Global stock market volatility and pressure from the Australian Prudential Regulation Authority (APRA) will lead to a $240 billion “yearly opportunity” for investors to enter the small and medium-sized enterprise (SME) debt market via peer-to-peer and marketplace mechanisms, according to FundX.

FundX chief executive, David Jackson, said that banks were presently impeded by their aversion to unsecured SME loans and an inability to accurately price business risk, factors which favoured peer-to-peer and marketplace lenders with “more sophisticated” credit assessment technology for investors.

“Assessing and pricing risk in the SME debt market can be highly challenging as business owners often struggle to demonstrate evidence of cash-flow, credit history, or financial status and behaviour,” Jackson said.

“For this reason, banks often take a far more conservative approach than is necessary, or price their loans substantially higher than they do for larger enterprises — despite SMEs being far less able to absorb this expense into their budgets.”

Jackson said that credit decisioning technology platforms that leverage big data and machine learning were able to overcome these challenges by assessing non-traditional data “en-masse”, including a plethora of online and social media data points.

“The outcome is forward-looking, risk-adjusted pricing based on current, not past, performance. [This] will negate the need to provide mountains of paperwork or demonstrate a lengthy credit history,” he said.

Othera founder John Pellew said the issue is “structural” within the banking system and is “unlikely” to be resolved quickly.

“The business models of banks are simply not designed to adequately support unsecured or small business lending, and their technological capabilities are significantly behind those of alternate lenders,” he said.