The Royal Commission’s investigation into misconduct in banking has given Australia’s financial industry a radical shake up. Banking practices have been put under the microscope and as a result the Big Four have tightened up their criteria for loans.
While this is a positive outcome of the investigation, at the same time these banks dominate 80% of the lending market, so SMEs are now struggling to access capital. There are around 2.1 million SMEs in Australia who employ nearly 70% of the country’s workforce but due to a $60 billion shortfall in funding from the Big Four, many cannot secure the finance they need to survive.
Application for a business loan through one of the Big Four Banks can be a tedious process. It might involve a 10-20 page application form, information from an accountant, and a wait of 2-8 weeks before an application is assessed. Only business owners with exemplary credit scores are being considered for loans, even then the answer is often ‘no’ unless they can offer property backed security.
Severe cash flow restrictions mean one in five SMEs are unable to take on new work, while 9 in 10 say it’s preventing them from growing their company.
Up until now there hasn’t been much competition for the Big Four Banks but the rise of the Fintechs is set to change all that.
Fintech has been around since the 1990s but has really taken off in the last decade, especially after the global financial crisis. Fintech companies use technology in a range of ways to improve the process for SMEs. They often provide quicker decisions, have different, more tailored products and are a credible alternative to the incumbent banks.
Fintechs are playing a vital role in providing SMEs increased access to more diverse funding options than traditional banks.
Here are some of the advantages that Fintechs offer SMEs:
Overall, Fintechs provide an alternative option for deserving SMEs overlooked by the Big Four Banks. When banks close their doors Fintechs provide access to the capital SMEs need to keep their business operations and for future growth.
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