There is a widespread concern that small business lending will continue to tighten this year.
Smaller operators are concerned about loans and raised scrutiny on mortgages because they use their homes as security. Securing a bank loan is also perceived to be difficult and this is discouraging many start-ups.
Some Melbourne business owners are reluctant to seek bank loans because of the uncertainty of the future. They also want to avoid expectations from investors so they choose to be bootstrapped instead.
Other alternatives including loans from fintechs and venture capital were also dismissed because they think it’s better to self-fund operations and aim for long-term growth in this current tight lending climate. Alternative finance options are now worth $US1 billion in Australia alone. Entrepreneurs are hopeful that things will change in a few years but for now, they believe it is a good idea to avoid debt and go a little slower.
The alternative finance market in the country has increased from $26.69 million in 2013 to $1.14 billion in 2017. The Reserve bank said that start-up companies have very limited access to finance from banks, which are reluctant to provide them with finance advice. Entrepreneurs then find it hard to compare lending products and choose the best one for them.
So far, about seven Australian fintechs are compliant with the code of lending practice, requiring signatories to provide clear loan summaries and rate comparisons. It is important for smaller lenders to be transparent because they are the key alternative for funding at this time. Hopefully, this will encourage small business owners to invest more and better understand that fintechs are different from banks.
As you look for different ways to grow and improve your business, seeking professional advice from a business consultant could prove to be an important and helpful decision.
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