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As the first credit assessor, finance brokers could play a key role in boosting a business loan application by assessing credit risk, according to Accendo Financial.
Ahead of the free SME Bootcamp 2024, Trent Carter – partner at the education provider for mortgage brokers – said mastering credit risk analysis and value-based conversations could increase the likelihood of small- to medium-sized enterprise (SME) clients securing finance and driving business growth.
“If it doesn’t pass muster for the broker, then it’s potentially not a deal for one of their lender partners,” Carter told The Adviser.
“Brokers are the first set of eyes over an SME client’s transaction so it’s important for them to be armed with the skills to assess what is good risk and bad risk, and be able to qualify deals on that basis.”
At the SME Bootcamp, Carter will unpack how brokers could become the trusted advisers of SME clients by understanding and addressing their credit risk concerns and bolstering the quality of their loan applications.
Lenders use several criteria to assess whether they believe a business is able to repay a loan and allocate the business case with a risk grade, which could impact interest rates, fees, and the terms and conditions of the finance.
Carter said that when he works with brokers, he advises them to consider the different elements in credit risk such as their business goals, purpose of the funding, the nature of the security they hold, their business and credit history, and ability and capacity to repay the loan.
“Brokers would benefit from finding out if the funding is going to help progress that client forward or if we’re just throwing good money after bad,” he said.
Collateral and the market value and level of liquidity of the business could be another factor, where if the business is unable to make its repayments, the bank assesses how much it would recover from a speedy sale of the asset.
In addition, they could consider asset risk and the age of the assets inside the business and whether the business owner has implemented robust maintenance plans to enable them to mitigate this risk, Carter said.
“Risk is anything that could impact the business’ capacity to continue to perform at the level that it wants to,” he said.
This includes key personnel risk, which Carter said needs to be eliminated to bolster the chances of the business receiving loan approval.
“We need to know that the client has thought about key personnel risk, where, for example, all the capacity for that person to repay the loan sits on one person’s shoulders,” he said.
“Do they have appropriate insurances in place? Do they have a contingency plan so other people in the business can carry out their tasks if they’re unable to do so? Is there a business continuity plan in place? We would look for those things to tidy up the credit risk.”
Brokers who highlight credit risks to their SME clients could potentially become value drivers, particularly if the client addresses those risks and, as a result, improves the value of their business, Carter said.
“When they approach credit officers, brokers should show that they’ve identified key risks and had those conversations with their clients. They are required to present well thought out mitigants to each of these risks,” he said.
“If there are things that perhaps are higher risk, I’d recommend that you don’t hide or ignore it. Instead, go on the front foot and show that they have been considered. Highlight what the client’s doing or has done about them.”
On top of this, Carter encouraged finance brokers to “back themselves” on conversations with clients around key risks, adding that key risks are significant value drivers for lenders.
“Most importantly, I would urge brokers to value their own time and energy, as well as the expertise and experience they’ve developed and charge appropriately for it,” he said.
To hear more from Trent Carter about what credit risks brokers need to look for in their clients’ business, come along to the SME Bootcamp 2024.
The SME Bootcamp 2024 will be held in the following locations:
- Tuesday, 3 September at QT Hotel Gold Coast.
- Thursday, 5 September at Le Montage, Sydney.
- Wednesday, 11 September at Grand Hyatt, Melbourne.
Click here to register for free and don’t miss out!
For more information, including speakers and agenda, click here.
This bootcamp is produced by Captivate Events. If you need help planning your next event, email director Jim Hall at
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