You’re sitting in the plush grey waiting room at the bank. It’s quiet, air conditioned and clean inside – but that doesn’t mean you’re comfortable. You’ve only been in the queue for fifteen minutes, but it took you and your partners weeks to put together your business plan and proposal.
You look down at the wad of neat little charts, graphs and figures in your folder. Suddenly, you’re hyper aware that it doesn’t really represent the heart, soul and potential of your business. Is the loan officer even going to understand what you do? Will your business loan get approved – and if it does, will it be in time? It’s more than a tad stressful.
But what’s the alternative? After all, each loan requires the same information and processes in order to be assessed, right? Well, not exactly...
Marketplace lending, often referred to as peer to peer lending (P2P), is a fresh new alternative to traditional bank lending. As the name suggests, it’s driven by market forces. Supply (of money and investment opportunities), and demand (for credit and favourable rates).
Marketplace lending organisations recognise that businesses have lots of choice when it comes to sources of credit. They also recognise that every business in every industry has its own unique circumstances. Circumstances that make it a better candidate for credit.
Banks have strict criteria about who they can lend to. Traditional credit assessment techniques can rely on a very narrow range of information provided by financial statements. Often the quality and type of security being offered to support the loan is an incredibly important factor in determining the success or otherwise of the application.
Marketplace lenders look at financial statements too. But, unlike banks, they go deeper to look for other clues as to the individual business’s future potential. A marketplace lender may review social media data, online accounting software data and bank statements for real time assessment, and online industry market research. They ask questions such as ‘what does market research tell us about the future of this local industry?’, ‘what unique, protected intellectual property does this business own?’, or ‘how will the loan transform the business’s potential?’
Marketplace lending defies tradition in more ways than one. Take Banjo for example, we offer a comprehensive online service. No more queuing up in a branch!
For small and medium sized enterprises, a successful business loan is about much more than just getting your hands on the cash. It’s about the application process, timing, flexibility, the sense of understanding, accessibility, and the cost of credit. All attributes which are fundamental to marketplace lending.
As a marketplace lender, we simply get it. By focusing solely on the SME business community, and reforming the ingrained attitude to how credit should work, Banjo can deliver the all-round positive experience that small businesses have been missing from the big banks.
Open any business newspaper or website, and there’s one word you’ll almost definitely find on the first page: innovation (Along with ‘disruption’, ‘agile’, and ‘cloud’ – but that’s a discussion for another day). Politicians love a good bit of innovation. Malcolm Turnbull introduced his government’s Innovation Agenda in early December. At the launch, he said that “We want to be a culture, a national culture of innovation, of risk-taking, because as we do that, we grow the whole ecosystem of innovation right across the economy.”
But despite what the pollies and commentators say, it’s not just a matter of research, education and infrastructure. There are plenty of Aussie businesses out there with the ideas, talent and drive to do great things. The problem is red tape and regulatory burden.
To sum it up, regulations designed to protect the public are broad and inflexible. They’re often confusing for start-ups and other small businesses. Regulations can stop businesses accessing funding, trialling their idea, or launching to the public.
A lot of the red tape needs to go. According to the Heritage Foundation, Australia’s regulatory efficiency is falling. For example, we’re 21st in the world for labour freedom – just behind Colombia. Of course, some basic regulation is absolutely necessary. You wouldn’t want to get rid of basic safety requirements. Especially for products and industries such as healthcare and transportation.
There’s a balance to be struck.
The United States is a great example. Back in April 2012, the JOBS Act passed with bipartisan support. JOBS stands for ‘Jumpstart Our Business Startups’, which should give some clue as to its aims. The main parts of the Act introduced critical flexibilities, including (but not limited to):
Closer to home, there’s the Hong Kong fintech scene. ‘Fintech’ is financial technology – using innovative software to provide financial services. HK has a thriving community of start-ups working on a variety of projects and products. Payment processing, cryptocurrency, investment. In Hong Kong, when it comes to your money, there really is an app for everything.
