Prospa first Australian fintech to deliver a half billion dollars of small business loans

Prospa, Australia’s number one online lender for small business, has announced the delivery of more than half a billion dollars into the economy, providing loans to over 12,000 small businesses across the country.

Now in its sixth year, Prospa has scaled rapidly, today placing second in the AFR Fast 100 for 2017 thanks a 239 per cent average revenue growth since 2013-14. The AFR’s Fast 100 ranks the fastest growing companies in Australia, and in previous years has included the likes of Atlassian, Lonely Planet, SEEK and WebJet.

2017 has been been a bumper year for Prospa, having secured over $50m in equity and debt funding. The firm announced a $25m equity round led by AirTree and Square Peg in February (the largest deal of its kind in Australia at the time), which was followed by an additional $20m debt funding line from Silicon Valley-based Partners For Growth in July.

Over the past twelve months, the company has doubled the size of its loan book, and also grown its team by more than 50 per cent to 150 people from 33 countries. Recent key hires include Damon Pezaro ex Domain as Prospa’s first Chief Product Officer, and Rebecca James ex ME Bank, as Chief Marketing and Enterprise Officer.

Prospa also became the first fintech to win a Telstra Business Award, being named a New South Wales state winner in 2017, as well as being named Employer of Choice in the AON Hewitt Best Employers Program 2017.

Greg Moshal, co-founder and joint CEO of Prospa, comments, “For over five years, we’ve been transforming the way small business owners experience finance. Before Prospa, small business owners simply couldn’t access finance unless they had an asset to put up as security, and they certainly couldn’t do it in a fast easy way from the convenience of their own workplace. We’ve now provided over half a billion dollars in loans to small businesses, and there’s obviously a real need there. We’re now focusing on finding more ways to provide quick, easy access to capital: how, where and whenever it suits our customers.”

Beau Bertoli, co-founder and joint CEO of Prospa adds, “As we scale up, we’re taking a long term view on our growth plans. Awareness of fintech is at all time high, and the sector is at a tipping point in Australia. Regulatory uncertainty is being addressed through consultation and fast decision-making by Treasury, and we’re confident this will help kickstart the next wave of innovation and growth. We’re genuinely excited about the future.”

As a long term Prospa investor and Board member, Avi Eyal, Partner at UK-based Entrée Capital commented, “Prospa has had exceptional growth over the past four years, led by two of the best CEOs in tech today, Greg Moshal and Beau Bertoli. The team is world class and together they are the clear leaders in the Australian fintech market. We are proud to have Prospa in our portfolio.”

Danielle Szetho, CEO of FinTech Australia, commented: “We congratulate Prospa on this important achievement. Prospa’s incredible growth is a great reflection of our recent results from the EY FinTech Australia Census, which shows that fintech companies have tripled their median revenue since 2016, and that the industry overall is rapidly maturing.

This strong revenue growth is happening because fintech companies such as Prospa are providing new and innovative services that delight their customers, compared to the previous offerings from traditional financial services institutions.”

Small Businesses Warned on Email Practices

From Smart Company.

Small businesses are warned to get across their obligations when managing customer databases and sending email communications, after internet provider TPG was fined $360,000 this month for failing to process “unsubscribe” requests from customers.

The Australian Communications and Media Authority (ACMA) confirmed last Friday that TPG Internet received the infringement notice after an investigation prompted by customer complaints revealed the company’s “unsubscribe” function was not working as required in April 2017.

Customers complained that despite having hit the “unsubscribe” button after receiving electronic promotions from TPG, and withdrawing consent to receive such material, they kept getting these messages.

ACMA found TPG’s systems weren’t processing the requests properly in the month of April, meaning the company breached subsection 16(1) of the Spam Act 2003, which relates to sending messages to customers without their consent.

The Act makes it compulsory for businesses sending electronic communications to include “a functional unsubscribe facility”.

“This is a timely reminder to anyone who conducts email or SMS marketing to make sure the systems they have for maintaining their marketing lists are working well,” ACMA chair Nerida O’Loughlin said in a statement.

The communications authority has marked consent-based marketing strategies as an area of top priority.

However, director of CP Communications Catriona Pollard tells SmartCompany that in her experience discussing email and electronic content with businesses, too many are not aware of are rules for collecting data and communicating with customers.

