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Broker channel increasingly important for SMEs

Broker channel increasingly important for SMEs

(18 October 2018 – Australia) SMEs are set to increasingly turn to brokers to source new credit according to Scottish Pacific Executive Wayne Smith.

Stagnating residential lending and property price growth coupled with shrinking risk appetite by the major bank lenders has generated an abundance of opportunities for brokers in the SME segment. As obtaining finance from traditional lenders becomes increasingly difficult or less attractive, Mr Smith said that SMEs are warming up to non-bank lenders, which in part can be attributed to brokers spreading awareness through client conversations along with increased media attention on fintechs and marketing by alternative lenders.

“Previously, SMEs thought perhaps the easier route to be able to get increased funding is against property because the value in the property is growing. That’s obviously not [happening] right now, so they have to be a bit more creative than the stock-standard traditional way they may have financed their businesses before,” the head of debtor finance said. Mr Smith noted that a contributing factor to the perception of limited availability of finance could be the narrow, but expanding, SME awareness of all the options available to them in the market. “I think the funds are there, but access to them is about getting the right advice. There’s no shortage of lenders out there to provide the working capital that these businesses need to be able to grow.”

According to Scottish Pacific’s latest SME Growth Index, less than ten percent of the 1,200 SMEs interviewed directly by East & Partners expressed their preference to fund business growth using residential property as collateral, while one in five identified not having to borrow against property as the main benefit of non-bank lending. The index further showed that while nine out of ten respondents plan to use their own funds to invest in business growth, their subsequent choices are primary bank borrowing (22.5 percent), alternative lenders (15 percent), taking on new equity (13 percent) and borrowing from secondary banks (10 percent). Of the 733 respondents that are looking to obtain more funding, more than half (56.5 percent) would prefer a loan secured against non-personal assets, 23 percent would prefer to borrow against receivables and 22 per cent would prefer an unsecured overdraft facility.

Several reports released in 2018 suggest that SME access to finance is not becoming any more liberalised, with much of the analysis even claiming that there is a significant mismatch in the supply and demand for small business credit. For example, the Reserve Bank of Australia’s (RBA’s) Access to Small Business Finance report reaffirmed the findings of the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) that up to one in five Australian small businesses are still struggling to access finance to support trading activities and growth, despite conditions improving since the global financial crisis. East & Partners Asset & Equipment Finance program indicates the broker sourced share of total equipment financing continues to trend higher by four percent per annum and since 2008 the total proportion of broker sourced equipment finance has jumped 19.9 percent. This trend is mainly driven by Micro businesses and SMEs in particular, with over two thirds of the A$1 - 20 million turnover segment actively utilising brokers for sourcing equipment finance solutions  Micro businesses are highly dependent on the broker channel for credit approval, price comparison and pre-deal service.

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