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Strong winds of disruption: how alternative lenders are beating the Big Four banks


From Uber to Airbnb, ‘disruption’ is what happens when the majority is underserviced or undervalued by businesses’ biggest players. Right now, Australia’s Big Four banks are being disrupted by an influx of alternative lenders for this very reason.

While small businesses represent 96% of Australian businesses, small business owners are severely underserviced when it comes to securing loans from traditional banks. In fact, a recent Business Banking Index found that 39 percent of small businesses are actively considering a move to non-bank lenders due to the long approval turnaround times, poor satisfaction and “exasperation” with major banks.

Just as disruptive start-ups are rethinking almost every industry out there, alternative lenders are assessing risk in an innovative way, using big data in real time to enable more businesses to get the capital they need for growth.

And that means big trouble for the big banks. Here’s why:

SMEs shouldn’t have to risk their own home to succeed

Running your own business is challenging. The hours you spend working on your business are potentially time not spent at home with loved ones and friends. It’s safe to say that business owners are already giving up a lot, so why should they also have to put up their home or car as collateral to secure a loan?

As housing prices continue to rise disproportionately to income, more small business owners, especially millennials, do not have the option to offer their home as security to the bank. In fact, research from East & Partners states 68% of SMEs are willing to pay a higher rate to obtain finance if it means they don’t have to provide real estate security.

Similarly, the rise of e-commerce, cloud solutions and software-as-a-service (SaaS) means that many businesses today do not have valuable physical assets (such as heavy equipment or inventory) to offer the bank as security. These service-based businesses still require capital to fuel growth but they lack the type of security the banks are geared to accept.

This is where alternative lenders are providing a different way forward. With alternative lenders, business owners can opt for a slightly higher cost of finance in order to not risk losing their family home or being cut out of the process altogether.

For SMEs – it’s all about timing

Businesses move fast these days. They are also created more quickly than ever before. A report from the UK found that entrepreneurs are creating a record 80 companies per hour so far this year. While many of these businesses might have big potential, they lack the proven track record needed to be taken seriously by traditional lenders.

When assessing loan applications, banks often require accounting statements dating back four years. That means many small or emerging businesses do not have the history of profitability banks need. Alternative lenders, however, offer loans and credit to businesses with a shorter trading history. Rather than provide a lending decision confined to cash on hand and collateral, alternative lenders recognize growth potential.

Furthermore, cash flow is one of the most critical factors to the success of any business. But small business owners do not have the luxury of waiting weeks for a bank to process a loan application, make a decision and deposit the funds. Most alternative lenders, however, have a lending decision confirmed within 24 hours and the funds deposited with 72 hours. Hindered by lengthy paperwork, red tape and legacy issues, traditional banks simply can’t compete with the speed and agility of online lenders.

Large businesses that cannot adapt to the changing needs and expectations of their customers are bound to lose out to more agile and innovative players. The good news is SMEs can flourish with the help of new solutions that are built around those needs.

Yanir Yakutiel is the founder and CEO of Sail Funding, which works with small business owners to provide a safe, simple and superior business loans. Yanir has more than 15 years’ experience working in finance including in an asset finance function at a leading shipping company and at financial technology innovator, ICAP plc., initially in freight futures and then in cash equities. He also launched, managed and developed a successful global dry freight shipping company.

Yanir Yakutiel
Yanir Yakutiel