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In this sector report, sponsored by RedZed, we discover the trends in self-employed borrowings and how brokers can offer tailored solutions to meet the unique needs of self-employed borrowers
Around 14 per cent of the employed population in Australia are self-employed and work in their own business as an owner-manager. Like many brokers themselves, these business owners wear many hats as they work both in and on their businesses resulting in them working much longer hours. On average, the self-employed population works 45 hours per week, while full-time employees work, on average, 40 hours per week. Add that up over a year and that means that the self-employed work a total of 250 hours, or a whole month, more than employees.
With the self-employed borrower being so busy, it’s perhaps unsurprising that an increasing number are turning to the broker channel for help with accessing finance. Particularly as only 16 per cent of them believe it is actually easy to secure a loan and one in five who have applied for a loan themselves through a bank were rejected, according to RedZed’s 2022 Self-Employed Business Index.
Speaking on The Adviser’s In Focus podcast, RedZed’s chief sales and marketing officer Loralle Slater revealed that the year 2023 had so far seen a resurgence in credit demand from several industries that had been struggling during the pandemic.
She explained: “There’s been a big spike in people wanting to travel again post-COVID-19, and that has maintained itself over the full year. In September, particularly, we saw a lot of borrowers in the travel and tourism sector looking for additional working capital to expand their business and make the most of the spring school holiday period, for example, and we’re expecting that to happen again through the Christmas period as well.”
While the construction sector has been badly hit by the increase in supply costs – resulting in the collapse of multiple home builders this past year alone – the trend hasn’t yet impacted self-employed workers in this field. Indeed, RedZed flagged that given the strong demand for tradesmen to deliver the backlog of construction work, this sector has been holding up particularly well in the self-employed space.
Ms Slater said: “Everyone is aware of the challenges that the construction sector is having at the moment due to higher interest rates, the short supply of raw material, and also those fixed price contracts. But the self-employed tradies haven’t seen an impact yet ... we think that they’re picking up work elsewhere. If some of those builders that they were working for, or were contracted to have collapsed, they’ve actually been able to shift pretty quickly.”
When it comes to triggers for accessing finance, RedZed revealed that self-employed borrowers have been particularly focused on debt consolidation recently, given the Australian Tax Office (ATO) has been actively chasing collections following the hiatus during the peak of the pandemic.
As such, the lender has seen an increase in borrowers looking to use RedZed to consolidate their ATO debt into their home loan (for example, by using its prime product secured against either a residential or a commercial property).
And, as is often the primary concern for the self-employed, cash flow maximisation has also been a primary driver for seeking finance. Ms Slater noted: “With the higher interest rates happening over the past year, some of their other unsecured debts – and the interest rates charged on those – have increased significantly. So, if the self-employed are trying to maximise their cash flow, we can provide an opportunity to refinance some of those other debts into one, longer-term payment on a lower interest rate.”
However, while the economic environment has been changing and small businesses have been increasingly concerned about managing cash flow, Ms Slater noted that there had not been a spike in hardship requests from customers.
She explained: “We’re happy to work really closely with our clients around hardship, but there’s not been the big spike that I think we were all worried about [at the beginning of the year]. We haven’t seen that materialise…
“We can support a lot of our clients who ask for hardship. For the self-employed, that can be due to a number of different reasons, for example, illness or a downturn in business.”
However, it’s not just financial assistance that the lender offers its self-employed clients; it also extends its Employee Assistance Programme (EAP) to provide six free, confidential counselling services to any self-employed borrower who has a loan with them.
“We particularly drive borrowers to that when we’re having those hardship conversations, or if they’re in arrears. That is something that a self-employed person is unlikely to go and tap into on their own, but when it’s a free service and really easy to access (just through a phone call to a 1300 number), we really think that is a benefit that they can receive and support them through some of those challenging times,” Ms Slater said.
The specialist lender has a range of other free services that it provides its customers, including an entitlement to have two wills prepared by a trained solicitor and a range of marketing services packages (including social media posting and website home page analysis and content). In total, it’s estimated that the benefits are valued at up to $3,000.
According to Ms Slater, it’s the combination of support offered by lenders, such as RedZed, in partnership with brokers that will be key to helping the self-employed survive and thrive into the future.
She concluded: “Brokers play a really interesting role in the self-employed market; they fill in the gap of that old-style bank manager. The key is understanding and working closely with your self-employed customers and taking the time to understand their business, the peaks and troughs of their business (and trying to foresee where you think there might be trouble), and looking at where they get their sources of finance from.
“For example, is there an opportunity to refinance their equipment loan? Are they looking for a line of credit? Are they looking for an opportunity to consolidate their loan?
“If you understand the business and be proactive to identify the trends that that business goes through, I think a broker has the real opportunity to be proactive with their group and their self-employed borrowers and build their business.”
UPSKILL TO SERVICE SELF-EMPLOYED BORROWERS
To help more brokers upskill in self-employed loan writing, RedZed has launched a Self-Employed Broker Academy, an in-depth and interactive digital program available to all RedZed accredited brokers at no cost.
RedZed’s Self-Employed Broker Academy features five ‘eLearn’ video modules that delve into various aspects of self-employed lending, including:
- The self-employed market and what makes business owners valuable customers.
- Appropriate funding options for each stage of the business life cycle.
- Understanding business financial statements and income verification methods.
- Identifying and mitigating loan application red flags.
- Methods for attracting new customers and expanding referral networks.
Each interactive module is complemented by a ‘content deep dive’ learning document that explores the subject matter in greater detail, via case studies, scenarios, exercises and infographics.
RedZed accredited brokers can access the Self-Employed Broker Academy via RedZed’s new dedicated broker portal Introducer Connect.
Tune in to hear more!
You can find out more about trends in the self-employed space and how RedZed is helping brokers service this borrower cohort in The Adviser’s In Focus podcast.
Tune in to the episode with Loralle Slater, In Focus: Understanding the unique needs of self-employed borrowers, to find out more:
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