“I would suggest there is a high percentage of people who haven’t ever read the Spam Act and don’t have any information about what they can and can’t do,” she says.

Aside from the risks of fines, Pollard says from a brand perspective, this lack of knowledge can mean companies might really infuriate customers.

“People hate spam, and I think businesses are often more focused on building up their database than on how people will see them,” she says.

Unsubscribes are unavoidable, so make sure the function works

Pollard warns businesses never to do things like “hide the unsubscribe button”, explaining unsubscribe requests are “part and parcel” of sending any digital communication, and businesses must take that on board.

Companies will see regular unsubscribe requests from customers, but even so, “email marketing is still one of the most powerful marketing tools,” Pollard says.

Director of InsideOut PR, Nicole Reaney, observes businesses are often keen to use low-cost formats like email to build a user base, but they still have to follow legislative requirements and make sure customers have consented to getting this information.

“It’s extremely tempting for businesses to utilise the very affordable and efficient platform of digital media with direct emails and text messages. However, it does place them in a position of exposure if there was no prior relationship or consent to the contact,” she says.

Pollard says for smaller operators, one way to get bang for buck is to focus on writing informative and useful content for your audience. That way, regardless of some people hitting the unsubscribe, a business will be engaging with those who most want that kind of information.

“Writing really good copy is really effective. It’s not just thinking about blasting information out to your database,” she says.

SmartCompany contacted TPG Internet for comment but did not receive a response prior to publication.

ATO warns ride-sharing drivers about GST obligation

From Smart Company.

The Australian Taxation Office has put the hard word on ride-sharing drivers and the wider gig economy, reminding drivers working for platforms like Uber about the importance of meeting their GST obligations next tax time.

The tax office determined in 2015 that ride-sharing and ride-sourcing drivers should be classified in the same way as taxi drivers for GST purposes, meaning they must register for an Australian Business Number and for the GST even if they are under the $75,000 threshold.

Uber appealed the decision in the Federal Court earlier this year but lost, and since then the ATO has been periodically reminding drivers of their tax obligations.

However, the tax office says the message isn’t getting through, with ATO assistant commissioner Tom Wheeler saying in a statement that the tax office has notified over 120,000 ride-sharing drivers over the past 18 months regarding their tax obligations.

“We know that most drivers do the right thing, and we are now focusing attention on the minority of drivers that are not currently meeting their obligations,” Wheeler said in a statement this morning.

“Our message to taxpayers is that if you have a ride-sourcing enterprise you must get an Australian Business Number and register for GST as soon as you start driving. You also need to include the income on your tax return at tax time.”

Wheeler notes the ATO is sourcing information “directly” from banks and facilitators, and warns “we know who you are, and we know if you aren’t correctly meeting your obligations”.

“This isn’t a black economy issue,” says Lisa Greig, SME and start-up tax specialist at Perigee Advisers.

“The money’s going through Uber and into a bank account, [and] it will be found.”

Companies should remind workers of GST obligations

Wheeler says if ride-sharing drivers who have not registered for GST continue to ignore the ATO’s prompts, the tax office will register the drivers itself and then backdate the registration to their first ride-sharing payment.

“[The drivers] will be required to lodge and pay all outstanding tax obligations. Penalties and interest may also be applied,” he says.

Greig tells SmartCompany she believes many of these outstanding cases would be drivers who maybe did a few trips for a ridesharing app over a couple of weeks, made around $60 dollars, and then haven’t driven again.

“Those people still have to be registered for GST,” she says.

Businesses who employ a significant number of these ride-sharing type contractors – such as Uber – should have a “duty of care” to inform workers of their GST obligations, believes Greig.

SmartCompany understands Uber drivers are directed to the ATO’s ride-sharing information page and notified of their obligation as part of the signup process, but Uber is unable to sign them up when a driver registers on the platform, because Uber not a registered tax agent.

Other companies working with similar types of contractors should take a similar course in informing them about GST obligations, because companies should make it “as simple as possible” for workers.

However, one reason the ATO is having to chase people now might come down to the slackness of the drivers, Greig says, suggesting that signing up for an ABN and GST would likely take less time than signing up to drive with Uber.

“People who forget to register for GST are like those people who forget an old bank account has $2 of interest in it when it comes to tax time.”

Looking to the future of tax reporting, Greig says it won’t be surprising if Uber driving income is automatically detected by the tax office in future.

