A free online resource centre has just been launched to help Australia’s SMEs better manage their banking arrangements.
The Small Business Finance website has been developed and funded by the Australian Bankers’ Association (ABA) in conjunction with CPA Australia. Support for the website has also been provided by the Council of Small Business Australia (COSBOA) and the NSW Business Chamber.
The website guides users through the three main stages of obtaining bank finance, starting with what to do before applying for a loan, how to complete a loan application and finally what to do once you have the loan.
Various means of communicating content are utilised including videos, checklists and tips. There are several useful templates that small business owners can download to prepare documents like a business plan, a business case assessment and a cashflow forecast.
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The traditional banking model
However, the website is premised on the traditional business banking model. For example, it explains how a bank assesses a loan application. It has a glossary of “bank speak”, it stresses the importance of ensuring your lender has a good understanding of your business and talks about the importance of building and maintaining a strong relationship.
But the traditional business banking model is broken. In days gone, bank relationships were established, maintained and passed on, usually predicated on a three-way partnership between the business owner, the local accountant, who was the trusted advisor, and the local bank manager – who, along with the accountant, was often a mature-aged male – who had the authority to approve loans.
Nowadays, most SMEs that borrow less than say $25,000 don’t have a relationship manager or if they do, that individual has several hundred customers to look after and lacks experience or authority, plus they seem to stay in their roles for very short periods of time. Building and maintaining a relationship in these circumstances is all but impossible.
For business loans of less than $250,000 banks simply cannot afford to have a manager sitting behind a desk reviewing business plans, business cases and cash forecasts. When assessing your creditworthiness, their primary focus is in how much equity you have in your home because this is the quickest, easiest and safest way for them to lend money. But if you don’t have a home, or have no equity in your home, or you and/or your partner are just not prepared to put it at risk then, until recent times, your options have been very limited.
Fintech is the future
The future of business banking is already here. It’s called fintech and it’s a shame the only reference in the website to this option is a sentence, which simply says “other sources of finance which you may want to consider for your business include venture capital, angel funding, crowd funding and peer to peer lending”.
According to ABA statistics, the total market for small business bank loans is about $260 billion and almost half of loans are for less than $100,000. Within the next few years some experts are predicting fintech lending to SMEs will rise to around 10% of the total SME lending market. In 2015 fintech lending to the SME sector was around $0.25 billion, coming from a base of zero in two years. This means fintech lending to SMEs could rise to around $26 billion, an increase of 100 times current levels. The magnitude of the opportunity is clear.
It is perhaps understandable the ABA, on behalf of its member banks, has overlooked this “elephant in the room” but a more balanced coverage of all options would certainly have assisted bank endeavours to persuade customers that they have their best interests at heart.
From the perspective of the busy accountant, the website might enable them to get their clients to do more of the kind of work that the accountant has perhaps neither the time or inclination to become involved in, not that the SME is in any better position in this respect. The potential dilemma for accountants here is that it could further erode the personal connection with their client. For accountants, banking advice is time consuming and non-core work and its questionable how much value they really add. Whether this website actually helps or hinders their relationships with small business clients is something each will need to consider. Hopefully the website will at least help the accountant initiate conversations with clients about the role they really want to and can play and that’s a good thing.
The Small Business Finance website is a resource many small business owners and their accountants will find useful when dealing with banks. On the other hand, by overlooking how new entrants are leveraging technology to help more small businesses to get quicker and easier access to funding, it is an opportunity missed. Hopefully the sponsors will continually update the website and provide a more representative picture of the rapidly changing small business finance market.
Neil Slonim is the founder of theBankDoctor.org, a not-for-profit online resource centre that helps business owners deal with the challenges of funding their business.