When we started this business five years ago, we knew that banks were failing the SME community.  Just as we see today, I remember at the time seeing giant billboards around Sydney airport with bankers promising that they were on the side of small business.  That they were their partner in growth.  Sadly, the reality was much different and remains so today, with banks continuing to be very tight with SME lending.

The good news is that banks no longer have the stranglehold they once did on lending markets.  And that small and medium-sized businesses are increasingly looking to alternative, non-bank lenders for funding, with invoice financing the second highest in demand.

Recent research by East & Partners, found that non-banks could become the largest financiers of small- to medium-sized enterprises (SMEs) by 2020. The research found that invoice finance was the second most popular alternative finance vehicle after trade and import finance. Almost all SMEs polled indicated they are looking for finance companies that are quicker to deal with and have less red tape.

The sector has also been impacted by the fallout from the Banking Royal Commission.  Research by Apricity Finance found that 70 per cent of finance brokers agreed that cashflow is ‘definitely more’ of a problem than it was for small businesses 12 months ago, and 92 per cent of brokers believed that finance was ‘more difficult’ to get since the Royal Commission.

Another piece of research commissioned by ThinkTV (a group set up by the three major Australian television networks) found that consumers have become disenfranchised with the Big Four banks and are primed to look for alternatives.

According to ‘The Future of Banking’ Study published in June:

“44% consumers say the royal commission has had a medium to large impact on them (15% large impact) and 54% believe there will be a move away from the Big 4 in the future.”

With traditional lenders under threat from challenger brands and alternative finance solutions, the winners in the modern era will be the ones that meet the needs of their consumers the best.

It is little wonder that SME’s are looking outside the banking sector for other sources of finance that are much better suited to their business needs. Access to invoice financing is administratively easier. It is specifically tailored to solve the problem at hand – freeing up the revenue they have already earned so that they don’t run into cash flow problems.

Another primary benefit of invoice financing is that the company does not need to use its own assets as collateral for the funds extended to them by the funder.  Instead, they can leverage their own invoices, getting their own funds back into the business sooner, without taking on more debt.

Invoice finance has seen steady growth internationally. In the UK, MarketInvoice research found that the most popular SME funding choices were invoice and asset-backed finance.

It is encouraging to see SMEs considering alternative forms of finance, including the non-bank financing of their accounts receivable books. Not only are these convenient and flexible ways to meet their cash flow demands, but they also allow the business to unlock its growth potential.

Talk to Apricity today about finding an alternative funding solution for your business.