B) and construction are often singled out as danger spots. For example, a recent CreditorWatch Business Risk Index survey showed that F&B businesses had the highest probability of business failure over the next 12 months at 6.83%, a full two percentage points higher than the next most risky sector. The same survey added that across all industries external administrations are trending around 25% higher than a year ago, while trade payment defaults, a leading indicator of future business failure, have jumped 57% year-on-year as the credit crunch shows no signs of easing soon. All this makes it seem like writing a business loan to support a local cafe might not be a wise idea. But small business loan specialist Lumi begs to differ. “F&B and retail are usually considered challenging industries, but based on our credit decision approach we found that cafes and restaurants that were approved by Lumi are performing really well and are actually one of our preferred industries,” says John Clifford, head of third party at the lender. What gives? It turns out that when it comes to assessing the health of a small to medium-sized business, it’s very easy to miss the wood for all the trees.

Lumi Finance is an award-winning non-bank lender that provides business loans and lines of credit of up to $500,000 to small to medium-sized enterprises. We have four core values at the heart of what we do: transparency, fairness, responsibility and customer service. We help Australian SMEs flourish by offering fair, transparent, straightforward business funding. Lumi Finance was ranked #36 in the 2022 Deloitte Technology Fast 50 Australia ranking of the fastest-growing tech companies in the country, is a member of the Australian Finance Industry Association and was one of the six original signatories to AFIA’s Code of Lending Practice.

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John Clifford, Lumi

Lumi has a unique credit decision algorithm that enables it to assess loan applications in real time using big data. This allows it to look at businesses in a different way and be more flexible with lending decisions, picking up creditworthy customers that less finely tuned systems might have relegated to the ‘too risky’ basket. In this way, Lumi can make responsible credit decisions based on more than just a business’s credit score.

Yanir Yakutiel, Lumi

Sentiment among SMEs across all industries was weaker mid-year but now appears to have turned a corner. The Fifth Quadrant SME Sentiment Tracker survey shows sentiment at its highest point since May 2022 and demand for additional finance over the next three months at its highest since July 2022. That isn’t to say the economy has been a bed of roses for SMEs. A survey in September 2022 revealed that 76% of SMEs expected their cash flow to be adversely impacted by economic trends in a business landscape marked by inflation, rising interest rates, lower consumer spending, staff shortages and wage increases. These fears have been borne out by events since, and Lumi anticipated the rise in demand for credit from SMEs across a range of areas. Business loans to cover wage increases are one example. Keeping talent during a labour shortage often requires adding incentives for employees to join or stay, and higher wage demands can strain a company’s cash flow. Maintaining sufficient working capital is also crucial for businesses facing inflation, interest rate hikes and reduced consumer spending. Non-bank lenders can offer working capital loans, lines of credit and cash flow solutions that enable businesses to manage their day-to-day operations and financial obligations more effectively. Lumi’s Business Line of Credit works as an effective foil against reduced consumer spending but doesn’t tie the client to funds they may end up not needing. “[It is] our most flexible funding option yet and the ultimate safety net allowing businesses to navigate cash flow fluctuations by drawing down funds any time they need them, while only paying interest for the amount they actually borrow,” says Clifford. Non-bank lenders like Lumi also commonly have more specialised knowledge of certain sectors than banks may typically have. This specialisation can be an advantage for businesses as these lenders understand the unique challenges and opportunities specific to a given field. Their expertise can lead to tailored financing solutions that are better aligned with a business’s needs. While there is more behind the negative headlines for some sectors than first meets the eye, there is no denying that some Lumi clients will pay higher interest rates due to the higher risk involved in their loans. “But instead of keeping their rates high, we believe in rewarding good repayment behaviour,” says Clifford. To this end, Lumi has launched Lumi Rate Ease – Australia’s first rate-reducing business loan that allows businesses that are paying a higher interest rate, due to their financial circumstances, to gradually drop their rate every month and save thousands in interest, simply by making their repayments on time.

