30 May 2018

Fuelling SMEs, the engine room of the economy

It is often said how important small businesses are to the Australian economy. They make up more than 99% of all Australian businesses, contribute $380 billion to the economy and employ more than 5.5 million people.[1] So it’s not an understatement to say that access to finance is critical to not only their success but also that of the Australian economy.

However, despite their importance, small to medium enterprises (SMEs) have traditionally struggled to easily access required finance on competitive terms. CPA Australia reports less than half of small businesses they surveyed found it easy or very easy to access external finance in 2016.[2]

Barriers can vary for SMEs wishing to access finance

As highlighted by a recent study into factors impacting small to medium enterprise investment[3], some possible reasons for the difficulties in accessing finance include:

  • SMEs are characterised by high complexity but low scale, making the sector unattractive to less efficient traditional lenders given the high cost to serve each individual client;
  • SMEs may lack the skills and resources to handle finance in a sophisticated or systematic manner;
  • Traditional lenders view SME lending as risky, especially as in many cases there is a lack of fixed assets to secure against a loan, and SMEs may be more sensitive to macroeconomic trends; and
  • Traditional lenders have regulation and prudential capital requirements for loans to SMEs.

The fact is that whilst there is no ‘typical’ SME with each business having unique needs, circumstances and experiences to manage (including financial ones), the barriers SMEs face to accessing timely and suitable funding are all too common. Just 1 in 25 bank lending commitments to businesses is for less than $100,000[4].

Times are a changing

The good news is that this significant ‘funding gap’ that exists today is being filled by the availability of more innovative financing solutions – designed specifically for SMEs, delivering relevant features and benefits enabled through technology. As a bank with technology at its core, it’s exciting to see how many SMEs are making Tyro business loans a key source of their funding.

Instead of the ‘traditional’ loan structure, Tyro business loans are simple, flexible and fast – without the need to secure the loan by fixed assets. They provide SMEs that are Tyro customers with a “cash-flow based” unsecured business loan by understanding your business’s EFTPOS transaction history[5]. Businesses may be eligible to borrow up to $120,000 ($50,000 for first time borrowers). The key features are:

  1. One Simple Fee: We have made pricing easy to understand by having only one flat fee that you know up front before you accept the loan. There are no early repayment fees, no management fees, and no hidden costs. So as a business you can clearly see the total amount of the loan and how much you need to repay. The flat fee is payable no matter how quickly the loan is repaid.
  2. Choice over the repayment percentage: Repayments are made by taking a percentage of the business’ daily EFTPOS takings rather than fortnightly or monthly repayment amounts. Customers have the ability to choose this percentage of their daily EFTPOS sales they would like to use to pay down the total amount owing until the balance is zero, subject to meeting minimum repayment amounts.
  3. Flexible repayments: Loan repayments adjust automatically with sales of the business. If the business has a slower day, or maybe experiences a seasonal downturn, the product naturally accommodates and repayments are reduced. This means the cashflow impact is minimised. Essentially it means you repay the loan as you get paid for your sales, subject to meeting minimum repayment amounts.
  4. No application forms or paperwork: Using technology and alternative assessment criteria removes a huge amount of admin and paperwork for customers. Customers are notified when they are “eligible” for a loan, presenting them with a “loan offer”, informing them of the amount they can borrow with no obligation to take up the loan. This removes the need for customers to complete what is often many pages of an application.
  5. Fast funding: Once a customer accepts the “loan offer” and provides a personal guarantee, both in the Tyro App, funds are in their Tyro Bank Account in 60 seconds.

Choose a funding option that suits you and your business

As the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell commented[6], “The big banks have about 80 per cent of the ‘small business’ business in Australia and the big four banks are not lending to small business unless they have significant equity in property. The banks will tell you there is plenty of money, but there is only plenty of money if you have bricks and mortar.”

As mentioned earlier, every business is different. It may be the case that a ‘traditional loan’ is the best option for an SME to access finance. From the number of Tyro customers that we have proudly supported with a Tyro business loan (a significant number multiple times over), we think there are many other SMEs out there that may benefit from a more innovative financing solution.

If you’d like to find out more about Tyro’s business loans, jump online or give us a call on 1300 966 639 24/7.

[1] Fintech lending to small and medium-sized enterprises, February 2018 Australian Small Business and Family Enterprise Ombudsman (ASBFEO)

[2] Based on businesses with less than 20 employees. CPA Australia, The CPA Australia Asia-Pacific Small Business Survey 2016 – Market Summary: Australia, February 2017

[3] Barriers to investment, November 2017, Australian Small Business and Family Enterprise Ombudsman (ASBFEO)

[4] RBA Statistical Tables, D7.4 Bank Lending to Business – New credit approval by size and by purpose, accessed 6 November 2017 from www.rba.gov.au/statistics/tables/

[5] Tyro’s loan is subject to Tyro’s eligibility and credit criteria. A personal guarantee is required and loan repayments are subject to minimum repayment amounts.

[6]Ombudsman launches inquiry into small business funding gap (4 April 2018)