Peter Langham: How brokers can unlock the opportunities in the SME sector

Two findings in our March SME Growth Index point to the broad opportunities that exist for brokers to expand their offerings to an SME sector that is hungry for working capital alternatives.

Firstly, cash flow was very much on the minds of the 1,200-plus SME respondents. While two-thirds said cash flow had improved compared to 12 months ago, 90% still said cash flow issues impacted negatively on revenue in 2017.

Secondly, the SME Growth Index highlights the continuing trend away from bank lending to fund the growth of small to medium enterprises.

For SMEs with plans to expand over the next 6 months, 24% say they will fund growth by borrowing from their main relationship bank. Just over 22% plan to fund growth by using alternatives to the banks.

The most popular alternative funding choices were: debtor finance (used by 77%), merchant cash advances (23%), P2P lending (10%), crowd funding (9%) and other online lending (5%).

A chance for brokers to broaden their product range

For brokers, these findings point to a great opportunity to broaden their product offering and to expand their breadth of products with each client.

Find the right solution for clients outside the banks— a solution that isn’t tied to real estate security— and what you’ve got is a starting point with a client because their real estate assets might be put to work via other financial products.

From our perspective, with working capital options including debtor and trade finance, progress claim finance and asset finance, it’s important for brokers to know that they don’t need to be a specialist to be able to offer these products, they just need to recognise which clients best suit which options.

How brokers can identify opportunities

Know what questions to ask clients about their business, as this helps to identify which source of finance will best suit them.

It may be a client who has seen massive growth within a short period of time, or one that has achieved a massive new sales order and is now scratching their head about how they can afford to fill the order.

There are also always opportunities with those businesses who face seasonal challenges, as well as those looking to achieve a management buyout, a merge or an acquisition, or for owners looking to instigate business succession plans.

It all comes down to one important question brokers should ask their clients: “Is your growth being stunted by a lack of working capital?”

Put all options on the table, even if a client comes to ask about a loan or overdraft. They might be unaware of better working capital alternatives.

Finally, ensure that clients are aware of the very real cost of lost opportunity. Some of the available SME funding alternatives are very attractive once clients look at opportunity cost, speed of approvals and the ability for a facility to grow as their business does.

Talk to the different alternative lenders; get a feel for who is here to stay in good times and in bad and who is able to make things work for your clients. Also, find out how they view the role of the broker in their business. For example, do they see you as a genuine partner or a simple referrer?

Your SME clients will be thanking you for broadening their working capital horizons.

Peter Langham is CEO of Scottish Pacific, Australasia’s largest specialist working capital provider. Scottish Pacific lends to small, medium and large businesses with revenues ranging from $500,000 to
$1bn. Access a free copy of the SME Growth Index at www.scottishpacific.com/news/research.

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