Broker Channel Wins Out as Asset Write-Off Deadline Extended
(9 June 2020 – Australia) As small businesses increasingly turn to the broker channel for financial support, East & Partners research shows that this is particularly the case with purchasing new or replacement assets on the back of the government extending the instant asset write-off deadline.
According to Round 12 of the SME Growth Index from Scottish Pacific, which saw East & Partners interview 1,256 small businesses with A$1 – 20 million turnover over a four-week period ending in November 2019, small and medium-sized enterprises (SMEs) displayed subdued appetite for growth. The index shows that even before the summer bushfires and coronavirus outbreak had taken hold, small businesses were scaling back revenue projections for H1 2020 to an overall average of 1.6 percent, down sharply from 2.7 percent.
This was the weakest revenue forecast in two and a half years and largely came down to working capital constraints. When asked how they looked to access finance for growth, SMEs also suggested that they would look to take on whatever they could get, which Scottish Pacific highlighted as a concerning trend.
“While many SMEs are thriving, overall the gap is growing between those preparing for the worst and those with the best outlook. There are clear signs from these results that the situation is likely to get worse for many small to medium businesses in 2020. In our more than 30 years in business, and in particular since 2014 when we started documenting Australia’s SME growth, the grit and resilience of small-business owners has been very clear to us – but how long can this continue without trading conditions improving?” stated Scottish Pacific CEO Peter Langham with the release of the research.
Mr Langham outlined that trusted advisers, such as accountants and commercial brokers, are well placed to help SMEs access appropriate forms of finance, noting that only two-fifths (39.8 percent) stated that they turn to brokers for sourcing new finance. While fewer than one in ten SMEs had never used a commercial broker (8.8 percent), almost 90 per cent said they had no negative issues resulting from their use of a broker.
East & Partners’ equipment finance research showed a high level of satisfaction among businesses who used the broker channel for asset sales and to get the best deal when purchasing new assets, plant and equipment.
The advantages listed for using a broker included better pricing, time saved shopping around and access to a broader range of funding solutions. For those not using a broker, East & Partners’ 2020 Asset & Equipment Finance research found that the key reasons were a perceived lack of customer support, changing end financiers frequently, inability to meet whole borrowing needs and the perception that brokers were “chasing their own best interests”.
Overall, the report shows that more than a third (35.2 percent) use brokers for refinancing existing credit lines, with 10.4 per cent using brokers for price comparison, 8.2 per cent for advice on selling a business and 7.1 per cent for assistance with major acquisitions. The vast majority of SMEs (52.9 per cent) said they used brokers for buying or selling assets, plant and equipment.
“Given the challenging business conditions in 2020, there is a clear need for brokers with commercial knowledge to help SMEs understand their businesses and how they can get them to thrive. Brokers are obviously an important channel for advice on asset purchase or sale. There are clear opportunities for brokers to climb the ranks of trusted advisers, by also assisting small-business owners to find the right finance” the report stated.
The findings are particularly relevant given growing concerns SMEs were set to miss out on the extended instant asset write-off provision, which was due to expire at the end of June 2020, but has now been extended until the end of December 2020. New vehicle sales fell 35 percent across Australia in May as the economic damage from the coronavirus pandemic negatively impacted business confidence.
The government announced at the outset of the coronavirus enforced shutdown in March 2020 that it was expanding the accelerated depreciation provision from A$30,000 to A$150,000 and raising access to include the corporate segment with annual turnover up to A$500 million (up from A$50 million), designed to support for SMEs during COVID-19.
“Extending it to the end of this calendar year will be seen as a very welcome move by businesses right across the country. For a number of businesses it is very tough, but businesses are not just looking at today, they're looking at tomorrow. And they're looking at the restrictions being eased, people are getting back to work and getting back to their normal lives and economic activity going back to as it was” Australian Federal Treasurer Josh Frydenberg stated.
“This initiative has a view to the future and it's encouraging businesses to take that next step to buy the equipment or the tools that they need, and to help them grow and help us to become more productive as a nation as well” Mr Frydenberg Added.