Small business pulse strong at non-banks
Small businesses are the canary in the coal mine for the wider economy, and non-bank lenders have high hopes for continued strong performance of the sector
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DEMAND FOR loans to small businesses is rising despite the outlook for inflation and higher interest rates, say top non-bank lenders active in the sector.
Smaller players are often quicker to gird up their loins than larger firms when they sense the time is right, and signs of life in the market may be a bellwether for a broader expansion of confidence.
“We’re already seeing a significant uptick in demand among small businesses for cash flow finance,” says Nick Reily, head of partnerships at OnDeck Australia.
“We believe this reflects businesses embracing opportunities for growth as the economy rebounds and the market returns to more normal trading conditions.”
Lumi has seen significant growth in demand for short-term finance solutions since November with the easing of COVID restrictions.
Small businesses are currently around twice as likely as large ones to have higher-than-usual planned expenditure, according to the latest May Business Conditions and Sentiments government survey.
Even so, the stats showed that only 8% of small businesses had sought funding increases in the previous three months, down from 12% in the February survey. This was also down from 14% in the February 2021 survey.
It’s a worrying sign that the uptick may not last in the face of inflationary pressures and further interest rate hikes.
Staff shortages caused in part by international border closures and supply chain issues also continue to test small businesses, says Reily.
OnDeck research confirms that one in four small businesses are rejected for finance by a mainstream bank. Among those that do gain loan approval, as many as 25% report delays in the lending process that have negatively impacted the business.
“In the current business climate, no small business can afford that sort of delay – no matter whether they require finance for growth, to take advantage of supplier discounts, or to navigate rising costs,” says Reily.
OnDeck specialises in loans to small businesses and understands better than many where the market is going.
“This is 100% of what we do, and because small business lending is all we do, OnDeck has a thorough understanding of the needs of small business,” says Reily.
Non-banks are also active in training brokers to better understand how products, processes and credit decisioning meet the needs of small businesses.
Lumi provides education on emerging and current customer demands and insights to help brokers read the market.
Planned three-month business capital expenditure – May 2022 vs May 2021
Uncertainty around the election affected consumer confidence. “As a result, some consumers were cautious about moving forward financially,” he says.
But hopes are high that commercial lending can play a larger role in the new economy as the steam comes off the housing market. More financial institutions are moving into the space in an effort to diversify.
With brokers behind a record 70% of all new residential home loans, more are looking at the potential opportunity in the commercial lending space in hopes of repeating that success.
“There is no reason why brokers can’t play a very important role in connecting small business owners with the right funders who can provide much-needed access to capital, both short-term and long-term,” says Reily.
He adds that small business owners are ripe for the assistance brokers provide.
“Small business owners are notoriously time-poor, and as business conditions pick up, we believe many will turn to a broker for support in organising finance.”
With one in four small business owners being home loan customers first, brokers simply need to leverage their existing relationships to diversify.
Certain sectors within small business are leading the way. The usual suspects are construction, accommodation and food services, retail trade, professional services and manufacturing.
The repercussions of COVID-19 continue to play out in the types of funding being sought. There’s been a big rise in applications for finance from transport or transport-related businesses, as well as businesses that are adjusting to new ways of working.
Lumi is one of Australia’s fastest-growing non-bank business lenders. Its mission is to empower small business owners to achieve their goals and aspirations by providing fast access to finance to help give their ventures the boost they need. Lumi’s proprietary technology and simple application process enable customers to complete applications online in less than five minutes. Lumi offers business loans from $5,000 to $500,000 with three- to 48-month terms. No guesswork, no hassles, no reading between the lines. Just totally transparent loans to help you get ahead.
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OnDeck is a leader in online lending to small businesses. Since launching in 2015, its focus has been on supporting small businesses with access to fast, efficient unsecured finance. OnDeck does things smarter – its KOALA Score™ credit assessment model uses innovative technology to assess loan applications and repayment capacity in a matter of minutes rather than days or weeks. In 2021, OnDeck also launched Lightning Loans, which enables the decisioning of loans up to $150,000 in as fast as 30 minutes, and funding in as fast as two hours.
