A survey shows small businesses are moving away from mainstream
The state of the property market and the impact of the banking royal commission may have made things tougher for mortgage brokers, but it may have also opened up new opportunities.
A new report has shone a light on how small and medium-sized businesses are finding it harder to access finance.
Not only that but, for the first time in the report’s five year history, these businesses are about as likely to turn to alternative lenders as to go to their main banks, tipping the scales in a different direction.
Average property prices across Australia dropped by nearly 7% over the 12 months to March 2019, according to CoreLogic’s March home value index, and nine out of 10 SMEs are now saying they would definitely or probably pay more if it meant not having to use their property as security.
According to East & Partners, who carried out the research, if current trends continue, by the second half of 2020 alternative lenders will be the key funders of new SME business investment in Australia, rather than those businesses’ main banks.
As one of the largest non-bank lenders to businesses, Scottish Pacific is continually adapting to make life easier for its clients, says CEO Peter Langham – for example by being flexible enough to suit business owners who want to move away from providing property as security.
Langham says the report shows that now is the time for brokers to take advantage of the opportunities before them. It’s a win-win for the business, the broker and the individual.
The shift towards alternative lending is where brokers can make a real impact for those businesses that may be “rusted on” to their banks and not know where else to go.
The opportunities for brokers to diversify and expand their businesses are as easy as looking at their existing client base, Langham says.
“There is strong demand for finance among the SME community. This offers a strong business opportunity for brokers to diversify” Noah Breslow, OnDeck
“For residential brokers, this trend to alternative lending and away from using property security offers a very real business expansion opportunity,” he explains.
“Many of their existing mortgage clients are probably business owners, which represents a great untapped market of potential clients.
“Finding their SME-owning mortgage clients business funding solutions – such as invoice finance – that don’t tie up the family home as security means the residential broker can help a client leverage their home for other investments.”
Fintech lender OnDeck has also looked into the struggle for finance that SMEs are facing.
According to its research, one in four SMEs that have tried to get finance have been refused. Businesses that have been running for less than five years are more likely to have had their application turned away.
The opportunities for brokers continue to grow: OnDeck’s research suggests that 25% of SMEs are planning to seek additional business finance in the future, and that figure grows with the number of employees the business has; for instance, 56% of SMEs with 11–49 employees will look for finance in the future.
“Clearly, there is strong demand for finance among the SME community. This offers a strong business opportunity for brokers to diversify their revenue base by expanding into SME lending,” says OnDeck’s global CEO, Noah Breslow.
“For residential brokers, this trend to alternative lending and away from using property security offers a very real ... opportunity” Peter Langham, Scottish Pacific.
The online lender also found that SME sentiment was shifting to alternative lending.
“Large numbers of Australians SMEs may not be reaching their full potential either because they cannot secure bank finance, or because an inefficient and lengthy lending process is adding to the cost burden,” says Breslow.
“It’s important for SME owners to realise that more efficient funding options are available through online lenders. Even SMEs that meet bank lending criteria can benefit from the speed and convenience of an online lender.”
Offering a helping hand to brokers who are already assisting small businesses with their finance solutions, the MFAA recently launched a campaign to promote commercial brokers to SMEs. Targeting 510,000 SME owners, operators and other finance professionals on LinkedIn, the campaign will connect businesses with local commercial and asset finance brokers.
After the significant impacts of recent regulatory curbs on residential lending, the broker market is now presented with a unique opportunity to diversify into commercial and equipment finance, says George Obeid, managing director of third party at Judo Bank and president of the MFAA Equipment and Commercial Finance Forum.
“Early engagement with SME customers and a clear understanding of their business needs is the critical step for brokers looking to build and grow their business in this segment,” he says.