Why are younger aged SME’s choosing debtor finance? - Showtime Digital

Why are younger aged SME’s choosing debtor finance?

06 March 2019 Read 317 times

We’ve all heard the story of the tortoise and the hare. We’ve got one happening right now in the non-bank lending sector.

In our story the Tortoise represents the older, wiser and more conservative debtor financier. The Hare as you’ve rightly concluded is the fast moving, online savvy balance sheet lender.

We speculated in our non-bank lending report in November 2018 the tortoise could win ground on the hare in 2019. This article will address why.

The consumer preference could be due to a conservative business climate and where educated buyers may prefer not to pay interest on a facility.

We’ve seen a trend over the last couple of years where each year younger Gen Y and Millennial business owners are investigating unsecured lenders but also where they choose debtor finance over the balance sheet lenders. This is tipping the scales to where the industry will need to address younger buyers over the traditional debtor finance client of a decade ago.

As a percentage of overall enquiry, we’re seeing a decline from males aged 35-44 and 45-54. This doesn’t necessarily mean less males are enquiring, it simply shows more younger buyer, particularly females (aged 18-24 and 25-34) are entering the sector. 

Specifically, our research shows an increase in female enquiries from ages 18-24 and 25-34 over the last 24 months.


This represents a huge upside for the industry and for us to understand why we need to go back 10 years.

Last Resort Finance

Without branches or online enquiries, the debtor finance industry relied on the broker channel to find the end buyer. There wasn’t the huge array of options we have available to us today, you knew your bank manager and you knew them by name. If the bank wouldn’t lend you money your Last Resort was debtor finance, or what became known as ‘Last Resort finance’.

There was a stigma around this type of funding. And as such it was something you didn’t discuss with your mates down at the pub.

Casting the net in 2016

When invoice finance was first being marketed online in 2016, we noted a lot of the older age groups (45-54yo and 55+) identified and engaged with the industry. This was the industry’s traditional base.

In the past, the only tactic to market ‘invoice finance’ online was to recover lost business leads and enquiries rather than explore other demographics. It was more about fixing holes in the net instead of relaunching the net into new waters.

Interestingly, even though we knew the debtor finance buyers, we had no prior data to draw on, simply because up until that point the Funder/SME relationship was conducted solely through the broker channel.

As such the relationship was one removed because of the broker. It was highly qualified, but we knew nothing of the SME’s motivations or even who the investigators within the category were.

Despite this, in four short years we’ve seen the non-bank lending sector grow from alternative to mainstream. In 2019 it will be the first choice in funding for many SME’s.

But let’s be fair, if it wasn’t for the balance sheet lenders going directly online in 2015-16 the debtor finance companies would never have needed to advertise online.

Online origination is a growing and important factor for the industry.

Fast forward to 2019

In late 2018 we speculated the Tortoise could win ground on the Hare in 2019. In Q1 we’re starting to see a glimpse of this.

Jeremy Muller of Classic Funding gave another perspective on why he’s seeing younger buyers.

Today younger SME’s don’t have their traditional bank as a funding option. Even if they could secure funding against their residential property, with the property market slipping in value, this option doesn’t look favourable.

Most interestingly, these younger SME’s have no concept of ‘last resort finance’. It’s not even in their vocabulary.

Below we can see the interest the younger age groups are showing in the category. The 25-34 age group has the largest share of category interest (31.7%). Following this is the 35-44 age group (23.8%) while the traditional base of the 45-54 age group has significantly less interest (17.2%).

Once again this is simply due to the younger buyer coming into the market.

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Comparing apples to oranges

Considering this, today’s SME client may care less about where they get their funding and more about - How much is this loan going to cost me?

If you don’t have a simple answer you are at the mercy of those companies who do. In 2018 seven of the balance sheet lenders signed a Code of Conduct (CoC). It surfaced as Prospa was moving to an IPO.

The CoC offers greater transparency for consumers and potentially keeps regulators at bay. Though given the recommendations by the Hayne Royal Commission into the mortgage broking industry we doubt the CoC grants unsecured lending an immunity card.

As a signatory to the initiative Moula has recently launched a video and PDF explaining SMARTbox. SMARTbox is a final step for buyers to know their obligations under the terms of the agreement.

My question to several salespeople in the debtor finance industry has been, ‘do you feel the industry needs to create their own version of the Code of Conduct and SMARTbox’?

The resounding answer is yes.

Consumer expectation

If we look though the eyes of the consumer, within six months the balance sheet lenders who have signed onto the CoC, will win business off competing unsecured lenders simply because transparency wins over confusion.

Looking at debtor finance, the sector has two key factors on its side –

  1. Like for like the facility costs less.
  2. Younger buyers have little or no cognitive bias.

For the Tortoise to gain ground on the Hare in 2019 the industry must band together to create a unified approach to sales growth.

Not moving on this quickly will once again give their opponent the upper hand.

What are your thoughts? Let’s start the conversation.

Steve Palmer

Steve Palmer is the Joint Founder and CEO of Showtime Digital. Steve has been in B2B sales since 1997 but influencing people and behavioural science has been a long-term passion.

The magic he brings to his clients is in knowing how to engage their audience. His goal is to help businesses understand the deeper reasons of why consumers convert online with them.