Australia based Birchal believes that equity crowdfunding may be the “silver bullet” for SMEs turned away by traditional banks.
Pointing to a recent note from the Australian Small Business Finance Advisory Panel that many small businesses find it challenging to access finance, Birchal believes Fintech can fill the void.
Not too long ago, Australia updated their crowdfunding rules to enable a broader spectrum of issuers to raise money online. Simultaneously, banks remain hesitant to fund riskier ventures.
Birchal co-founder Alan Crabbe explained:
“More than 85% of businesses working with Birchal to raise working capital either were either rejected by a bank or believe they wouldn’t be approved for finance from a bank. Most recently, Birchal has seen a tripling in the number of new inquiries about accessing Equity Crowdfunding – partly down to the recent legislative changes to open Equity CF to Pty Ltd companies.”
Crabbe believes there is no question that traditional banks have an image problem which has been compounded by findings from the Royal Banking Commission.
“We’re hearing time and time again that the banks won’t give even successful and established SMEs a loan, in turn stifling their ability to grow their business. Equity crowdfunding is emerging as the silver bullet for small businesses and brands looking to fund the next level of growth,” Crabbe stated.
All of the businesses Birchal has hosted crowdfunding campaigns for have been financially supported by the founders through director or shareholder loans to the business. Many businesses that come to Birchal have said they aren’t able to access bank finance.
“… so [they] have to resort to personal savings or debt to finance business …” added Crabbe. “SMEs that have managed to obtain bank finance can usually only access unsecured loans at typically higher interest rates than are available to late stage businesses with assets or property to offer as security.”
Memobottle is a company that has sold over 300,000 bottles, grossing $6.2 million in revenue. The company says it is fielding increasing demand from around the globe, particularly from the US and Europe, both from retailers and corporates wanting to add their logo to the bottle. While the company may have a glow of success at hand banks still won’t fund the company due to the affiliated risk.
“The fact is that securing lending is a very difficult and frustrating process,” stated memobottle co-founder Jonathan Byrt. “We’ve approached more than six major and smaller banks to secure a small business loan, but we keep getting turned down because we don’t have the collateral to put against the loan. The best we’ve been able to retain is a $50,000 overdraft facility, which is nowhere near enough to fund our international expansion.”
Byrt said product demand is driving production shortfalls. The lack of finance is undercutting their organic demand. The vital variable is growth capital.
Birchal says that memobottle is not alone. Birchal adds that the Reserve Bank of Australia (RBA) concluded that small businesses continue to find it challenging to access finance, particularly without providing real estate as security.
While the banking shortfall may be disappointing it does create an opportunity for platforms providing online capital formation.
“We predict further growth in the number of campaigns being launched by SMEs as business owners look for a solution to their funding woes, particularly as equity crowdfunding is better understood by the SME fraternity,” explained Crabbe.