Find out more
OnDeck is a leader in online lending to small businesses. Since launching in 2015, its focus has been on supporting small businesses with access to fast, efficient unsecured finance. OnDeck does things smarter – its KOALA Score™ credit assessment model uses innovative technology to assess loan applications and repayment capacity in a matter of minutes rather than days or weeks. In 2021, OnDeck also launched Lightning Loans, which enables the decisioning of loans up to $150,000 in as fast as 30 minutes, and funding in as fast as two hours.
Find out more
“Businesses want flexibility when seeking finance and want to understand if they can pay back their business loans earlier without any fees or penalties”
John Clifford,
Lumi
In Partnership with
“There is no reason why brokers can’t play a very important role in connecting small business owners with the right funders who can provide much-needed access to capital, both short-term and long-term”
Nick Reily,
OnDeck
John Clifford
Lumi
Nick Reily
OnDeck
Industry Experts
Nick Reily is head of partnerships at OnDeck Australia. His role involves building and managing a high-performing and high-functioning partnerships team to help OnDeck’s small business customers and partners have a better finance experience. Before joining the finance industry, Reily played three different professional sports over three consecutive years, including skippering the Australian Sevens rugby team at the 2005 Rugby World Cup Sevens in Hong Kong and at the 2006 Melbourne Commonwealth Games.
OnDeck
Nick Reily
John Clifford loves making dreams come true for small businesses. He started his career in financial services account management in 2007 and likes working with small business owners to support their enthusiasm and optimism as they serve their communities. As head of third party at Lumi, Clifford supports broker partners to grow their businesses and service their clients. He’s excited to be part of a team that’s helping business owners get the funding they need quickly, working with brokers and utilising technology to make fast decisions. He also enjoys spending time with his family and keeping up with current affairs.
Lumi
John Clifford
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Nick Reily is head of partnerships at OnDeck Australia. His role involves building and managing a high-performing and high-functioning partnerships team to help OnDeck’s small business customers and partners have a better finance experience. Before joining the finance industry, Reily played three different professional sports over three consecutive years, including skippering the Australian Sevens rugby team at the 2005 Rugby World Cup Sevens in Hong Kong and at the 2006 Melbourne Commonwealth Games.
OnDeck
Nick Reily
John Clifford loves making dreams come true for small businesses. He started his career in financial services account management in 2007 and likes working with small business owners to support their enthusiasm and optimism as they serve their communities. As head of third party at Lumi, Clifford supports broker partners to grow their businesses and service their clients. He’s excited to be part of a team that’s helping business owners get the funding they need quickly, working with brokers and utilising technology to make fast decisions. He also enjoys spending time with his family and keeping up with current affairs.
Lumi
John Clifford
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John Clifford
Lumi
Nick Reily
OnDeck
Industry Experts
John Clifford loves making dreams come true for small businesses. He started his career in financial services account management in 2007 and likes working with small business owners to support their enthusiasm and optimism as they serve their communities. As head of third party at Lumi, Clifford supports broker partners to grow their businesses and service their clients. He’s excited to be part of a team that’s helping business owners get the funding they need quickly, working with brokers and utilising technology to make fast decisions. He also enjoys spending time with his family and keeping up with current affairs.
Lumi
John Clifford
Nick Reily is head of partnerships at OnDeck Australia. His role involves building and managing a high-performing and high-functioning partnerships team to help OnDeck’s small business customers and partners have a better finance experience. Before joining the finance industry, Reily played three different professional sports over three consecutive years, including skippering the Australian Sevens rugby team at the 2005 Rugby World Cup Sevens in Hong Kong and at the 2006 Melbourne Commonwealth Games.
OnDeck
Nick Reily
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Medium businesses
Small businesses
Large businesses
60%
May 2021
Higher than usual
50%
30%
29%
Same
as usual
Lower
than usual
8%
3%
12%
8%
Don't know
May 2022
Source: ABS
Don't know
11%
11%
5%
2%
Lower
than usual
Same
as usual
44%
36%
39%
51%
Higher than usual
Don't know
14%
7%
Lower
than usual
5%
11%
Same
as usual
55%
54%
Higher than usual
25%
28%
“There's been a sharp increase, particularly in the professional services sector, in machinery and equipment purchases following the pandemic’s start,” says Clifford.
“Many businesses were required to adapt technologies to support remote and hybrid work environments quickly,” he explains.
