What is non-bank lending?
Non-bank lending refers to the provision of loans and other credit products by entities that are not traditional banks. This type of lending has been on the rise in Australia in recent years and has become a viable option for many borrowers.
Banks are registered as authorised deposit-taking institutions (ADIs) and tend to focus on loans. A non-bank lender offers credit but does not hold a banking licence from the Australian Prudential Regulation Authority (APRA) and therefore, cannot accept deposits.
The increase in non-bank lending can be attributed to several factors. Banks and other traditional financial institutions have adjusted their risk appetite, leaving what some consider “gaps” in the market for alternative forms of financing that focus on different types of borrowers. At the same time, technology is making it easier for start-ups and new businesses to enter this space, helping to drive competition and innovation.
The non-bank lending sector is also seen as a source of financial stability in Australia2. It plays an important role supporting economic growth by providing an alternative form of funding for individuals and businesses, and in doing so provides an important source of competition to the banking sector3.
From a borrower’s perspective, some may have more complex financial structures which don’t fit the cookie-cutter approach applied by many traditional banks. Other niches driving individual borrowers to non-bank lenders include bridging finance, and supporting borrowers with non-standard employment or income source, or poor credit history.
Some businesses look to non-bank lending to meet short term, working capital and non-property secured (cashflow funding) funding. They also often turn to non-bank funding during times of expansion as the application process can be better suited to the needs of the business – particularly when they need to act swiftly to take advantage of growth opportunities.
Another major niche serviced by the non-bank lending sector include Self-Managed Super Funds lending which is an area traditional banks may not support.
Non-bank lending accounts for approximately 5 per cent of the financial system. This figure is expected to grow as the needs of consumers cannot be met by traditional banks. In addition, many non-bank lenders are ASX listed companies, providing not only finance options but the security and the due process required to support responsible lending.
Due to greater competition, scale, and advances in the fintech space, non-bank lenders are often more competitive on price than they have been in the past, and at times, can offer better terms than traditional banks under certain circumstances.
Non-bank lending has become an increasingly popular option for individuals and businesses to access credit; however, non-bank lending is not without its risks, which is why accessing non-bank lenders via a finance broker adds a layer of protection and expertise to the process. One of the key advantages of working with a broker is they have extensive knowledge and experience in the non-bank lending market. They can help you understand the pros and cons of each option and identify a suitable solution.
A broker can help negotiate loan terms and navigate the complex landscape of lending options to identify solutions for your specific needs. As everyone’s needs are unique, a tailored solution with a non-bank lender can help achieve the outcomes you are looking for.
1 https://www.rba.gov.au/publications/bulletin/2015/mar/pdf/bu-0315-3.pdf
3 https://www.rba.gov.au/publications/fsr/2019/apr/box-d.html
