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As SMEs grapple with the challenges of securing quick finance, a lender’s director has highlighted the vital role private lenders play in the economy.
With the official cash rate at a record-high 4.35 per cent, small and medium-sized enterprises (SMEs) face increased borrowing costs, putting additional strain on their already tight margins.
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GAP Business Loans director Peter Arnold said that along with the current challenges, the cost of operations has increased for SMEs as the Reserve Bank of Australia (RBA) stated that inflation has remained higher than expected over the last few months.
This economic climate has heightened the need for short-term financing to manage cash flow or capitalise on business opportunities crucial for growth, according to the lender.
Arnold pointed out that while traditional banks and large financial institutions play an important role in the financial ecosystem, they often fall short in meeting the immediate needs of SMEs.
“Traditional banks and large financial institutions are important, but they often fail to meet the needs of SMEs,” he said.
“These businesses require swift decisions and immediate access to capital to seize opportunities and manage cash flow effectively.”
Private lenders are emerging as a vital alternative to traditional financial institutions, offering quicker turnaround times and more flexible loan terms.
Arnold explained that SMEs typically prioritise three key factors when seeking finance: time, cost, and flexibility. Traditional lenders, with their extensive paperwork, rigorous credit checks, and multi-tiered approval processes, often take significantly longer to approve funding.
“Private lenders like us can often provide funding decisions within days, compared to the lengthy processes of traditional lenders,” Arnold said.
“This allows the SME to act quickly when the need arises for funding, helping them maintain smooth operations and their competitive edge.”
For SMEs seeking short-term financing, the speed of approval is particularly crucial, according to Arnold.
Cost is another critical factor. While SMEs often seek quick access to funding, they may be willing to accept higher interest rates if it means they can obtain the capital they need promptly.
“In these cases, the quick access to funding offered by private lenders is a much bigger consideration than potentially higher interest rates,” Arnold said.
Flexibility is the third advantage of private lenders. Arnold noted that private lenders assess each case individually, considering the unique circumstances and needs of their clients.
“We assess each case individually, understanding the unique circumstances and needs of our clients,” he said.
“This approach unlocks capital for businesses that might otherwise be overlooked.”
Moreover, the flexibility of private lenders extends to addressing complex financial challenges. For instance, with the Australian Taxation Office (ATO) taking aggressive action to recover unpaid taxes, private lenders can provide solutions that allow businesses to meet ATO obligations and continue trading.
“Company directors can be held personally liable for unpaid tax, worker entitlements, and superannuation guarantee contributions. But, if the SME owns property, a private lender can facilitate a lending solution to meet these ATO obligations and allow the business to continue trading,” Arnold said.
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