Fed up with your bank? There are plenty of reasons why non-bank lenders have fast become an attractive alternative for Australian SMEs in need of funding. 

Non-bank borrowing demand from SMEs surged to a record high of 47% by the end of March 2023, according to ScotPac’s latest SME Growth Index, released in April. This was the highest figure since the report began in September 2014. 

Demand was up 50% year on year and has experienced a threefold rise since September 2018, says ScotPac, Australia and New Zealand’s largest non-bank SME business lender.  

The upward trend is confirmed by other research by ScotPac which shows that the number of SMEs planning to borrow from non-bank lenders has doubled in the past four years to 31%.  

“The significant growth in these non-bank lending figures is consistent with large increases in ScotPac’s client numbers and total lending over the past five years,” observes ScotPac CEO, Jon Sutton. 

“Many of our new customers have bypassed or transferred their business from banks that are more deeply focused on the residential lending market, rather than fast and flexible business finance.” 

So why are more SMEs considering non-bank lenders?  

Of the 720 SMEs polled for ScotPac’s latest index report, 23% cited the ease of onboarding as a reason they turned to non-bank lending.  

The research, conducted by East & Partners for ScotPac, found that SMEs believed that non-bank lenders were generally “twice as fast at approving loans than banks”. They noted that the average bank loan approval stretched to 35 days and sometimes beyond 55 days. 

Being smaller than the banks, non-bank lenders are said to offer quicker and more personalised service to busy SME executives because they are less bureaucratic and use the latest technology.  

Participants in ScotPac’s survey also highlight the ability to avoid using non-property assets (20%) or property (16%) as collateral for the loans as reasons for using non-bank lenders. 

A further factor is that the big banks are set in their ways of evaluating borrowers. 

According to Mortgage Professional Australia magazine’s Brokers on Non-Banks 2022 survey, brokers are turning to non-bank lenders mainly because these lenders take a wider view of their customers rather than just looking at their credit scores.  

They will focus on the exit strategy of a borrower rather than on loan serviceability or credit history. And they tend to be more accommodating to those who are self-employed than the banks are.  

Plus, non-bank lenders are also more prepared to look at clients with messy paperwork – for example, those without standard documentation such as pay slips or who have yet to lodge their latest tax returns. 

Put plainly, non-bank lenders are often more flexible when it comes to whom they will lend to. They are also said to be more flexible in tailoring loans to suit the borrowers’ needs and in providing bespoke solutions.  

Thus, it’s no wonder ScotPac’s latest research shows that SMEs with declining growth are more likely to seek out a non-bank lender and that almost 90% of SMEs in this category have turned away from banks. 

Non-bank lenders only lend money. They don’t take deposits and they have different sources of funding to the banks.  

Because they often borrow funds at wholesale rates, they can sometimes pass those savings on to consumers via competitive interest rates. Their costs are also lower than traditional banks because many only offer services online without big overheads and branch networks.  

Unlike banks and mutuals, non-bank lenders are not regulated by the Australian Prudential Regulation Authority. But they are still regulated. They must hold an Australian Credit Licence and comply with Australian Securities and Investments Commission regulation, the Australian Consumer Laws, the Privacy Act and the National Consumer Credit Protection Laws.  

If you’d like to find out whether a non-bank lender can offer a more competitive deal and better services than your bank, contact us today.