“But with where this is all going, in the future all your ride-sharing data will just get populated in MyTax come tax time and you won’t have to worry.”

Fintech Disruption Index Moves Higher

The latest edition of the Disruption Index has just been released, and it is 41.57, up from 38.29 last quarter. This is good news for Fintechs in that the SME community is adopting digital faster than ever.

The Financial Services Disruption Index, which has been jointly developed by Moula, the lender to the small business sector; and research and consulting firm Digital Finance Analytics (DFA).

Combing data from both organisations, we are able to track the waves of disruption, initially in the small business lending sector, and more widely across financial services later.

The index tracks a number of dimensions. From the DFA Small business surveys (52,000 each year), we measure SME service expectations for unsecured lending, their awareness of non-traditional funding options, their use of smart devices, their willingness to share electronic data in return for credit, and overall business confidence of those who are borrowing relative to those who are not.

Moula data includes SME conversion data, the type of data SME’s share, the average loan amount approved, application credit enquiries, and speed of application processing.

Here are some of the highlights:

Business Confidence

SME Business Confidence of those borrowing is on the up, reflecting stronger demand for credit, with the indicator jumping a healthy 15.8%, however, the amount of “red tape” which firms have to navigate is a considerable barrier to growth.

Knowledge of Non-bank Financial Providers

Awareness of new funding options continues to rise if slowly, creating a significant marketing opportunity for the new players, and a potentially larger slice of the pie.

Business Data

Greater willingness to share data and use of cloud-based services continue to rise. One-third of businesses have data held within the cloud, including accounting, customer management, invoicing, human resource, and tax management. We see variations across the segments in their use of these services. Of the businesses applying for funding, almost 90% now provide some form of electronic data via online loan application and are clearly comfortable in doing so (suggesting security concerns are less of a deterrent than the incentive of the speed of application and execution).

Average Loan Size

Average loan size continues to move upwards to register above $40k for the first time, indicating that better businesses are embracing alternative finance arrangements. More than likely, these businesses have traditional banking relationships, but either choose (or are forced to) look elsewhere for liquidity.

SME’s Are Getting Funds Quicker, Thanks To Alt. Finance

Data from the Digital Finance Analytics Small and Medium Business Surveys highlights that firms who apply for unsecured credit are getting funds more quickly on average now, compared with 2015. You can request a copy of our latest SME report.

However, there are considerable differences between the average timeframes experienced by SME’s when they deal with the major banks, compared with those going to the Fintechs.  The new players are faster.

SME’s as they become more digitally aligned, also have a higher expectation of service, with firms saying that 4.8 days would be considered, on average, a reasonable time to time wait, as we discussed in the Disruption Index, a joint DFA and Moula initiative. The next edition will be out soon.

We think major lenders are responding to the the competitive pressure to turn applications around faster, as the number of Alt. Lenders grows. This is good news for all SME’s seeking a loan.

To underscore this, we note that RateSetter is now offering loans of up to $50k, unsecured, with a 24 hour turn around to the SME sector. RateSetter which launched in 2012 was the first peer-to-peer lender licensed to provide services to all Australians, not just wholesale and sophisticated investors. RateSetter provides secured and unsecured loans to Australian-resident individuals and businesses.

 

Australia needs new insolvency laws to encourage small businesses

From The Conversation.

The Ten Network’s recent experience of voluntary administration and subsequent rescue by CBS demonstrates how insolvency law works for large Australian companies. But 97% of Australian businesses are small or medium size enterprises (SMEs), and they face a system that isn’t designed for them.

60% of small businesses cease trading within the first three years of operating. While not all close due to business failure, those that do tend to face an awkward insolvency regime that fails to meet their needs in the same way it does Network Ten.

The lack of an adequate insolvency regime for SMEs inhibits innovation and growth within our economy. It adds yet more complexity to the already difficult process of structuring a small business. Further, it inceases the cost of funding. Lenders know that recovering their money can be onerous if not impossible, so they impose higher costs of borrowing.

Australia’s insolvency regime

Australian insolvency law is divided into two streams, each governed by a separate piece of legislation.

The Corporations Act deals with the insolvency of incorporated organisations, and the Bankruptcy Act addresses the insolvency of people and unincorporated bodies (such as sole traders and partnerships).

