By David, Director, Twelve Grains Capital
Non-banks are emerging as a financial crutch to Australian borrowers as the lending marketplace becomes increasingly competitive amid economic headwinds, but a leading Sydney broker says misinformation is a major barrier to more Australians being considered for credit.
A record number of Australians have sought to refinance their loans as borrowers feel the crunch of a fifth consecutive rate rise while a sixth looms on the horizon when the RBA meets next Tuesday.
The push to refinance has seen a 20% growth in household credit given by non-bank lenders, as borrowers cast their net wider for more bespoke lending options.
But although the sector is on the rise, David Sutantyo, Director of Sydney-based lending firm Twelve Grains Capital, says widely held misconceptions around non-bank lending are one of the key barriers preventing more Australians from looking beyond bank lending.
“Because non-traditional lenders take on more risk than the big banks, they are often misunderstood,” he said.
“The unfortunate perception we still encounter in the community is that non-bank lending is a second tier option reserved for those with a poor credit rating.
“This reality is that non-bank or private lending is a great option for borrowers across the board. This includes those who are perfectly eligible for bank-lending, or those who may be non-conforming due to being newly self-employed, recently re-entering the job market, or having incomplete financials.”
Mr Sutantyo says education is vital to ensuring more Australians have the opportunity to be considered for credit.
Mr Sutantyo has exposed the top misconceptions regularly encountered around non-bank lending.
‘Non-bank lenders are less trustworthy than major banks’
Non-bank lenders must comply with the same consumer credit rules and regulations as any major bank.
“Non-bank lenders offer borrowers an alternative to getting a loan from a bank, which gives people more choice, and often an opportunity they might otherwise not have,” said Mr Sutantyo.
‘Non-bank lending is riskier than banks’
“The concern over risk or ‘loss’ of money is negated by the structure of non-banks,” said Mr Sutantyo.
“Their funding comes purely from the wholesale money market, not funds deposited by customers. When you borrow from a non-bank, you are not actually depositing any of your money with them, you are only repaying the loan amount you have been approved for.”
‘It is only for people with poor credit scores or things to hide’
Borrowers can often be turned down by major banks for failing to meet certain checkbox criteria. This may be the case for self-employed individuals who don’t have extensive PAYG summaries to provide, or for business owners who took a significant hit during covid.
“Just because an applicant has been turned down for a loan by a bank, it doesn’t necessarily mean they’re a credit risk,” said Mr Sutantyo.
“Non-bank lenders aren’t as rigid in their frameworks as major banks, so they can take all aspects of your financial situation into consideration, rather than applying blanket rules for approval.
“This is particularly beneficial for business owners who are often considered noncompliant with bank criteria – it’s quite difficult to secure a bank loan as a business owner, but relatively simple through private avenues.”
‘Non-bank lenders are only for niche circumstances’
“While it is true that non-bank lenders have a much wider range of products suited to different markets, they are also a prominent lending choice for common loan types such as home loans,” said Mr Sutantyo.
Non-banks currently have a 10% share of Australia’s commercial real estate lending market, with this figure expected to grow by 10% a year through to 2024, according to AUSTRAC.