Restaurants and cafes are another bright spot. “As can probably be seen on nights out in our major cities, hospitality is returning in a big way.”
Clifford says it’s up to brokers and accountants to make small businesses more aware of the solutions available to them in the new, more challenging economic times ahead.
“Accountants and brokers are well placed to support businesses in a rising interest rate environment.”
Non-banks like OnDeck and Lumi have a major role to play in supporting small businesses, given that larger institutions don’t have the flexibility to meet their needs.
Private new and expected capital expenditure on buildings and equipment - Mar qtr 2022
Buildings and structures
Equipment, plant and machinery
Total new capital expenditure
$17.3bn
$16.2bn
$33.6bn
Source: ABS, March 2022
-0.3%
-1.7%
1.2%
% change since Dec qtr 2021
Another key factor for small businesses as they plough ahead through choppier economic conditions is speed. This is particularly true in the new and less-forgiving credit environment.
Many small businesses have had their best-laid plans upset or a prime opportunity derailed by the dreaded ‘slow no’, which also manifests itself when a lender makes a last-minute request for an extra document in an application.
“Speed and ease of application continue to be extremely important for businesses who come to specialist business lenders,” says Clifford.
“As you might expect from a leading fintech lender, [at Lumi] we pride ourselves on speedy delivery of outcomes – usually in the space of hours – and being clear at the outset about what information we’ll require.”
OnDeck has the market-leading Lightning Loans product, recently increased to $150,000, that allows brokers and small businesses to have a loan decision in as fast as 30 minutes, with funding in as little as two hours.
“These are considered to be among the fastest, most accurate lending decisions in the small business market,” says Reily.
While OnDeck is hard to beat for speed, Lumi differentiates itself from the competition by providing offline assessments, meaning clients will not see their credit scores needlessly affected if finance isn’t approved for some reason.
Lumi offers business term loans and lines of credit from $5,000 to $500,000, with an application process that avoids hard credit enquiries at initial assessment, which protects credit scores.
“This enables businesses to consider their options without the risk of damaging their credit score before proceeding with the full application,” says Clifford.
Other current trends in small business lending that brokers would be wise to note include a strong interest in avoiding penalties.
“Businesses want flexibility when seeking finance and want to understand if they can pay back their business loans earlier without any fees or penalties,” says Clifford.
With small businesses making up the backbone of the Australian economy, keeping a finger on the pulse remains crucial.
OnDeck is a leader in online lending to small businesses. Since launching in 2015, its focus has been on supporting small businesses with access to fast, efficient unsecured finance. OnDeck does things smarter – its KOALA Score™ credit assessment model uses innovative technology to assess loan applications and repayment capacity in a matter of minutes rather than days or weeks. In 2021, OnDeck also launched Lightning Loans, which enables the decisioning of loans up to $150,000 in as fast as 30 minutes, and funding in as fast as two hours.
Find out more
In 2022, OnDeck has seen a 48% increase in loan originations compared to 2021, along with more small businesses applying for finance to invest in plant and equipment as well as training and tech, partly to take advantage of the supersized tax deductions announced late March in the federal budget.
Other non-banks predict the positive trend will continue going forward.
“We expect businesses to seek larger funding amounts as business and consumer confidence increases,” says John Clifford, head of third party at non-bank Lumi.
Some expectations centre around the ease and convenience of the lending solutions that have emerged in the pandemic years, many of which are still under the radar for small businesses.
“Demand for modern tech-enabled business funding will continue to grow as awareness of the solutions available to businesses grows,” says Clifford.
In 2022, OnDeck has seen a 48% increase in loan originations compared to 2021, along with more small businesses applying for finance to invest in plant and equipment as well as training and tech, partly to take advantage of the supersized tax deductions announced late March in the federal budget.
Other non-banks predict the positive trend will continue going forward.
“We expect businesses to seek larger funding amounts as business and consumer confidence increases,” says John Clifford, head of third party at non-bank Lumi.
Some expectations centre around the ease and convenience of the lending solutions that have emerged in the pandemic years, many of which are still under the radar for small businesses.
“Demand for modern tech-enabled business funding will continue to grow as awareness of the solutions available to businesses grows,” says Clifford.