Both schemes are aimed at providing an equal, fair and orderly process for the resolution of financial affairs. But a large part of the Corporations Act procedure has been developed with the complexity of a large corporation in mind. For example, there are extensive provisions that allow the resolution of disputes between creditors that are only likely to arise in well-resourced commercial entities.

The Bankruptcy Act, by contrast, takes account of the social and community dimensions of personal bankruptcy. This legislation seeks to supervise the activities of the bankrupted person for an extended period of time to encourage their rehabilitation.

SME’s awkwardly straddle the gap between these parallel pieces of legislation. Some SMEs are incorporated, and so fall under the Corporations Act. SMEs that are not incorporated are treated under the Bankruptcy Act as one aspect of the personal bankruptcy of the business owner. But of course, SMEs are neither people nor large corporations.

How insolvency works

Legislation governing corporate insolvency is founded on the assumption that there will be significant assets to be divided among many creditors. Broadly speaking, creditors are ranked and there are sophisticated and detailed provisions for their treatment. If Ten would have proceeded to liquidation, creditors would have been broadly grouped into three tiers and paid amounts well into the tens of millions.

One type of creditor is a “secured creditor”. Banks, for example, will often require that loans for the purchase of business equipment are secured against that equipment. In the event of default, the bank takes ownership of the equipment in place of the debt, if they can’t be paid out.

Unsecured creditors, on the other hand, do not have an “interest” over anything. If a company goes into liquidation, an unsecured creditor will only be paid if there are sufficient funds left after the secured creditors have been paid, and the cost of the process has been covered. There is no guarantee that unsecured creditors will be paid. Most often, they are only paid a portion of what they are owed.

The unique challenges of SME insolvency

When it comes to SMEs, there is little or no value available to lower-ranking, unsecured creditors in an SME insolvency estate. At the same time, higher-ranking, secured creditors tend to have effective methods of enforcing their interest outside the insolvency process. For instance they could individually sue the debtor to recover money owed. As a consequence, creditors are rarely interested in overseeing or pursing an SME insolvency process. This means the system is not often used and creditors with smaller claims go unpaid.

Even if creditors do want to use the insolvency process, it is likely the SME’s assets are insufficient to cover the cost of employing an insolvency practitioner and the required judicial oversight.

This problem is made worse because SMEs often wait too long to file for insolvency, owing to their lack of commercial experience or the social stigma of a failing business. Instead, debts continue to grow well beyond the point of insolvency, and responsibility falls on creditors to deal with the issue.

There are further difficulties depending on whether the SME is incorporated. Incorporated SMEs are frequently financed by a combination of corporate debt, taken on by the SME, and the personal debt of the business owner. This may result in complex and tedious dual insolvency proceedings: one for the bankruptcy of the owner and the other for the business.

Unincorporated SMEs, in turn, suffer from two stumbling blocks. First, the personal bankruptcy scheme has not been created to preserve the SME or encourage its turnaround. Second, personal bankruptcy proceedings require specific evidence that the person has committed an “act of bankruptcy”, such as not complying with the terms of a bankruptcy notice in the previous six months.

This hurdle makes the process far more time-consuming than the corporate scheme. It is also more difficult for creditors to succeed in recovering their investment and, by extension, prevents them from efficiently reallocating it. There is a real danger that this will deter creditors and raise the cost of capital at first instance.

What can we do about it?

The best way to meet the needs of SMEs would be to create a tailored scheme that sits between the corporate and personal regimes, as has been done in Japan and Korea. These regimes focus on speeding up the proceedings, moving the process out of court where possible and reducing the costs involved.

However, as the legislation in these two countries notes, there can be marked differences between small and medium-sized businesses that all fall under the SME banner. Therefore, what is needed is a flexible system made up of a core process, together with a large array of additional tools that may be invoked.

Designing such a scheme remains no easy feat. However, at its core, such a scheme would ideally allow business owners to commence the insolvency process and remain in control throughout. The process would sift through businesses to identify those that remain viable, and produce cost-effective means for their preservation.

Non-viable businesses would be swiftly disposed of, using pre-designed liquidation plans where possible and relying on court processes and professionals only where absolutely necessary. Creditors would therefore receive the highest return possible, and importantly, honest and cooperative business owners would be quickly freed from their failed business and able to return to economic life.

