A new online tool aims to provide clarity to the often opaque area of small and medium enterprise (SME) financing, which increasingly falls outside of high street banks to alternative fintech lenders. 

Alongside the rapid growth in the number of fintech lenders and the variety of products, it is becoming harder for SMEs to make informed decisions about which products and lenders best suit their circumstances.

The new Factor Rate to APR Converter by Victorian-based Lend allows SMEs to quickly assess the true cost of borrowing and make a more informed choice about their business finance. The tool calculates an annualized interest rate for comparison purposes.

Bill Baker, CEO of Lend, says: “We understand that SMEs are often unable to get the finance they need from high street banks. Fintech lenders clearly play a critical role in providing access to the capital required. The concern we have is in relation to the transparency of the cost of the loan. With our new tool, business owners are able easily to work out the true cost of the loan so they can make an informed decision.”

Greater scrutiny on lender transparency

The fintech lender market has recently come under increased scrutiny due to the highly publicised (now permanently postponed) float of ASX hopeful Prospa. 

In February 2018, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), in partnership with FinTech Australia and theBankDoctor.org, released a report on improving transparency and disclosure in fintech lending. 

The report, Fintech lending to small and medium sized enterprises: Improving transparency and disclosure, analyses the different approaches to disclosure across the fintech industry and makes recommendations on best practice and identifies commitments to action.

Ombudsman Kate Carnell said Australia presents a huge opportunity for the fintech industry, in that it provides a genuine alternative finance solution for small businesses where traditional banks are limited in their capacity to serve the sector.

“Our particular focus through the process was improved transparency and disclosure. It is accepted that borrowing costs of fintechs will be higher than banks, as loans are secured against business activities and not bricks and mortar, but the total of these costs – the effective interest rate – is not always clear,” she said.

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