Banks want to lend. Businesses want to borrow. On the face of it, this would seem like a perfect match. But for reasons that baffle many small businesses, loans often remain elusive. In fact, there’s an estimated $70 billion in unmet lending to Australian small and medium businesses, according to Macquarie Wealth Management. Small business finance is becoming more accessible though, thanks to partnerships between lenders and Xero. Through technology, they are helping remove the long-standing barriers that have separated small businesses from willing lenders.
One of those hurdles has been due diligence. Loan officers can spend days examining a small business’s bank statements, payslips, and loan and credit card balances. The documents they receive become quickly outdated. Given the expense, uncertainty, and the relatively modest amounts that small businesses borrow, it’s no surprise that lenders have been hesitant to fully engage the small business segment.
Seeking a loan can also be time-consuming and arduous for a small business. Without Xero, a business owner must make sure his or her financials are up-to-date, collect all the necessary documents and provide these to the bank. There will be inevitable back and forth between the lender and applicant as more documentation is required. The process rarely takes less than 3 or 4 weeks.
That’s where Xero’s partnerships with lenders are making a difference. Our cloud-based platform provides a real-time view of a small business’ finances. This includes auditable flows of data that haven’t been touched by human hand, such as bank reconciliations, records of received income and invoices from large suppliers. Integrations between Xero and lenders, such as NAB, Moula and Waddle, mean lenders can access the financial information they need to make a faster credit decision, and small businesses can enjoy a simple, easy application process that can get them funds sooner.
With NAB’s QuickBiz loans, small businesses simply connect their Xero account during the application, so that their latest financial data is automatically populated into their application. NAB can make an instant decision on loans of up to $100,000. There’s no need for collateral and no need to fill out long forms. NAB bases its judgment on three key elements: the business’s profit-and-loss report, its balance sheet, and the transaction history from its trading account. If a loan is approved, NAB delivers the funds within one business day.
Alternative lenders Moula and Waddle also offer automated decisions based on Xero data. Moula offers small business loans of up to $250,000, with repayment terms of 6 to 24 months. Small businesses can apply online in under 10 minutes, and Moula responds within 24 hours to let them know if they’ve been approved. Loans are disbursed within a day.
Waddle specialises in invoice financing, and is similarly fast. In invoice financing, a business takes out a loan and pledges its outstanding invoices as security. Waddle works especially well with recruitment and labour hire agencies, manufacturers, wholesalers and transporters.
Both Waddle and Moula send interest and repayment data back into Xero, where it appears within a list of transactions to reconcile.
Many Xero clients are connected to an accountant or financial advisor. When accountants enter the picture, they can monitor what happens every day in a client’s small business. Xero’s Assurance Dashboard gives accountants the tools they need to vouch for the integrity of data. This creates an almost continuous certification of the books, further reducing risk for lenders.
“We’re connecting our accounting channel to the banking channel using technology to glue it all together, and that’s going to help small businesses grow,” says Xero CEO and founder Rod Drury.
Over the coming months, Xero will be educating small businesses about these lending partnerships through marketing campaigns. Accountants, in turn, can direct their small business clients toward these ready sources of lending, which strengthens the partner-client relationship. And business owners can find quick and reasonably priced loans, without a lot of hurdles to jump through, leaving them with time and energy to focus on what they love: growing their business.
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