A Productivity Commission report on lending to small business found most tried for a bank loan to improve cash flow.

There are more than two million small businesses in Australia and the government says their survival is important to the economy. Small to medium businesses employ 7.4 million people.

However if these companies cannot get loans, they sometimes go bust.

Small businesses are likely to have a harder time borrowing from banks in the future.

Lending to business compared with other customer types has dropped from 55 per cent in 1990 to 32 per cent in 2020 due to industry change.

Yet legal and technological change has helped a new breed of lenders offer more diverse products.

These include loans secured by assets other than property, such as machinery and vehicles, as well as unsecured loans.

Business assets could provide security for a loan of about $5000.

Intangible assets on a balance sheet can be another means of security. The most common type is invoice or accounts receivable finance which uses outstanding invoices as collateral.

The borrower receives credit based on the value of future invoices, which allows the business to receive payment sooner than waiting for the customer to pay.

The report authors said these lesser-known loans could benefit traders significantly. Maintaining cash flow, for example, could help a business avoid late fees or seize a sales opportunity.

Lenders offering these types of loans include Earlypay, Moula and Prospa.

To help more small businesses take advantage of these loans, the government is encouraging lenders and prospective customers to share information to build trust.

However, newer lenders without reputations were having limited success in winning support for products such as online lending, the report said.

Having more data on smaller players’ lending would help efforts to sustain this market, the report said.

Ensuring small businesses can access finance could stop more closing during the tough trading times of the pandemic.