Non-Bank Lending Myths: Are They Costing Growth for Australian SMEs?
Misconceptions that non-bank lending is inherently riskier or too expensive are costing the growth of small and medium-sized enterprises (SMEs) in Australia. By avoiding these alternative lenders, many businesses miss out on flexible funding, faster approvals, and the working capital they need to scale when banks reject them.
For decades, the Big Four have been the default if you’re seeking capital. They control most of the nation's lending market. However, with the increasing compliance measures from the Australian Prudential Regulation Authority (APRA), traditional banks are applying more rigid lending criteria, creating a funding gap for businesses.
Alternative financial institutions have stepped in to fill that gap, growing at twice the rate of bank lending, according to a 2024 study from the Reserve Bank of Australia. Despite its growing market share, a cloud of misinformation is costing founders the growth capital they need
Key Takeaways from Empire Lending
The biggest myths are that non-bank lending is too risky, too limited, or only for businesses with bad credit.
Many non-bank borrowers have a strong credit history and choose non-banks for speed, flexibility, and better-fit funding.
Stricter APRA compliance measures have contributed to a funding gap for businesses.
What Are Non-Bank Lenders?
A non-bank lender is a financial institution that provides business loans without operating as a traditional bank. These lenders may apply more flexible lending criteria and assess serviceability based on whether a business can meet repayments without undue financial pressure or a high risk of default.
Non-bank lenders are lenders that:
Do not hold an Australian banking licence.
Are not mutual institutions such as banks, building societies, or credit unions.
Non-Banks vs Traditional Banks: Key Differences
Traditional banks such as the Big Four offer lower interest rates but typically require businesses to meet stringent criteria, while non-banks tend to offer faster approvals, more flexible terms, and broader access to business funding.
Characteristics of Non-Bank Lenders:
Funding Sources: They do not take customer deposits.
Regulation: They fall strictly under the national consumer credit protection laws overseen by the Australian Securities and Investments Commission (ASIC).
Flexibility: Because they rely on wholesale funding, they frequently offer more flexible, customised underwriting for non-standard or complex applications.
Characteristics of Traditional Banks:
Lower interest rates: They provide lower interest rates but typically require businesses to meet stringent criteria
Lengthy regulatory approval processes: Because they must adhere to rigid compliance frameworks, exhaustive forensic audit requirements, and strict capital-adequacy guidelines enforced by APRA.
3 Myths About Non-Bank Lending That Could Be Costing Your Growth
There are still some misconceptions about the safety of non-bank lending, with many people labelling it as risky. In most cases, those concerns are myths rather than facts.
We’re breaking down the most common myths and what the truth actually looks like.
Myth #1: It’s Too Risky
Many business owners assume that stepping outside the Big Four means taking on excessive risk, but that is not necessarily true. Non-banks operate within a regulated framework and often provide flexible lending criteria and business financing solutions that better suit SMEs.
Myth #2: It Doesn’t Offer the Same Options as Traditional Lending
Although the Big Four can provide a sense of security, non-banks often offer more flexible and less complex funding options. You’ll generally spend less on fees and closing costs associated with your loan. That flexibility can make a big difference compared to a bank’s slow approval process.
Myth #3: It’s Only for Businesses with Bad Credit
Non-bank lending is not just for businesses with bad credit. Many non-bank borrowers have excellent credit scores and credit history, and they choose to do so because they need faster approvals, more flexible criteria, and financial products that better match their cash flow.
Frequently Asked Questions
What is the main difference between a bank and a non-bank lender?
The main difference is that a non-bank lender is not an authorised deposit-taking institution, while banks take deposits from the public. Non-bank lenders usually focus on lending flexibility, speed, and tailored business loan solutions.
Do I need an Australian Credit Licence to get a business loan?
Most borrowers do not need a credit licence to apply for a business loan. That requirement usually relates to businesses or individuals providing credit services, not the borrower seeking finance.
Is it faster to get approved by a non-bank lender?
In many cases, yes. Non-bank lenders often have shorter approval timelines than traditional banks, especially for business owners who need fast access to business financing.
Get the Funding You Need with Non-Bank Lending
Non-bank lending can help Australian SMEs access business funding when banks are too slow or too rigid. At Empire Lending, we help businesses move past the myths and find funding solutions that better suit their needs.
Fill out this form, and a lending partner will contact you directly.
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