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How fintech in australia is disrupting small business loans and commercial mortgage lending

A picture of Australian cash bills.
Acquiring small business loans and commercial mortgages from Australia’s brick-and-mortar banking industry has become increasingly difficult for Australian borrowers. Global economic crises, local Australian scandals, and shifts in regulation of traditional bank lenders’ practices have made securing loans for commercial mortgages nearly impossible for many businesses. Disrupting the model of banks-to-borrowers financing, Fintech in Australia has opened new opportunities with innovative lending options through non-banks and peer-to-peer (P2P) lending.

Stricter Regulations in Acquiring Commercial Loans,

Traditional banks—the Big Four in particular—have held a monopoly on commercial loans and mortgage lending until recently. Stringent requirements have made it difficult for many businesses to acquire necessary funds from any of the Big Four lenders, and with the global economic crisis and the Royal Banking Commission, securing funds from traditional banks is now even more challenging.

Basel III and IV

Government representatives and central bank governors gathered at the 2010 G20 Seoul summit to discuss ways to deal with the 2008 global financial crisis. They collectively endorsed Basel III (which, finalised, is referred to as Basel IV), a global regulatory framework as international standards recommended for local governments’ banking industries.

Basel IV is slated for implementation in January 2022 and will usher in substantial changes to credit and operational risk. The new framework aims to increase the stability of financial systems and tighten restrictions on businesses and individuals attempting to secure commercial mortgage loans from traditional banks.

Royal Banking Commission

After years of fraud and scandals concerning traditional Australian banks, the Banking Royal Commission was launched on 14 December 2017. They discovered an aggressive profit-driven banking culture encouraged financial planners to commit large-scale acts of fraud and misconduct, costing customers hundreds of millions of dollars. The Banking Royal Commission set off an overhaul of Australia’s entire financial sector, which has led to stricter enforcement of tighter Australian banking practices and regulations.

On 1 February 2019, the high court and commissioner Kenneth Hayne submitted the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry to the Governor-General. Hayne recommended 24 referrals for further action against misconduct to the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA). The referrals tighten constraints around bank lending policies, which will further weigh on loan approval rates from traditional banks.
A picture of Australian cash bills.

Alternative Financial Solutions

After years of fraud and scandals concerning traditional Australian banks, the Banking Royal Commission was launched on 14 December 2017. They discovered an aggressive profit-driven banking culture encouraged financial planners to commit large-scale acts of fraud and misconduct, costing customers hundreds of millions of dollars. The Banking Royal Commission set off an overhaul of Australia’s entire financial sector, which has led to stricter enforcement of tighter Australian banking practices and regulations.

On 1 February 2019, the high court and commissioner Kenneth Hayne submitted the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry to the Governor-General. Hayne recommended 24 referrals for further action against misconduct to the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA). The referrals tighten constraints around bank lending policies, which will further weigh on loan approval rates from traditional banks.

Fintech

Fintech is an umbrella term describing the technology used in any financial service. Companies  utilising Fintech offer innovative technology to allow for quicker, more streamlined processes,  ultimately promoting greater accessibility for its users. Fintechs can be characterised as banks, non-banks, or P2P lending companies. Unlike non-banks and P2Ps, if a Fintech is a bank, they are directly affected by the events and changes detailed above and must adhere to all banking regulations and restrictions for their loan approval practises.

Non-banks

Non-banks do not hold full banking licenses and therefore are not obligated to follow APRA restrictions concerning ADIs. However, they can offer functions like those of conventional banks, including credit card operations and mortgage lending, which makes non-banks a reliable option for borrowers who do not meet the credit history standards of traditional bank requirements. With more relaxed eligibility criteria and creative technological solutions, non-banks are recognised as an attractive alternative to conventional banks.

P2P Lending

P2P lending employs a debt model of financing to unite borrowers, investors, and a partner bank to establish a loan. P2P services often analyse metrics, such as social media activity and credit scores, to suitably match borrowers and investors through an online platform. Participating lenders are usually high net worth individuals, private companies, or various kinds of debt funds willing to back riskier loans with the promise of principle return with interest.

Under Fintech, non-banks and P2Ps can stand alone or together. Fintech can describe banks, non-banks, or P2P lending services separately, but often Fintech is utilised by non-banks offering P2P services.

The alternative lending industry continues to grow at a remarkable pace. The Parliament of Australia reported, small-and-medium-businesses (SMBs) employ about 44% of all Australian workers. However, since SMBs usually have trouble when applying for loans at traditional banks, they turn to alternative lending platforms for their financial needs, including commercial mortgage loans. With the local and global economic climate, Fintech, non-banks, and P2P lending platforms are working to fill the deep gap between lenders and SMBs.

Acumen Finance is the first Fintech commercial loan disrupter working with tier one, two, and three specialists to secure the most efficient, appropriate, and accommodating lending solutions to meet  customer needs. Tier one involves banks and APRA for loans regarding a low-risk profile. Tier two includes ASIC regulated entities and Fintech backed property lenders. Tier three offers a P2P lending platform to connect borrowers with sophisticated investors interested in funding higher-risk investments.

With the ability to provide traditional bank services and beyond, Acumen Finance offers competitive interest rates and fast turnarounds from customer-oriented specialists to provide you with a loan best suited for your commercial needs. Contact us to discuss your commercial lending needs today!