Non-bank lenders like Lumi have played a pivotal role in supporting businesses facing such challenges, but the purposes of loans to SMEs may be starting to slowly change. SME sentiment appears to be improving, and with it some credit demand is shifting from the perennial issue of cash flow to more forward-looking investments. The Fifth Quadrant SME survey shows that 43% of SMEs that require funding over the next three months need it for working capital, but 41% need it for purchasing plant or equipment – these numbers are up from 25% three months ago and 18% six months ago.

Lumi is on a mission to support such SME aspirations in a timely way so that investment in businesses has a maximum effect and benefit for the customers. After all, around 97% of businesses in Australia are considered small businesses, with a combined contribution to GDP of 32%. Lumi prides itself on being ahead of the curve and quick off the mark. Fast-rising inflation and interest rates can catch businesses off guard, leading to unexpected financial constraints. But non-bank lenders like Lumi are known for their quick approval processes and can provide businesses with access to capital in a matter of days, helping them stay afloat during challenging times and allowing them to capitalise on business opportunities with a limited shelf life. “We can offer our customers between $5k and $500k business loans and lines of credit with an easy online application that can be completed within minutes, a lending decision that can be made within a few hours and funds that can be in the business’s bank account on that same business day,” says Clifford.

“Lumi has launched Lumi Rate Ease – Australia’s first rate-reducing business loan that allows businesses that are paying a higher interest rate, due to their financial circumstances, to gradually drop their rate every month and save thousands in interest, simply by making their repayments on time”

“We constantly innovate and tailor our products to the ever-changing needs of our customers and partners, allowing us to offer a cutting-edge lending experience based on a realistic and fair credit assessment”

10%

23%

Mar 23

Stronger

Same

SME expectations for Australian economy over next 3 months

Businesses frequently need to upgrade their equipment or invest in technology to improve efficiency and reduce costs when times are tough or when looking to expand and diversify. Non-bank lenders can finance equipment purchases or technology upgrades, allowing businesses to make these vital upgrades even when traditional banks might be reluctant to lend. More SMEs are also thinking about using funds to venture into new markets: 23% are considering funds for this purpose, up from 20% three months ago and 17% six months ago, according to the Fifth Quadrant survey.

50%

Percentage of Lumi loans to food & beverage, construction or retail industries each month

Source: Fifth Quadrant SME Sentiment Tracker survey

Lumi has a genuine interest in helping SMEs get to the other side of this difficult period and understands that a one-size-fits-all approach doesn’t do justice to the reality of Australia’s business diversity on the ground. It also understands that what might have been a satisfactory solution for yesterday’s economic reality may not be the best fit for tomorrow’s economy. “We constantly innovate and tailor our products to the ever-changing needs of our customers and partners, allowing us to offer a cutting-edge lending experience based on a realistic and fair credit assessment. This makes us not only a reliable but also a sustainable lending partner,” says Lumi founder and chief executive Yanir Yakutiel. Lumi recognises the human side of lending to SMEs because of its in-depth knowledge of the key sectors the non-bank has an appetite for. “With Lumi you’re not a loan, you’re a part of us – and a partner – and we’re here to help [customers] every step of the way,” Yakutiel says.

YANIR YAKUTIEL, LUMI

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Published 13 Nov 2023

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“This allows us to fund a much wider range of businesses and opportunities because we’re able to tailor our credit policies to different industries, including the more volatile ones such as construction, F&B and retail,” Clifford says. “In fact, approximately 50% of all loan applications that we assess every month are within those industries because we have an appetite for them.”

Even more impressive, the algorithm is always improving in accuracy, which means that approval rates for loans increase over time – recently, the approval rate for funding reached 93% of loan applications that Lumi ran a credit check on. That’s good news for SMEs whose reputations can get undeservedly damaged by broad-brush headlines about the economy and certain sectors, or by methods of assessment that rely on credit scores alone. Business conditions also change quickly, which is what makes the real-time aspect of Lumi’s method so important.

67%

Weaker

13%

24%

64%

Apr 23

13%

30%

57%

May 23

25%

67%

Jun 23

12%

25%

63%

Jul 23

11%

30%

59%

Aug 23

18%

31%

51%

Sep 23

-57%

-51%

-44%

-59%

-51%

-48%

-33%

Net score

Not just a number

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50%

Percentage of Lumi loans to food & beverage, construction or retail industries each month

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