By Neil Slonim and Graham Brown
With non-bank lenders popping up every month to fill the multi-million dollar gap in business financing, it’s hard to know where to start. So why do SMEs find it hard to get finance from banks?
1. Lack of security
Housing affordability has meant that many small business owners, especially younger people, don’t have a house they can offer as security. Others who own property might simply not be prepared to mortgage their house either because they don’t believe they should have to or because they are not prepared to take the risk.
2. It’s not just property security that is not available
The proliferation of service businesses has meant that many SMEs don’t have plant and equipment, inventory or even debtors they can offer the bank as security. They still need to get funding to establish and grow their business but they just don’t have the kind of security banks like.
3. Lack of track record
Technology and globalisation enable businesses to grow rapidly but they may not be able to demonstrate a track record of profitability over the length of time needed to give the bank comfort.
4. Taking too long to make a decision
Most SMEs are dissatisfied with the time it takes to get a decision. Often this is on requirements as basic as posting a bank guarantee for rented premises.
5. Constant restructuring and personnel changes
One of the reasons customers experience time delays is that the frequency of restructuring and personnel changes hinders the ability of the bank to process loan applications in a timely manner.
All these factors have led to a disengagement with SMEs concluding there are just too many hoops to jump through to get support from the bank.
Neil Slonim is the founder of theBankDoctor.org and Graham Brown is a writer at Tyro Payments. This is an edited extract from Tyro’s SME guide to business loans in Australia. To read more, visit the Tyro website.