Banking on the non-banks – Non-Bank Roundtable: Business Finance

Getting a loan as an Australian small business used to mean walking into a bank branch, sitting down with the manager, and getting a loan approved. But the days of local managers knowing the intimate details of a small business and their financial needs are long gone. Instead, non-bank lenders have filled the void for specialised SME finance, with many of the major players utilising the broker channel to distribute their wide range of solutions.

The non-bank lending space has been dominating business finance over the past few years, as these fast-moving lenders launch new niche products, technology, and support for the broker channel. At The Adviser’s recent Non-Bank Roundtable: Business Finance, we found out more about why and how they’re doing it

Nowadays, businesses are increasingly turning to brokers for help and the third-party channel in turn is increasingly using non-bank lenders for speed, flexibility, and innovation. Indeed, SMEs are increasingly needing a fast credit decision to keep the lights on.

According to recent insights from Moneytech, alongside data from CreditorWatch’s trade receivables analysis, SMEs have been subject to a concerning trend in overdue payments, impacting cash flow and business sustainability.

In fact, late payments to SMEs have surged to their highest level since March 2021, with payment defaults more than doubling in the past year, particularly in construction, hospitality, manufacturing, and transport. Insolvencies have surged 57 per cent in a year, with legal actions adding pressure. Larger businesses are extending payment terms, worsening SME financial stress. Data from non-bank lender Lumi, meanwhile, reveals that there are three main concerns small businesses have at the moment: cash flow management (timing mismatches between income and outgoing payments and mounting ATO debt being chased by an aggressive collection department), rising costs (particularly for paying staff, stock, and impacting profitability), and uncertainty around interest rate changes and the impact of global market influences, such as US trade policies.

For smaller businesses, in particular (for example, those earning less than $2–$5 million in revenue), looking to take on new credit can be a make-or-break decision. As such, SMEs are turning to brokers in droves to help them find a solution that enables them to keep growing, and fast, with many finding a home with non-bank lenders.

In February, The Adviser hosted its Non-Bank Roundtable: Business Finance, bringing together seven leading non-bank lenders to find out how and why they’ve been innovating for the broker channel and discover the trends they’re seeing in the market.

Representatives at the roundtable were:

• Guy Callaghan, CEO, Banjo Loans.

• Craig Michie, group executive, client acquisition, ScotPac.

• John Clifford, head of third party, Lumi.

• Greg Woszczalski, executive chairman, Dynamoney.

• Roberto Sanz, GM, sales & partnerships, Prospa.

• Luke Jokovic, chief operating officer, Moneytech.

• Mendy Ash, senior BDM, Bizcap.

Banjo Loans CEO Callaghan noted that while the financial year 2024 had been “really tricky” for many SME lenders as business confidence plunged amid a tighter economic environment, he said that confidence has been higher this year.

He said that the number of SME loan applications jumped by 45 per cent in the first quarter of FY25 at Banjo, matching flows not seen since March 2023.

Similarly, Bizcap’s Ash said that the lender was funding upwards of 1,200 facilities a month and from a growing pool of clients.

“We’re seeing ASX-listed businesses. We’re seeing construction businesses. We’re seeing professional service industries. We’re seeing everybody. Confidence is up and clients are on the lookout. We’re hoping that rates coming down will increase both consumer confidence and business owners’ confidence,” he said.

So how are they doing it? All the lenders at the roundtable said that they had been investing heavily in technology to keep settlement times within 24 hours.

ScotPac’s Michie said: “Speed is definitely the overriding trend. We know that SME business owners are very time-poor. They don’t always plan properly. They get surprises often, and that’s where the speed comes to the party. When they want to move, they want to move quickly.”

In order to ensure a fast turnaround, all the lenders have been upgrading their technology offerings to brokers recently. Whether building proprietary broker portals and CRM systems, updating websites and harnessing APIs to be more user-friendly, or streamlining submission processes, the technology used by SME lenders has come on leaps and bounds.

According to Michie, non-banks have been “forced to change and embrace tech” over the last few years in order to compete on speed with other non-bank lenders.

Brokers are also forcing the lenders to innovate, with many used to having a streamlined and transparent service from residential lenders now expecting a similar offering from non-banks for SME finance.

And it is working; according to Agile Market Intelligence’s recent Broker Pulse: Commercial Lending survey (for the three months to November), non-banks are particularly popular now for their speed in turnaround times and personalised service.

The survey found that non-bank business lenders have an impressive average turnaround time of 1.4 days for business loans over the five months to November 2024, but turnarounds for similar loans were 7.5 days for brokers dealing with the major banks.

