Small businesses increasingly turning to non-banks for investment

The share of small and medium-sized enterprises (SMEs) planning to partner with non-bank lenders for new investment has risen to a record high of 54 per cent, up from 47 per cent a year ago, according to ScotPac’s bi-annual SME Growth Index Report.

In contrast, only 35 per cent of SMEs said they would seek new investment funding from their main relationship bank or a peer, a significant decrease from 47 per cent in the same period last year.

The shift away from traditional banks is particularly notable among SMEs in a business growth phase, which account for 40 per cent of the national market.

More than four in five businesses in this category are exploring alternative lending solutions, with over half intending to turn to non-bank lenders to support new investments.

Further insights from the report show that 60 per cent of Australian SMEs plan to invest in their business over the next six months, up from 52 per cent at the height of the COVID-19 pandemic in September 2020.

Additionally, 94 per cent of SMEs intend to use their own funds as part of the capital mix for new investments, despite the growing number of available lending options.

A third of SMEs plan to raise new equity, a threefold increase since the SME Growth Index began in 2014.

ScotPac chief executive Jon Sutton commented on the findings, noting the significant evolution of business finance in recent years.

“The days of cumbersome, one-size-fits-all SME financing are gone, replaced by a growing demand for more flexible options that are faster and more accessible,” Sutton said.

He added that SME owners and operators are increasingly recognising the benefits of non-bank lending, which often offers alternatives to borrowing against the family home.

This has prompted many to engage with brokers and explore funding options outside traditional lending arrangements.

Sutton also predicted that despite the record increase in SME non-bank lending, further growth is expected in the coming years.

“First, demand from SMEs for fresh working capital is on the rise as businesses face rising costs and uncertain demand,” Sutton said.

“Second, there remains a large, untapped market of SMEs who are self-funding business investment. And third, awareness of the speed and ease of non-bank lending products continues to grow through a combination of networking, technology and broker activity.”

For brokers, Sutton noted that the current environment plays to their strengths, helping clients navigate a crowded lending market to find the right solution.

[RELATED: SME growth plans open fresh opportunities for brokers]

Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.