2 August 2023

SME Financing: it’s time for businesses to think outside the box for their funding

For a longtime, small and medium-sized businesses (SMEs) have struggled for funding when they have fallen outside the criteria of traditional bank loans. However, over the last decade, new hope has emerged. A large variety of alternative financing options exist, promising greater flexibility and more access without all of the hoops to jump through.

This is nothing but good news for SMEs, right?

Well yes to some extent, but not always. As with any business loans, it’s all about weighing up the pros and the cons. However, these alternatives are adding more options for smaller businesses, and that’s a good thing. Unfortunately, if managed incorrectly, these new SME financing options aren’t all sunshine and can be a treacherous path of complexity and confusion. So, before you consider how you might ensure your SME thrives in today’s fast-paced business world, it’s important to put all business loan options under the microscope and analyse them all more deeply.  Read on for our in-depth analysis of Australia’s Financial lending industry and how SMEs can capitalise on its evolution.

The rise in alternative financing for Small to Medium Businesses

Access to finance is crucial for SMEs to grow and thrive.  However, traditional financing options, such as bank loans, can often be difficult to obtain. In recent years, alternative financing options have emerged to fill this gap, providing SMEs with easier and faster access to capital.  Some common examples Include:

In an Australian context, as of 2020, there has been a 33% decline in business loan applications over the previous five years. Overall, the trend towards alternative financing options in Australia reflects a growing demand for more flexible and accessible financing options for SMEs. While traditional financing options still have an important role to play, alternative business financing options are likely to continue to grow in popularity in the coming years. The question is, why?

Explaining the rise in alternative financing for SMEs

There are a variety of reasons contributing to the rise in alternative financing options for SMEs.

  • Put simply, big banks aren’t getting easier to deal with

For some time now, many SMEs have faced challenges with the cumbersome processes and stringent requirements of traditional banks, leading them to seek more accessible and flexible financing options.  The result? An increased demand for financing alternatives.

  • Increase in fintech options and other platforms

Significant technological advancement has contributed to an enormous rise in fintech companies and other commercial loan platforms. They have introduced innovative financial solutions by offering streamlined and user-friendly financing options that cater specifically to the needs of SMEs.   The result? An increased supply of financing alternatives.

  • A desire to reduce friction points

Alternative financing options focus on minimising bureaucratic hurdles and therefore appeal to resource-constrained SMEs by eliminating unnecessary paperwork, lengthy approval processes and collateral requirements.

  • COVID-19

The pandemic has been to blame for a lot of significant changes across all aspects of life and it still remains the case for business lending. As traditional avenues faced constraints and disruptions, many SMEs were prompted to explore alternative funding sources and in doing so, have turned to alternative lending options to secure the capital they needed.

So, how can you ensure your SME gets access to the best lending options in this evolving landscape?

It’s simple. Be proactive when it comes to managing your cash requirements! If you have a fast-growing business, the best thing you can do is to gain preapproval from lenders or other financiers that are most likely to suit your needs. To prevent sleepless nights worrying about whether you are going to be able to pay your staff on the next payroll date, it’s also best to ensure you have a clear understanding of the lending market, what options are open to you (both traditional and alternative) and have a Plan B in place.

Not sure where to start? Dexterous can help

We provide a turnkey managed finance solution that works for you through a financial, operating and growth lens. When it comes to navigating the competitive alternative finance environment, we are your value-add solution, offering:

  • In-depth cash flow forecasting so that your SME can stay above water
  • Introductions to the right people in finance to gain a competitive edge
  • A comprehensive team of industry specialists who can manage your finances according to your unique needs.

Do you want an expert finance team that helps you proactively manage your cash flow and financing?

At Dexterous, we go far beyond virtual bookkeeping and external accounting services.  We provide a comprehensive managed finance solution. This means that we leverage all the latest business tools including Robotic Process Automation (RPA), access global talent and manage your finance department with the local expertise of our Sydney team.

We also equip you with a strategic approach and cost-effective function not just to address the challenges of a potential impending recession today, but to also help you achieve more growth in the future by better navigating the competitive fundraising and lending environment. Reach out to Dexterous and transform your finance department today. For more information, get in touch with us today or connect with us via LinkedIn