These businesses are largely free of regulation. They don’t need state licenses for important features or functionalities. For example, until November last year, you didn’t need licenses for stored value facilities
That depends on who you ask. Different public, industry and private groups are busy advocating for less cumbersome regulation. Their objectives include clarifying, reducing and removing the rules for SMEs.
In December 2014, NAB released a detailed deregulation plan for SMEs. Key points included:
Many points, including the BAS idea, were welcomed by the government. As part of the government's official Cutting Red Tape initiative, in mid-November, they announced $4.5 billion worth of red tape savings – double the target. From the start of July 2016, they’ll refocus on reforms that directly impact innovation and productivity.
Want to get involved? You can make a submission directly at the Cutting Red Tape website. Contact COSBOA or your local chamber of commerce to find out how you can contribute. Keep an eye out for small business tax and admin changes that’ll come into force in the first half of 2016. And don’t take your eye off the National Innovation and Science Agenda.
For some, a smartphone used to be a welcome means of distraction from work. However these days – depending on your business – it’s likely that your phone has become a device that you simply can’t function without. So let’s take a look at a few ways to make use of the incredible technology and timesaving tools available at your fingertips.
Just don’t get too distracted by Facebook: it’s a time-sucking vortex. Unless you’re using it to market your business, of course.
Layla Roberts, who owns a personal concierge company Concierge Connections, is arguably one of the most organised women in Sydney. Given she’s in charge of making her clients’ lives easier, Ms Roberts does all she can to streamline her own business operations. One of the ways she does this is to catch public transport to meetings and use that time productively.
“I’m always out and about – whether I’m going out for a client meeting or whether I’m going out for personal reasons,” says Ms Roberts.
She previously used PayPal Invoicing to invoice clients on the run, but now mostly uses the app Invoice by Wave, which she believes has a more professional feel. Other popular invoicing apps include Invoice2go, FreshBooks and TradiePad.
There are countless apps to help get your daily to-do lists out of your busy brain, and onto your phone. Ms Roberts uses the ‘notes’ function, along with the app Trello, which helps her remember things when she’s out of the office.
“I love lists. I’ve got a personal folder and I have a business folder,” she says.
Those who prefer to speak their lists, rather than write them, can dictate to-do lists (or compose emails) via their iPhones. Simply open your email, press ‘new message’ and hit the microphone to the left of the space bar. You can then email the list or prepared email to yourself, and print it out, or alternatively email it across to a client or staff member. Apps such as Wunderlist or OmniFocus are among others available.
Expensify promises ‘expenses reports that don’t suck,’ allowing users to create a paperless office. Among other things, you can upload receipts, generate receipts from online sales and automatically create expense reports.
If it’s a cash injection you’re after, Banjo Loans was designed with the smartphone user in mind, so small businesses can easily apply for finance on the go.
There are also plenty of other apps – from free to pricier monthly options - that can make handling your business’ finances a doddle. The Australian Tax Office offers the myDeductions app, which helps classify and capture work-related expenses, gifts and donations or the cost of managing your tax affairs. It also helps you to store photographs of receipts, and record car trips.
Heavy hitter Xero has a mobile app that helps you reconcile, send invoices, add receipts and create expense claims. Like most popular apps it’s available on iPhone, iPad and Android smartphones.
New survey shows nine out of 10 SMEs think emerging alternative finance providers are equivalent to or better than dealing with a bank.
The results of the inaugural Banjo Small Business Finance Survey show some encouraging results for the alternative finance sector. The survey, to be undertaken quarterly, serves to understand how Small to Medium Enterprises (SME’s) in Australia are financing their businesses and the funding challenges they face.
The results of the inaugural Banjo Small Business Finance Survey show some encouraging results for the alternative finance sector. The survey, to be undertaken quarterly, serves to understand how Small to Medium Enterprises (SME’s) in Australia are financing their businesses and the funding challenges they face.
