SME non-bank lending plans hit record high

The latest SME Growth Index by ScotPac showed a significant shift in how small to medium-sized enterprises (SMEs) plan to finance their investments.

Australia’s longest-running SME sentiment report highlighted that 54% of SMEs are looking to non-bank lenders over the next six months – a jump from 47% recorded a year ago.

In contrast, reliance on traditional relationship banks has dropped. Only 35% of SMEs now intend to secure investment funding through their primary bank or peer lenders, a steep decline from last year’s 47%.

Growth-focused SMEs lead the shift

Businesses in a growth phase, which make up 40% of the SME market, are driving this trend.

A staggering 80% of these businesses are moving away from banks, with more than half opting for non-bank lending solutions to support their expansion plans.

Jon Sutton (pictured above), CEO of ScotPac, the largest SME lender in Australia and New Zealand, pointed to a fundamental transformation in SME financing.

“The days of cumbersome, one-size-fits-all SME financing are gone, replaced by a growing demand for more flexible options that are faster and more accessible,” Sutton said.

He said that non-bank lending’s appeal lies in providing alternatives to traditional borrowing, such as avoiding the need to use family homes as collateral.

SME investment on the rise

The report also revealed other key insights:

• Sixty per cent of SMEs plan to invest in their business in the next six months, rebounding from a COVID-era low of 52% in September 2020.
• Ninety-four per cent of SMEs will use their own funds as part of their investment strategy, despite the range of external lending options now available.
• The proportion of SMEs raising equity for investment has tripled since 2014, showing increasing diversification in financing approaches.

More growth expected for non-bank lending

Sutton predicted non-bank lending will continue to rise, driven by three key factors:

1. Increasing demand for working capital as businesses face rising costs and economic uncertainty.
2. A large pool of self-funding SMEs who could benefit from alternative lending solutions.
3. Greater awareness of the speed and flexibility of non-bank products, fueled by broker activity and technology advancements.

“SME owners and operators are increasingly becoming aware of the benefits of non-bank lending... That has motivated them to talk to their brokers and look beyond traditional funding arrangements,” Sutton said.

Brokers poised to guide SMEs in a crowded market

Brokers play a critical role in helping SMEs navigate the growing number of lending solutions. Sutton stressed that the current environment presents brokers with opportunities to showcase their expertise and connect clients with tailored funding options.

Read the ScotPac media release here.

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