Prospa’s Sanz told The Adviser roundtable that aside from slower turnarounds, banks are also losing popularity with brokers and their clients for cash flow lending because they have much stricter and inflexible policies, complex processes, a lack of innovation, and lack empathy when dealing with small-business owners. Noting the growing non-bank market share for business finance, Lumi’s Clifford said: “There’s been a pretty seismic shift in the way that Australian businesses borrow over the last few years. There has been a real move away from the traditional banks. And what we are finding is that 62 per cent of SMEs are now seeking alternative financing options, as opposed to going to traditional banks.

“The market has grown over the last few years, since 2019 we’ve noticed about a 9.4 per cent increase in the size of it. It’s in excess of $630 billion in demand for working capital and SME funding options out there.

And the market is so big that we can probably share but also have our own niches and do well
- Guy Callaghan, CEO, Banjo Loans

“It’s obviously a segment that’s not adequately addressed by the banks; since the 70s and 80s, they’ve been moving further and further away from commercial lending and more towards just being bricks and mortar residential lenders. As a result, there’s a huge opportunity for lenders like ourselves, and for brokers who engage with us to assist clients.”

The rates being offered by the non-banks are also now on a par with ‘bank pricing’, the panellists said, which was going to be of increasing importance as more banks enter back into the commercial lending arena.

Jokovic from Moneytech said: “Most non-bank lenders’ headline interest rates are now competitive with the carded rates of major banks. That means that we’re seeing clients that might have been considered strong ‘bank clients’ as non-bank clients, and we’re able to offer them more products that suit them better, too.

“I think that’s surprised both borrowers and brokers. [W]e’ve really had to reset broker expectations.”

But Banjo’s Callaghan said that even with many non-bank lenders in the SME space, most were “playing” in different segments of the market and had unique offerings.

“I think every lender in this room plays in different areas of the market. And the market is so big that we can probably share but also have our own niches and do well, which is great,” the CEO said.

He said that Banjo wanted to “keep pushing into large loan sizes” and would be rolling out new products in coming months.

The new era of SME lending

The roundtable panellists agreed that it was the non-banks’ ability to provide expertise and sympathy at the right time, while tailoring their offerings to ensure they’re meeting client demand that kept them in the hearts and minds of brokers.

Some – such as ScotPac, Lumi, and Moneytech – have been boosting the value of loans they offer. Others, such as Banjo Loans, have recently expanded loan terms (to 60 months), providing SMEs with some additional breathing space.

It’s the agility and the innovation that the people around this table bring to market that is the key to our popularity
- Greg Woszczalski, executive chairman, Dynamoney

New products have also been launched, including Lumi’s “Rate EaseTM product”, which automatically decreases the interest rate on business loans for certain SME borrowers and Dynamoney recently launched SME overdraft credit card, powered by Mastercard.

Many lenders noted the surging demand for longer-term revolving credit and lines of credit – where borrowers only need to draw down on the money when they need it – several non-banks saying they will be launching new products to service this demand.

Woszczalski, executive chairman of Dynamoney, said: “It’s the agility and the innovation that the people around this table bring to market that is the key to our popularity, and the key to our future as well.

“I think the major trend is embedded finance, and I think we’re all actively working in the background to make sure that is as embedded in our clients lives as possible and what are we doing to give clients all those options in one place.”

Non-banks are now even harnessing artificial intelligence to accelerate credit decisioning. Prospa’s new AI tech, Prospa IQ, for example, incorporates real-time data and sector insights to provide brokers with the ability to deliver quotes “on the spot”.

It utilises the lender’s proprietary Credit Decision Engine to give brokers the ability to generate realistic quotes, without impacting clients’ credit scores. Brokers will also be able to access the tool on mobile devices.

Sanz said: “It gives brokers the opportunity to assess the client’s business, analyses bank statements and provides them with an outcome when it comes down to servicing amount and price. And all this happens without a credit check and in real time. We believe that this is the transition from moving away from a product guide or a pricing matrix. I call it the industrial age, moving into the digital era.

“We strongly believe that business owners and brokers in particular should have the opportunity to be one click away from doing a full assessment in real time for their businesses.”

Ash from Bizcap concluded by saying that, given the pace of change and the flexibility that non-bank SME lenders can provide, it was important for brokers to therefore stay across all of the new offerings and updates available to them and reach out to BDMs for more details.

“It’s about understanding that you get access to all the products you could be offering, because if you’re not, someone else is. [I]t’s about understanding the space, getting the knowledge, arming yourself with all the information to assist your clients and ensure they’re not looking elsewhere,” Ash said.

Find out more about how the non-banks are innovating on page 25.