Is 2019 the year for alternative funding?

By Sarah Stowe | 23 Jan 2019 View comments

What does 2019 hold for business financing? Lachlan Heussler, managing director, Spotcap Australia, expects big changes ahead.

We predict that the growth of alternative lending and falling property prices will significantly change the landscape of business finance this year. Following last year’s banking Royal Commission, consumers will also increasingly demand transparency and openness from their financial providers.

As a result of current market trends, we will also see business owners become more empowered and educated about their funding options as different lenders service their needs and go where the banks don’t want to anymore.

Alternative lending, not so alternative anymore

The term ‘alternative’ may lead you to believe that online lending is just a small portion of the total loan market in Australia. However, with the sector’s record-breaking growth expected to continue into 2019, we will soon discover that alternative lending will be the go-to option for business owners moving forward, not the alternative.

Not long ago, there were only a few players in the online lending space in Australia. Fast forward only a few years and those same players have grown immensely and have updated their offering to cater to the needs of industry-specific clients.

Behind China, Australia is the largest alternative finance market in the Asia Pacific, worth over $1.14 billion in 2017, according to KPMG’s 2018 Asia Pacific Alternative Finance Industry Report. Further massive growth occurred in 2018 and is predicted again for 2019, as the adoption of fintech lending increases among small business owners who have a need for quick and accessible finance.

Secured funding is on the out

Property prices are declining at a fast rate, making it increasingly difficult for small business owners to use their home as security for a loan – if they have one. In fact, CoreLogic’s Home Value Index in November revealed that Australian property prices have had their largest annual fall since the GFC in 2009.

With less equity to secure a business loan against, SMEs are turning to other forms of funding, including unsecured online business loans. Owners are often reluctant to place real-estate as collateral, so options that instead assess real-time business performance for loan approval will be a big area of growth in 2019.

Transparency will become a priority

Following the widely publicised findings from the Royal Commission on Banking, consumers are demanding transparency from their financial providers more than ever before. Many business owners now say they would seek alternative financing options to fund their needs if financial institutions failed to uphold disclosure standards.

As a result, in the coming years, lenders will be expected to be upfront with rates, fees and commissions. Financial providers have already started to take steps to improve transparency, especially within the unsecured SME loan space. In July 2018, Spotcap and a group of leading Australian fintech companies signed a code of conduct, outlining practical principles that will standardise disclosure practices, coming into effect in January 2019.

Throughout 2019, transparency will become a priority and we will likely see many more businesses undertaking measures to improve consumer trust. These steps will make accessing finance a lot easier for consumers, as they can clearly determine what product is right for them and at what cost.

This article first appeared on Inside Small Business, a sibling publication to Inside Franchise Business.