Due to the ‘gigantic profits’ banks derive from processing the ‘lion’s share’ of home loans in Australia, traditional lenders haven’t had a compelling case for servicing small businesses – rejecting around 50% of their loan requests, according to Simon Isaacs, founder and CEO of fintech startup ebroker.
“Banks can lend $62.50 for every dollar* of their own capital if its secured against property and they can charge interest against the entire loan,” the entrepreneur told Dynamic Business. “Conversely, they can only lend $10 for every dollar of their own capital towards an unsecured business loan. In the first scenario, the interest a bank earns against their own capital is gigantic, whereas in the latter, they have to provide a much higher ratio of their own capital. As such, its less attractive for banks to lend to a small business that doesn’t have bricks-and-mortar security.”
In the past, Isaacs explained, a small business owner would have been hard-pressed to secure a loan necessary to either remain solvent during a tough period or capitalise on a great opportunity for growth, with additional implications for their community (e.g. reduced spending on local employment). Fortunately, he said non-bank business lenders and fintechs are providing small businesses with a lifeline.
“The non-bank lending sector has flourished due to a massive, unfulfilled demand for business finance,” he said. “This is because non-bank business lenders are providing funding without the need for property as collateral. They can facilitate unsecured loans because they make lending decisions based on the trading history of the business seeking funding. Although funding comes at a higher cost due to the extra risk for the lender, it’s a massive relief for small business owners who don’t own property or prefer to use their property for other investments.”
The emergence of non-bank lenders, while a boon for small businesses, has led to a situation where it is becoming difficult for an owner to make an informed decision. As Isaacs explained, “business lending is complex, with more loan types and scenario combinations than any one person can navigate on their own. The reason is that unlike home or personal loans, which are fairly straight forward, businesses are far more varied in what they do and how they operate, and the market has responded with a large array of business loan types to suit.”
Motivated to help small business owners find not only the best possible lender but the best possible loan for their circumstances, Isaacs launched ebroker, a free online business finance broker, in August 2015.
“The ebroker platform is underpinned by an intelligent matching algorithm that enables small business owners to compare loans and, within two to three minutes, connect directly with the lenders whose product will provide the best outcome for their business,” he said.
“A wide variety of lending products are offered by the 60 non-bank lenders listed on ebroker’s website but our main advantage is that we’re the only unbiased and transparent platform of our kind on the market. Many sites offer business loan brokerage services… but they don’t share their list of lenders, nor do they allow clients to compare and connect directly to a lender. For them, transparency and customer choice mean higher competition and lower costs for the customers, so they instead chose to restrict transparency and choice, and earn higher commission at the expense of the customers.”
In the absence of transparency and choice, Isaacs said small business run the risk of opting into an unsecured loan that is not just costly but has restrictive contract and exit terms, which in some cases can destroy their business.
“Fortunately, that’s not the case for owners that leverage ebroker,” he said. “We present business owners with all the options and while we receive a commission from lenders on successful deals, our matching algorithm is not biased towards commission – instead, it is driven by a ‘best match’ weighting principal. The bottom line is that choice and the ability to shop around delivers small business owners the best outcomes always. In fact, of the 367 reviews business owners have left us through TrustPilot, the vast majority being outstanding.”
Isaacs said that while ebroker is playing a role in exposing SMEs to better loans and contract terms, the platform’s lenders themselves deserve most of the credit for “constantly striving” for better lending solutions, based on performance of businesses. He added, “If ebroker has done anything it is to save non-bank lenders time and marketing dollars by providing them with a platform to freely promote their offering to a large audience.”
Asked for the main reasons small business owners search ebroker for finance, Isaacs nominated cash flow and new business opportunities. His advice for business owners looking to increase the likelihood of securing finance through one of ebroker’s non-bank lenders was to seek finance “as early as possible” and apply for the “minimum amount required to achieve the desired outcome”.
“A good solid trading history of over 12 months is ideal, however many of our lenders will consider a business that’s only been trading 6 months and even new starts,” he concluded.
To compare business loans or for more information on the type of loans ebroker can offer your business visit www.ebroker.com.au or click on the below options.