42% of SMBs rejected by banks turn to family or friends for funding

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Research by leading online SME lender OnDeck Australia, found that SMEs can experience a high rate of rejection among traditional lenders when it comes to securing business finance.

OnDeck’s research found that 40% of the SMEs surveyed have, at some stage, applied for finance across a variety of sources. Among these, one in four (24%) have had their application rejected by a bank, a figure that rises to 38% of SMEs that have been in operation for less than five years.

When SMEs are knocked back by a bank, they’re most likely to go cap in hand to family and friends

  • Across the 40% of SMEs surveyed that have applied for finance in the past, 1 in 4 (24%) have been rejected by a bank when seeking a business loan, rising to 38% of SMEs in business for less than five years.
  • The most common action taken by 42% of these SMEs rejected for bank finance is to reach out to family and friends for funding.
  • Of these small business rejected by a bank for finance, one in three (29%) have partnered with an online lender as an alternative source of funding.

When the bank has said “no” to finance, these SME owners reached out to alternate sources of finance – typically family and friends (42%), or a credit card (32%). Close to one-third (29%) partnered with an online lender such as OnDeck. Over one in ten (13%) small businesses gave up their goal of seeking funding altogether.

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Mr Cameron Poolman, CEO of OnDeck Australia said, “When SMEs are knocked back by a traditional lender for commercial finance, it can seem like an easy option to rely on family and friends as a source of funding. But money and mates have the potential to be an ‘oil and water’ mix – and in the current pandemic, options to borrow from personal contacts could be limited.

“Even where friends or family are willing to provide funding, without clear terms and conditions in place, misunderstandings can easily occur. This can cost the SME owner a valuable personal relationship. In the worst-case scenario, disagreements can escalate to the point where the parties become embroiled in costly legal action.”

SMEs increasingly aware of other finance options

OnDeck’s study found 36% of SMEs surveyed recognise there are now more lending options available to their business, up from 30% in 2018.

“It’s great to see that Australia’s small business community is becoming aware of specialist SME lenders such as OnDeck. This is giving more businesses the opportunity to access the funds they need to navigate the current challenging conditions – or to take advantage of the upscaled and extended instant asset write-off and invest for future growth,” said Mr Poolman.

“One of the key benefits of online lenders such as OnDeck, is that SMEs can enjoy rapid loan approval times, often with funding available in 1-3 business days. This lets SME owners access finance in a timely manner to take advantage of opportunities as they arise.

“Unlike borrowing from friends or family, OnDeck’s proprietary SMARTBox pricing tool gives business owners a clear upfront picture on how much their loan will cost. This allows business owners to make an informed judgement on the likely return on the items being funded – be it trading stock or capital assets,” concluded Mr Poolman.

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