One in four SMEs said they were negatively impacted by house prices, according to Scottish Pacific’s latest SME Growth Index. Furthermore, 11% of respondents said house pricing had reduced demand for their products/services and 7% said prices had made their business investments riskier.
The report also found more SMEs are turning away from their main relationship bank to fund their business’s growth, with only 27.1% indicating they would choose that option (down from 38.4% three years ago). However, non-bank funding as a choice had increased 10.8% since 2014, with 21.7% of SMEs indicating it as the first option for funding.
CEO Peter Langham talked to MPA about what opportunities these pressures on SMEs present for brokers.
MPA: How are house prices impacting SMEs, directly or indirectly?
Peter Langham: SME business owners are going to find it increasingly difficult to fund their business using the equity in their homes as fewer business owners are going to have equity in their homes because houses are very expensive to come by and there is increasing debt on those houses. We’ve certainly seen it over the years – more and more companies are coming to us saying I want to fund my business but I don’t want to use my house as the security, they want to build up their own super using the equity in their house, not fund their business.
I think more and more brokers are identifying that that’s not really a sensible thing to do, in terms of using the equity in the home to fund a business when there are alternative funders, such as ourselves, who are willing to fund a business based on the business rather than just the home. I don’t know if they’re stressed about house prices going up but I think they would see underlying pressure in their own ability to fund their business if they haven’t got so much equity in their homes but also underlying pressure on consumer spending if people have got so much debt and there was a change in interest rates.
MPA: With SMEs increasingly turning to non-banks to fund their growth, what opportunities does this present to commercial brokers?
PL: For brokers who deal with residential and commercial, more and more businesses are turning to non-bank funders to fund their business and that’s been a steady trend since we started the survey three years ago. Whether they [consumers] are reluctant or unable or aware of more options – I think that’s where the role of the broker comes in that they need to be totally aware of the alternatives out there for businesses and going to the bank isn’t necessarily always the right option or even if the bank can’t help there are many alternatives such as Scottish Pacific.
We spend a lot of time with lots of brokers, including people who possibly specialise in residential because we know business owners do use brokers to buy a house – we’re introducing our products to those brokers to say ‘look you need to be aware of these as alternatives to normal funding’. You can see for somebody who may concentrate on residential that if they can learn more about the products that people like ourselves can offer, then they can offer more to a wider audience, offer more to their existing clients but also maybe attract new clients to themselves.
MPA: How is Scottish Pacific making it easier for SMEs to access funding?
PL: We’re educating the market and a lot of that is educating brokers but also we continue to develop our products to make them easier for our clients to accept and operate. Business owners/SMEs are time-poor – they’re very busy people and for them to meet all the requirements of bankers is very difficult and the banks just don’t have the product for people who want an easy life. We’re trying to make life easier for these business owners. For finance brokers they just need to be aware of all funding options out there, not just for today but they may need it in the future.