Opportunity beckons for accountants advising on the alternative lending industry, as pressure piles on traditional lenders in a new survey showing a twofold growth in both borrowing and lending activity in the SME space.
Twofold increase for alternative lending a ‘good sign’ for accountants
ASIC’s second survey of the marketplace lending industry for the 2016-17 financial year showed $300 million in loans written to consumers and SMEs, nearly double the figure for 2015-16.
The survey also found a total of 7,768 investors and 18,746 borrowers as on 30 June 2017, more than double the figure in the previous financial year.
Institute of Public Accountants senior tax adviser Tony Greco said the strong figures was a reflection of a spike in job growths, with recent figures by the Australian Bureau of Statistics showing over 61,000 new jobs in the last month.
“There has been an uptake in activity in the small business space, as more than 50 per cent of employment comes from that sector so it is a good sign that the sector is borrowing more for business purposes,” said Mr Greco.
Mr Greco said the increasingly competitive lending space provided an opportunity for accountants to source and advise on additional avenues of funding for SMEs, but urged caution in blindly taking on loans.
“Once upon a time it was concentrated by the banks and the banks dictated the rules and now with these new players, there's a lot more on offer and they've all got various conditions attached to their loans but in the main, it's become easier if you don’t have hard assets to gravitate to some of these new providers who have got a bit more flexible lending terms,” said Mr Greco.
“If the banks won't lend then absolutely there are other lenders who are prepared to step into that void.
“They will lend on the basis of cash flow of the business as opposed to tangible assets so there's a fair but more competitive market space - there's a lot of fintechs now that have moved into that sector so obviously the marketplace is washed with all different providers.”
As with the 2015-16 survey, provider revenue was predominately tied to loan origination, paid by borrowers. There was a moderate rise of 1.6 per cent in overall default rates, to 2.2 per cent.
Mr Greco said that accountants needed to approach the marketplace lending industry with due care and ensure clients were aware of conditions attached to funds.
“The rates that these providers charge and the conditions attached to the loans are always things that borrowers have to be wary of,” added Mr Greco.
“The cost associated to lending, not just the interest rates but any additional costs for defaults and what happens if those repayments aren't met.
“At the end of the day there are conditions attached to the loan that must be met and repayment dates and it's a case of making sure that the business is in a sound position to adhere to the loan terms and it's just 101 basics.”
ASIC commissioner John Price said that the results of the second survey show that marketplace lending is continuing to grow and mature as an industry.
“This survey helps ASIC to better understand and regulate these businesses, and to identify areas to monitor in future,” said Mr Price.