According to 2014 RBA data, there was $247bn in SME lending in Australia[ii]. The graph below shows where SMEs presently obtain funding:
“In terms of the main external funding sources, 3% of SMEs using alternative finance is a significant figure,” says Banjo’s consulting economist, Jeff Oughton (ex Head of NAB’s Economics team and director of Economics and Beyond). It equates to around 7.5bn in funding in 2015. By way of comparison, 4% of SMEs have used a foreign-owned bank and 8% a regional bank; “ The data highlights that an innovative alternative finance industry has emerged in Australia with substantial growth potential to support the funding needs of SMEs”.
“The results indicate that alternative finance is fast establishing itself as a 5th pillar for small business funding” says Oughton, whose company Economics and Beyond conducted the inaugural Banjo Survey with Evolve Research.
Showing growth of approximately 100% year on year since 2014 suggests an increased buy in from SMEs with those having used it citing ‘flexibility’, ‘good understanding of my business’ and ‘cost’ as key factors influencing their decision. Banks in comparison showed a CAGR of 2.1% in funding SME’s for amounts of less than $2m.
The recent East and Partners Business Banking Index suggests many SME’s will look to change lenders if interest rates move, their survey also indicating that SME’s are looking for better service and turnaround times. This bodes well for the alternative finance sector which not only offers the latter, but a transparent fee structure and no collateral requirement.
There are 2.1 million SMEs in Australia[iii]. and 51 per cent have no business funding product [iv] Post GFC, the SME sector has cited access to finance as an issue their businesses face, and –as observed in the UK and the USA [v]– this has constrained investment and economic growth. This survey supports these market observations with 27 per cent of SMEs stating ‘cost of finance’ and ‘availability of finance’ as major challenges for their business.
Based on the Banjo Survey 80 per cent of SMEs will likely be approved for an alternative finance loan, compared to approximately 1 in 5 from a traditional bank. Indicatively, for every 10 SME’s applying for bank funding, two were successful, one was unsuccessful and 7 chose not to apply for various reasons including cost and collateral requirements.
“ There are still too many hoops to jump through when applying for traditional finance,” says Andrew Colliver, an ex-senior NAB banker now CEO of Banjo Loans.
“Too many SMEs rely on cash flow and family debt and don’t apply for funds from traditional lenders because it’s simply too difficult,” says Colliver.
He notes alternative financiers don’t take uncalculated risks with loans. Rather, they often have more detailed checks and balances when credit checking, thoroughly assessing the health of a business. “This enables us to approve more loans without needing to rely on collateral at all.”
The results found that 25 per cent of businesses surveyed missed an opportunity because of a lack of funding, a situation that is all too common in Australia says Colliver. “Lending is a necessary part of supporting investment and growth, SMEs are screaming out for more accessible lending products.” The Banjo Survey indicated SMEs found access to traditional finance ‘too strict’ and ‘too expensive.
The research is based on an online survey with the financial decision-makers of approximately 850 Australian micro to small businesses with fewer than 50 employees, conducted in December 2015 and January 2016. The sample base is reflective of the Australian SME market geographically, by legal type, industry size and composition, as revealed by ABS data.
ENDS
[i]The European Alternative Finance Benchmark February 2015
[ii]RBA D7.3 Total credit outstanding by size and sector
[iii] ABS Counts of Australian Businesses 2014
[iv] Australian Centre for Financial Studies, Financial System Inquiry 2014
[v] The UK Alternative Finance Industry Report 2014
Why Australia's brain drain is stifling innovation …. and the SME sector
As we head into 2016, I will be writing a series of articles reflecting on the links between innovation, finance and the future of our younger generations.
In my first post I take a look at some of the issues around recruiting qualified talent, STEM talent pipelines and the gender pay gap.
Australia appears to be undergoing some post GFC digestional reflux as it transitions from a three-speed to a ten-speed economy. The Governor of the Reserve Bank of Australia, Glen Stevens, in parallel with the Government, has been steering the economy for some time towards a ‘new world’ multi speed economy underpinned by high growth rates in professional services, health services, and information and technology - and this is where the problem starts to get interesting.