Authors: Kevin B Sobel-Read, Lecturer in Law and Anthropologist, University of Newcastle; Madeleine MacKenzie, Research assistant, Newcastle Law School, University of Newcastle

DFA’s SME Report 2017 Released

The latest results from the Digital Finance Analytics Small and Medium Business Survey, based on research from 52,000 firms over the past 12 months, is now available on request.   You can use the form below to obtain a free copy of the report.

There are around 2.2 million small and medium businesses (SME) operating in Australia, and nearly 5 million Australian households rely on income from them directly or indirectly. So a healthy SME sector is essential for the future growth of the country.

However, the latest edition of our report reveals that more than half of small business owners are not getting the financial assistance they require from lenders in Australia to grow their businesses.

Most SME’s are now digitally literate, yet the range of products and services offered to them via online channels remains below their expectations.

More SME’s are willing to embrace non-traditional lenders, via Fintech, thanks to greater penetration of digital devices, and more familiarity with these new players. In addition, many firms said they would consider switching banks, but in practice they do not.

Overall business confidence has improved a bit compared with our previous report, but the amount of “red tape” which firms have to navigate is a considerable barrier to growth.

Running a business is not easy. In some industries, more than half of newly formed businesses are likely to fail within three years. We found that banks are not offering the broader advice and assistance which could assist a newer business, so even simple concepts like cash flow management, overtrading and debtor management are not necessarily well understood. There is a significant opportunity for players to step up to assist, and in so doing they could cement and strengthen existing relationships as well as creating new ones.

We think simple “Robo-Advice” could be offered as part of a set of business services.

The sector is complex, and one-size certainly does not fit all. In this edition, we focus in particular on what we call “the voice of the customer”. In the body of the report we reveal the core market segmentation which we use for our analysis and we also explore this data at a summary level.

Here is a short video summary of the key findings.

The detailed results from the surveys are made available to our paying clients (details on request), but this report provides an overall summary of some of the main findings. We make only brief reference to our state by state findings, which are also covered in the full survey. Feel free to contact DFA if you require more information, or something specific. Our surveys can be extended to meet specific client needs.

Note this will NOT automatically send you our research updates, for that register here.

Big four banks change loan contracts to eliminate unfair terms

ASIC says that following a commitment to further review their small business loan contracts, the big four banks have now agreed to specific changes with ASIC to eliminate unfair terms from their contracts.

ASIC and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) have welcomed the changes, which mean that:

  • the loan documents will not contain ‘entire agreement clauses’ that absolve the bank from responsibility for conduct, statements or representations they make to borrowers outside the written contract.
  • the operation of the banks’ indemnification clauses will be significantly limited. For example, the banks will now not be able to require their small business customers to cover losses, costs and expenses incurred due to the fraud, negligence or wilful misconduct of the bank, its employees or a receiver appointed by the bank.
  • clauses which gave banks the power to call in a default for an unspecified negative change in the circumstances of the small business customer (known as ‘material adverse change event’ clauses) have been removed – so that the banks will now not have the power to terminate the loan for an unspecified negative change in the circumstances of the customer.
  • banks have restricted their ability to vary contracts to specific circumstances, and where such a variation would cause a customer to want to exit the contract, the banks will provide a period of between 30 and 90 days for the consumer to do so.

The banks have all acted on ASIC’s and the ASBFEO’s calls to change their practices although have taken different approaches – and in some instances, gone further than the law requires – to address concerns about these clauses.

For example, NAB has taken an industry-leading position about the application of non-monetary default clauses, while the Commonwealth Bank will provide an industry-leading 90 calendar days’ notice for any changes to loan contracts that the small business customer does not wish to accept.

All four banks have limited the use of financial indicator covenants in small business contracts to certain classes of loans (e.g. property development and specialised lending such as margin loans). The banks have agreed that financial indicator covenants will not be applied to property investment loans.

The banks have agreed that all customers who entered or renewed contracts from 12 November 2016 – when the protections for small businesses began – will have the benefit of the changes agreed with ASIC.

To ensure that the new clauses do not operate unfairly in practice, ASIC will monitor the individual banks’ actual use of these clauses to determine if they are in fact applied or relied on in an unfair way. ASIC will work with ASBFEO when assessing the results of this monitoring.

ASIC will publish more detailed information about the changes agreed with the big four banks so that other lenders to small business can consider whether changes to their contracts may be required.

