Today, there are a raft of ASX shares that are carving out a niche in business lending where Australian banks have failed to provide adequate services. This is despite the protected status of the big four banks under the government's 'four pillars' policy. For example, with the exception of Commonwealth Bank of Australia (ASX: CBA), the rest of the major banks are mainly mortgage businesses. These include mid-sized banks such as Bendigo and Adelaide Bank Ltd (ASX: BEN) and Bank of Queensland Limited (ASX: BOQ).
And I believe this is only the beginning. Here are a range of ASX shares that have been so successful, the banks may have already lost the argument.
Alternative finance
According to the University of Cambridge in the United Kingdom, alternative financing was worth $1.127 billion in Australia during 2018. This is the second largest market after China in the Asia Pacific region. However, I believe that if alternative financing was more available, it would be more widely used. One of my own frustrations when I owned a consultancy firm, was securing finance. Alternative financing can take a number of forms including invoice financing, equipment finance, and trade finance, for example.
Xero Limited (ASX: XRO) is a pioneering online accounting software platform. This market leading ASX share recently announced its acquisition of a business called Waddle, a software-as-a-service (SaaS) platform that provides invoice finance to small to medium enterprises. Specifically, it allows companies to borrow up to 80% of outstanding invoices. Then, on payment of the invoice, they receive the last 20% minus the loan fees and interest. This product looks pretty slick and is integrated with Xero.
Zip Co Ltd (ASX: Z1P) also purchased a small business finance company called Spotcap in 2019. This is yet another point of difference from its main competitor Afterpay Ltd (ASX: APT). It allows the ASX share to provide invoice finance and small business loans. The company's share price rocketed on Wednesday last week after Zip announced a deal with the Australian arm of eBay Inc (NASDAQ: EBAY). Consequently, Zip Co will provide cash flow and trade financing for small to medium businesses on eBay via its Zip Business arm.
Down the shallower end of the pond is CML Group Ltd (ASX: CGR), a pure play alternative financing company. It provides invoice finance, equipment finance and trade finance. CML Group recently purchased the platform now called earlypay.com. This is also integrated with Xero and other platforms. Furthermore, it provides the company with an engagement tool for repeat customers and automating work processes.
ASX shares for business loans
Tyro Payments Ltd (ASX: TYR) is predominantly a payments processing company. However this ASX share also provides small business loans under the government guarantee. This is part of coronavirus assistance whereby the government guarantees up to 50% of the loan. Tyro is the largest authorised deposit taking institute to process payments after the big four banks. The company's network of customers is a powerful asset. It means Tyro could easily offer additional services such as buy now, pay later (BNPL) at the point of sale for B2C businesses, or invoice financing for B2B companies.
Prospa Group Ltd (ASX: PGL) is a company you don't hear much about. It has, however, been diligently working away in the background as a lender to small businesses. In its recent results, Prospa showed a continued growth in sales which is very promising for a small company. It managed to increase its top line revenue by 4.2%, and has $55 million in unrestricted cash on hand.