Australia is in a unique position. According to various sources such as the Turnbull Innovation Paper and LinkedIn’s Cliff Rosenberg on the “brain drain”, we're simply not creating sufficient STEM talent and the talent we do create is seeking better opportunities overseas.
I’m talking now about science, technology, engineering and mathematics (STEM) and how as a country we need more of it. (Interestingly gender diversity is a subcategory within the lack of STEM talent – these areas are still struggling to attract and retain women throughout.)
Whether this is because there are a lack of opportunities for young people, these areas are traditionally not seen as particularly appealing or sexy, or perhaps for other reasons, I’m not sure. However, this “brain drain” and lack of STEM talent is stifling our innovation in general and inhibiting our ability to solve these old problems.
"Australia is under-performing internationally compared to STEM-strong countries such as India and China.” Cliff Rosenberg
You might wonder why I’m interested in this.
Usually, the people providing customer service would have a combination of customer relationship and credit/risk skills. So I’m keen to see our current workforce demographic transition to around 50% of our workforce comprising marketing, credit risk, banking, compliance regulatory skill sets, and the remaining 50% with STEM qualifications – software developers, data engineering, statisticians, mathematicians and designers.
Ideally, we’d also like to be known as an employer of choice - known for workplace flexibility and other attractive workplace practices and opportunities that help to attract and retain talent, including women. In an ideal world, I would also like 50% of those 50 new starters to be female.
As a specialist SME provider of growth funding; we observe that:
We’re a technology company that provides financial services to SME’s in Australia – so it makes sense that 50% of our staff should also be female.
Projecting forward, I’ll have problems with executing this, because previously when we’ve put panels together with this goal in mind it’s been really challenging to achieve on both the STEM and gender requirements. And it would appear we’re not alone in this.
According to the STEM Country Comparison report, in general Australia is falling behind its peers in start up formation and creation of talent. We have a real pipeline issue of lack of 15/16 year olds through to retirement age who have shown a passion to work in STEM related fields.
Additionally the gender split issue is not just a Banjo issue, with men far outnumbering women in both tech education and technology careers globally.
“30% is the average percentage of women working in the tech industry, based on diversity reports published by 11 of the world's largest tech companies in 2014.”
Frequently it’s said that from a gender diversity perspective, men get really interested when they have daughters. Certainly this is true for me. On a more personal level, I have a family of four with a daughter who is equally as engaged in looking at bugs in the garden, maths and other typically curious activities, as her brothers. What worries me is that in less than two or three government terms she’ll be making decisions about her future and I’d like her to have options. There are a couple of things that need to change. One is about the perception of people working in STEM which I’ve addressed above, and the other is the gender pay gap.
In an 8 December article in the Sydney Morning Herald, Small Business Minister and Assistant Treasurer Kelly O'Dwyer says:
"A legally mandated pay gap of 25 per cent under many employment awards was abolished in 1969, but as at November 2015, ……. the national gender pay gap for a full-time base salary is 19.1 per cent."
Quite frankly as a father, I’m appalled. If it’s taken us 46 years to get the gender pay gap from a legally mandated 25% down to 19.1% - things won’t be much different by the time my daughter is ready to enter the workforce. This is enough to worry any father in the country. Obviously, I want my own children to follow their own journey but I’d like to see an even playing field so they have choices.
Commissioned by the government of the day in 2012 and at great expense, the Securing Australia’s Future – STEM: Country Comparisons Report is a high-quality report and provides us with some clear guidelines for the future. This report, in conjunction with the National Innovation and Science Agenda establishes some clear frameworks for moving forward.
“We want to focus on the women who are change-career geeks. So it’s the women who are lawyers, marketers or nurses who are looking for a change in career, want to learn about technology and want to work in start-ups,"Tammy Butow, Geek Girl Academy
At Banjo, we understand that setting the right payment terms is one of the keys to great cash flow.