ASIC Deputy Chairman Peter Kell said, ‘ASIC welcomes the significant improvements made by the banks to their small business lending agreements. The improvements have raised small business lending standards and provide important protections for small business customers. ASIC will be following up with other lenders to ensure that their small business contracts do not contain unfair terms, and we will continue to work with the ASBFEO on these issues.’

The ASBFEO, Kate Carnell said, ‘This reflects nine months of hard work by ASIC working with the big four banks to meet the expectations of the Unfair Contract Term legislation. The banks’ initial underdone response to the legislation serves as a reminder that banks were once again trying to “game” the rules and this erodes trust.  There are now very positive signs that the big four banks are demonstrating industry leadership in embracing best practice.’

Ms Carnell added that, ‘In meeting the law to cover individual loan contracts up to $1million the banks have agreed to extend the cover to small business total loan facilities up to $3 million which is a move in the right direction. Recent reviews have consistently raised that a small business loan facility of $5m is the correct benchmark. This remains a sticking point that will need to be addressed.’

The four banks will shortly commence contacting all relevant small business customers who entered into or renewed a loan from 12 November 2016, about the changes to their loans.

Background

ASIC released Information Sheet 211 Unfair contract term protections for small businesses (INFO 211) to assist small businesses understand how the law deals with unfair terms in small business contracts for financial products and services and the protections that are available for small businesses.

From 12 November 2015, the unfair contract terms legislation was extended to cover standard form small business contracts with the same protections consumers are afforded. In the context of small business loans, this means that loans of up to $1 million that are provided in standard form contracts to small businesses employing fewer than 20 staff are covered by the legal protections. Industry was provided one year to prepare their contracts for the legislation coming into effect on 12 November 2016.

In September 2016 the ASBFEO commenced an inquiry into Small Business Loans.

In March 2017, ASBFEO and ASIC completed a review of small business standard form contracts and called on lenders across Australia to take immediate steps to ensure their standard form loan agreements comply with the law (refer: 17-056MR).

In March 2017, ASIC established an Office of Small Business to focus ASIC’s efforts and initiatives to help small business succeed as a key driver of the Australian economy.

In May 2017, ASBFEO and ASIC hosted a round table where the big four banks committed to make significant improvements to their small business loan contracts to ensure they meet the unfair contract terms laws (refer: 17-139MR).

Changes to contracts

As part of industry’s response to the ASBFEO’s Small Business Loans Inquiry, the banks have separately agreed to changes in their small business contracts to limit the specific events of non-monetary default entitling enforcement action by the banks (such as insolvency). The banks will now provide an opportunity for a customer to resolve a breach of most of the specified events, and ensure that enforcement action can only be taken against the small business customer where the breach presents a material credit risk to the bank.

Fintech small business lenders support research survey

New research will aim to establish current trends and best practice in the growing fintech lending market to small and medium-size enterprises (SME).

Fintech small business lenders will be surveyed as part of a collaborative research project by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) with industry organisation FinTech Australia and independent SME finance expert Neil Slonim from theBankDoctor.org.

Fintech lenders are an emerging alternative to banks for small business loans, often through seamless and highly automated online application, assessment and decision processes.

Ombudsman Kate Carnell said fintech lenders have potential to fill the gap left by traditional bank lenders in the marketplace, particularly as awareness, trust and confidence in alternative lending grows.

Ms Carnell commended the sector for being proactive to ensure best practice and transparency.

“But with rapid growth in the number of lenders and the variation of fintech products, it becomes more difficult for SMEs to make informed decisions about which products and lenders best suit their circumstances,” Ms Carnell said.

“The survey will collect information from fintech lenders that can shed light on some of these issues.

“Results will be published in a report to identify industry best practice and help SMEs to better understand their fintech borrowing options.

“The survey results will also inform fintech lenders how they can help SMEs by improving the transparency of their lending products and by clearly communicating the rates, costs, terms and conditions of their products.”

FinTech Australia CEO Danielle Szetho said FinTech Australia was pleased to work with the ASBFEO and theBankDoctor.org.

“This work will help us to understand how the industry is currently servicing SMEs and steps we might take as an industry to improve the SME community’s awareness and understanding of alternative lending products,” she said.

“What is clear is that banks have not been adequately servicing the SME community’s needs and fintechs have stepped in with new loan products to help fill that gap.

