Non Bank lending to SMEs is - to the surprise of many - largely unregulated in Australia. However this is about to change, with lending by fintechs to SME's now about to be the subject of a self regulatory code.
SME lending presents a huge opportunity for the fintech industry. It presents a genuine alternative finance solution for small businesses where traditional banks are limited in their capacity to provide loans that are not secured to property. It is accepted the borrowing costs of fintechs will often be higher than banks, as loans are secured against business activities and not ‘‘bricks and mortar’’, but the total loan costs – the effective interest rate – is not always clear. This lack of transparency has made it difficult for small businesses to compare products offered by different fintechs, or to compare products offered by fintechs and banks.To make informed decisions on the best product to meet their needs, small business borrowers must be able to compare total costs, understand the obligations if you exit early and the penalties if payments are missed.