Katherine Hawes of Aquarius Lawyers says when it comes to putting in place the right payment term foundations for your business the first step is to look at your cash flow and budgets.
“It's important to review your cash flow statement and work out when you will have money going out to pay your own suppliers. Most companies tend to have standard 30-day payment terms. But as a service provider it is possible to ask for payment upfront or part payment,” advises Hawes.
Here are Katherine’s top tips for establishing and maintaining effective payment terms:
Says Hawes: “Be proactive rather than reactive and if your customer hasn't paid on time, get on the phone the same day and chase it up rather than doing nothing.”
Interns are no longer just a free source of people to do the coffee run for a business. As we know at Banjo, they are an imporant resource for many businesses and the foundation of an organisation’s talent pool.
Public relations firm the Red Agency Melbourne is just one business that has developed an intern program that is an important part of the entity’s overall human resources strategy.
Principal Grant Titmus explains the Red Agency has about 12 to 15 people that go through its internship program every year. Interns normally approach the agency and they are chosen based on their experience and via a face-to-face interview.
“There are benefits for both parties. The majority of the interns are third year students so it gives them a great opportunity to understand more about the industry and what happens on a day-to-day basis. We try to keep the work as interesting as possible so they are exposed to many facets of the industry. For us, it also provides a resource to undertake some of the more basic tasks such as monitoring or reporting,” says Titmus.
“But they also come to events that we manage and some client meetings. In the past we have gone on to employ many of the bests interns. So the program gives us a chance to look at how they work and enables us to select the very best,” he adds.
The interns do a variety of tasks, depending on the clients and projects the business has at the time. Tasks include research, media database creation, helping at events and activations and media reporting.
Titmus says when they are hiring interns they look for people who can demonstrate attention to detail, attentiveness, a good attitude towards tasks and an eagerness to learn.
The business does not pay interns who are there for work experience, but those who stay past a certain time do receive payment. Many do go on to become full time employees, but it depends on what’s happening in the business and the industry. “One year we kept on five interns, two in Melbourne, two in Sydney and one in Brisbane,” he says.
Titmus’ advice when it comes to making the most of interns is to give them work that needs to be done, so they are able to learn something from it and also benefit the company.
If you’re looking for interns and want advice about the best way to build them into your HR strategy, contact Interns Australia.
Creative communication and digital agency Penso’s top tips for getting the most from an internship program:
This article by Banjo CEO, Andrew Colliver was first published by Anthill Magazine on December 11,2015.
Small businesses put up with abysmal service levels from their financial institutions, despite the fact almost half are dissatisfied with their banks.
The emergence of agile, creative fintechs that will fight for business from SMBs mean established banks could soon see their market share drastically reduced.
According to East & Partners’ October 2015 SME Transaction Banking Markets report, 24.5 per cent of SMEs (defined as businesses with between $1 million and $20 million annual turnover) have said the likelihood of changing their primary bank is either “definite or highly probable” in the next six months.
However, their choices when it comes to switching are limited. As outlined in the Financial System Inquiry report small businesses do not have access to the alternative funding channels available to larger corporations, such as debt market funding. This makes them more dependent on bank credit and beholden to the major banks.
This is something all the banks understand – and it means they’re not working as hard as they should be for their small business customers.
In addition, the cost to switch banks makes changing financial institutions prohibitive. But at the same time, small businesses are also exposed to unreasonably high – and rising – fee structures, as well as onerous credit checks.
Nevertheless, until now, for most small businesses, the risk of switching financial institutions has been too great. Changing banks can be time-consuming and costly and the risk of encountering problems during the switch has been simply too high for small businesses that rely on their financial institution for cash flow and real time financial data.
Yet there are clear benefits to those businesses that do choose to switch financial institutions. According to the UK Competition Markets Authority’s report, Retail banking market investigation, released in October this year, heavy overdraft users, which are usually small businesses, could save the equivalent of $540 a year if they switched, while everyday bank customers could save $154 a year.
