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Inside Waddle

Offline SME’s Need to Embrace “Cloud” for future business loan approvals

"Business lending and the cloud"

Team WaddleTeam Waddle

Business owners will need to take on new technology if they want to take advantage of new online business loans entering the Australian market.

If the cloud accounting growth is correct, we’re certain more entrepreneurs will be taking to cloud accounting, cloud storage, inventory, finance, timesheeting and other types of hosted solutions to run their businesses. The major theme is increasing efficiencies without outlaying large costs to implement new technology once you move business systems online.

We understand that for established businesses changing over to cloud accounting services such as Xero, MYOB or QuickBooks Online may at first seem to add additional costs however, having systems online can allow you to test/implement new services such as inventory with little to no investment that integrate across your entire supply chain, something you are unable to do running offline accounts.

You should do your research when deciding on cloud accounting as you’ll need to decide which add-ons you will use and whether they work with your cloud accounting provider first. Luckily you can trial them before committing to one however, they do suit the majority of operators big and small.

Business lending and the cloud

There is an emerging trend starting to take hold across the world which is only just now establishing itself in Australia and that’s online business lending providers. These are isolated to fixed term unsecured lenders and invoice financing such as Waddle however; you will see new providers popping up within the next eighteen months.

With the growing trend for cloud services or SaaS providers for businesses across the globe, more and more businesses are opting to run their accounting online as well as connecting bank accounts to these providers for reconciliations, which has opened up new methods for lenders to access business data quickly and efficiently for loan seekers willing to connect their data to a lenders platform. New lenders have popped up in force in the United States and U.K that allow business owners to connect and have the lenders automate the loan application and risk process, resulting in extremely fast loan approvals compared to traditional bank lenders.

The types of loans being offered are evolving fairly quickly, however these types of loans are more expensive than traditional business banking loans however, when compared, you need to understand that banks are usually always secured by a fixed asset such as real estate and online lenders mostly lend on an unsecured basis. We have seen lenders evolve over the years and it’s only literally in the last two years that things are starting to change again. We have no doubt that lenders are getting smarter and will leverage the technology being used by businesses to find new ways to assess risk and provide new loan variations to what exists today.

Will the Banks be able to adapt?

There will always be a place for bank lending, at least for the foreseeable future. Banks offer all encompassing services for businesses such as traditional established loan products and a vast amount of transactional services with huge infrastructures that have been developed over enormous periods of time. Online lenders cannot compete with these value added services, however they do provide quicker, least resistant paths to working capital.

Banks are slow moving beasts that will not be able to keep up with the pace of online lending as more businesses make the switch to SaaS providers. Lenders can access up-to-date real-time financial information as well as live bank account feeds, live credit data from providers such as Veda or Dun & Bradstreet, basing lending approvals through complex algorithms built specifically for the purpose of single lending products.

Can online lenders compete with Banks?

There is no doubt that online lenders are here in Australia to stay, however, are they providing serious alternatives to banking products? The answer is yes and no. The media claim that they are disruptive lenders, however we doubt the banks are concerned given that its’ been heavily bred into us from a young age to think of a bank first through savings accounts like the CBA’s “dollar mite” which creates enormous brand loyalty through to adulthood.

The challenge that technology entrepreneurs should be tackling is creating a real bank alternative-lending product, instead of expensive alternatives that are not sustainable for business owners as long-term debt. There certainly is a need for quick short-term business loans and borrowers will always be willing to pay a premium for the service however, business owners are really seeking a banking style overdraft alternative with simply terms, interest and fees.

If you decide that switching to the cloud isn’t for you then you’ll certainly be paying a higher price, slower loan approvals and certainly increased times to funding compared to lenders that can integrate with your accounting & bank account information in real-time to automate lending services.

Got a different view? Let us know below.

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