“This is proving to be a very beneficial and cost-effective source of funding for SMEs. This research will help even more SMEs to invest in their growth and benefit from alternative lending products.”

Neil Slonim from theBankDoctor.org said “it is not easy for small business owners to assess whether borrowing from a fintech lender is the best option for them, and if so, which lender they should choose.

“There are around 30 fintech small business lenders now operating and their websites, through which they engage with their customers, all appear to be much the same.

“As a not-for-profit SME advocate we are pleased to be working with the ASBFEO and FinTech Australia to raise understanding and transparency in a sector which is becoming increasingly relevant to small business owners.”

Awareness Proving The Toughest Hurdle For Aussie Alt-Lenders

 From Pymnts.com

Australia’s market for small- and medium-sized enterprises (SME) is by no means easy. The nation is grappling with a late supplier payments problem and with regulators looking to accelerate corporate payments to SMEs, though with limited expectation for the efforts to work.

But that presents an opportunity for alt lending, analysts say, as do tighter restrictions on traditional banks that may guide SMEs toward alt-fin, as they look to ease their cash crunches.

It seems an ideal climate for the alternative lending industry, but news of an analysis from Moula and Digital Finance Analytics this week finds awareness of these options is lacking among small business owners.

In their Disruption Index report, released quarterly, Moula and Digital Finance Analytics (DFA) scored Q1 2017 at 38.39, a 6.1 percent increase from Q1 2016. But the report said this represents only “gradual change” among small businesses in terms of their awareness of alternative lending options.

“There is still a certain air of skepticism about non-traditional forms of lending,” said DFA Principal Martin North in an interview with Australian Broker. “So SMEs who need to borrow tend to still go to the normal suspects. They’ll look to the banks or put it on their credit cards.”

He added that this means the alternative finance industry has to work harder to boost awareness and promote education.

“I think the FinTech sector has a terrific opportunity to lend to the SME sector, but they haven’t yet cracked the right level of brand awareness,” North continued. “Perhaps they need to think about how they use online tools, particularly advertising to re-energize the message that’s out there.”

There certainly is a market for alternative lenders to fill in the funding gap for small businesses.

Earlier this year, Australia’s Small Business and Family Enterprise Ombudsman Kate Carnell began naming some of the worse offenders of late supplier payments, including Kellogg’s and Mars, likening their delayed invoice payment practices to “extortion.” With the Council of Small Business Australia, regulators began to take a harsher stance on late payments, and in May, the voluntary Supplier Payment Code, which sees companies vowing to pay suppliers on time, came into effect.

As regulators consider whether to create fair supplier payment practice legislation, small businesses in the country continue to struggle: Research from American Express Australia and Xero released in April found nearly a third of the invoices in the cloud accounting platform can’t be reconciled every month because they’re waiting to be paid.

Meanwhile, Australian Broker reported, regulators are imposing stricter rules on traditional banks that may see them back even further away from small business borrowers. Plus, Moula and DFA’s report found, small business demands on their financial service providers are on the rise. According to their report, SMEs say a loan application should take, on average, less than five days to see final approval. Alternative lenders take an average of 36 hours, the report found.

The data suggests alt lending can meet some of the demands among SMEs for working capital and faster lending services.

“FinTechs like Moula are at the quick end, but a lot of the traditional lenders such as the major banks take a lot longer,” North continued. “What this is saying is that if the expectations of SMEs point to quick approval times and if the major players aren’t able to do that because of their internal systems and processes, then there is an interesting opportunity for the FinTechs who can do it quicker. They can actually disrupt [the industry].”

According to North in a statement found within the report itself, awareness levels among SMEs are gradually rising.

“In the last three months, we have seen a significant shift in attitudes among SMEs as they become more familiar with alternative credit options and migrate to digital channels,” he said. “The attraction of online application, swift assessment and credit availability for suitable businesses highlights the disruption which is underway. There is demand for new services and supply from new and emerging players to the SME sector.”

Indeed, while awareness is on the rise, it’s still relatively low. In Q4 of 2016, Moula found that just 14.1 percent of SMEs surveyed said they are familiar with their alternative finance options.

“So, what’s the barrier to growth?” North reflected to Australian Broker. “It’s not technology or demand from the SME sector. The barrier to growth is awareness and the willingness of SMEs to commit to this particular new business model.”