While the equivalent research is not available in Australia, it’s likely local small business bank customers could enjoy similar savings if they were prepared to switch financial institutions.
Importantly, according to East & Partners, only a tiny percentage of small business customers are satisfied with their bank.
Its data shows only 4.9 per cent are satisfied with their current bank and have not considered alternatives to their current financial institution. Conversely, when asked what’s preventing them from switching to a non-bank lender, a whopping 49.1 per cent said they are dissatisfied, but have not yet considered switching banks.
It’s safe to say this is largely because small businesses are so time poor, they are focusing on growing their business rather than deriving more value from the relationship they have with their financial institution.
On top of this, 53.6 per cent said the main factor that’s stopping them from switching to a non-bank lender is the fact they are using their home as collateral against their business loan. What this means is that until now, there has been little incentive for banks to up their game when it comes to their small business customers.
The plethora of emerging fintech businesses are putting pressure on the established banks to genuinely meet the needs of their small business customers.
Small businesses want quick and easy access to credit, genuine choice when it comes to financial institutions and the same level of service afforded to bigger businesses.
If larger banks don’t start to meet these requirements they will see their market share eroded by nimble, hungry new players who will treat small businesses with the respect they deserve. Which is great news for the emerging players in financial services and for the more than two million small businesses in this country.
Andrew Colliver is the CEO of Banjo, a Melbourne-based online lender providing secured and unsecured loans to Australian SMEs.
It's an exciting time to be an Aussie business! The government has announced a bold and comprehensive innovation plan to secure Australia's future. There are plenty of initiatives that will, given time, deliver benefits to small business. But what does innovation mean to an SME today? It’s the best way to drive future profits and revenues and is also essential for keeping staff engaged and focused. We know this because at Banjo, our whole purpose is to deliver innovative funding solutions for our clients.
According to business.gov.au, innovation, “…generally refers to changing or creating more effective processes, products and ideas, and can increase the likelihood of a business succeeding. Businesses that innovate create more efficient work processes and have better productivity and performance.”
So what’s the best way to instil a culture of ongoing innovation into your enterprise?
According to Mick Liubinskas, entrepreneur in residence at Muru-D Accelerator, the first thing to understand when it comes to innovation is that the word is a verb not a noun.
“It’s not something that is magical or mythical. It’s actually a commitment culturally to developing new ideas in the business,” he says.
Liubinskas explains both senior and junior people must embrace innovation to embed it in the organisation’s DNA.
“Both the top and the bottom have to want it. Most importantly, they must be prepared to embrace the potential for failure.”
He says this is a deciding factor of truly innovative companies. He uses the word ‘flearn’ to describe this approach – which means learning from failure.
“Innovative companies see failure as a positive. So even if an initiative does not work the business still values the work done, the goodwill created through the process and the team’s learnings along the journey.
“Often companies try innovation once, it doesn’t work and they step away from it. But that’s never going to embed innovation in the business. You have to be prepared to fail multiple times,” Liubinskas adds.
He says the underlying principle should be impatience for action, patience for results. “Businesses need to celebrate the process rather than the outcome. They need to support flearning and collaboration. If there’s pressure to achieve results there’s no real appreciation for the value of the process.”
Importantly, Liubinskas says it’s essential to build intrinsic and extrinsic reward structures to incentivise staff to behave in innovative ways.
“Work out how you can reward the process of innovating through financial and other rewards to make sure innovation is in the team’s blood.”
So try to move away from the idea that if something is not broken it doesn’t need fixing. “You need to break things that are working at their full potential to be truly innovative. Innovation is all about having the confidence to take risks,” he says.
The rewards are enormous if you get this right. This is because innovation leads to the development of a larger pool of assets for the business and a greater sense of purpose among team members.
Says Liubinskas: “It’s one of the best ways to keep people motivated. The idea is to instil the notion that people need to come to the business every day looking for a better way to do things.”
Banjo’s top three tips for encouraging innovation.
