Non-banks ‘filling the void’ left by traditional lenders

GAP Business Loans director Peter Arnold has observed private lenders beginning to emerge as an alternative to traditional lenders.

Estimates from Citi recently revealed that private credit lending rose by 45 per cent (as of July 2024) over the last five years, compared to 25 per cent growth seen in traditional lending.

Data from the Reserve Bank of Australia’s half-yearly Financial Stability Review seems to suggest the same as around 11 per cent of business lending and 25 per cent of small business lending were provided by private credit providers.

“Traditional banks have long been the go-to institutions for borrowers, but we’re seeing a growing number of non-bank lenders filling the gaps,” Arnold said.

Increased risk aversion among banks has played a part in this shift towards non-bank lenders, according to Arnold.

“Traditional lenders have responded to heightened regulations by tightening their lending criteria to reduce their risk exposure,” he said.

“They have become more selective, demanding higher levels of documentation, stronger credit profiles and more substantial security.”

As a result, borrowers (particularly small-business owners and investors) are struggling to access funds for growth; however, this tightening of lending criteria has created opportunities for non-bank lenders to step in and offer more flexible and streamlined financing options.

Arnold further said: “Unlike traditional lenders, we are not bound by the same regulatory restrictions as banks. Although we still adhere to lending rules, we can be more flexible in our approach.

“We can focus on the project or deal itself. For example, we can provide finance for projects that traditional banks might consider too risky which may not have immediate cash flow but show strong future potential.”

Arnold said that one of the key advantages of non-bank lenders is the ability to offer customised loans and personalised services.

“Traditional lenders offer standardised products with rigid criteria, whereas non-bank lenders can customise loan terms to meet the specific needs of the borrower. This flexibility allows businesses to access the right amount of funding at the right time,” he said.

Managing the complex approval processes of traditional banks can be especially time-consuming for small and medium-sized enterprises (SMEs).

“We take the time to understand our clients’ industries and growth cycles. This means we can move quickly, providing access to capital that allows businesses to seize opportunities and continue their operations without interruption,” he said.

Adrian Suljanovic is a journalist at Broker Daily with more than two years experience reporting on all facets of the third party distribution channel.

Adrian has written for a range of business and finance titles including IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: This email address is being protected from spambots. You need JavaScript enabled to view it.