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A bump in demand for credit from SMEs is expected to soften the blow of a COVID-induced deterioration in market conditions for commercial and business finance brokers, according to new research.
Backing similar research from Momentum Intelligence, new research from aggregator FAST has found that 76 per cent of brokers have been negatively impact by the virus-induced economic shock.
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According to the FAST Business Lending Index Report, which involved a survey of 188 commercial and business finance brokers across its network during the height of the COVID-19 crisis (April and May), the majority (69 per cent) are also expecting conditions to continue to deteriorate in the medium term.
Subdued market conditions were reflected in a decline in the average value of commercial and business loan settlements over the six-month period ending April-May, down from $8.1 million in the previous reported period (six months to June-July 2019) to $5.9 million.
The average value of equipment finance settlements also fell, down from $749,000 to $742,000.
However, an uptick in credit demand for working capital from SMEs is expected to soften the blow of turbulent market conditions.
Working capital made up approximately 12 per cent of all commercial and business lending activity in the six months to April-May 2020, with surveyed brokers anticipating a further 12 per cent increase over the coming six months.
FAST CEO Brendan Wright observed: “Accessing finance will be critical for SMEs over the coming months, and our brokers are now preparing to help their commercial clients secure working capital so that they can continue operating through this challenging period.”
Mr Wright noted the contribution of the broker channel throughout the COVID-19 crisis, with 52 per cent of surveyed respondents revealing that they’ve facilitated COVID-specific lending to business in recent months.
“Finance and mortgage brokers are proving themselves to be the lifeblood of the Australian small-business community and have been providing an essential service to them during these extraordinary times,” he said.
He continued: “Keeping brokers regularly updated during this period and working with our lender partners to ensure brokers can continue to operate effectively is our top priority.
“So far, the industry has been doing a tremendous job of helping brokers so that they can help those in their communities.”
Mr Wright added that brokers would continue to play an important role in supporting a broader economic recovery.
“Brokers have the chance to make a real difference to businesses and the lives of the people operating them,” he said.
“This crisis will not last forever. We will move through it and brokers will be there to stand by their customers. In these extraordinary times, human interaction with a trusted adviser is what clients need more than anything and they will be turning to brokers to help them.”
Big banks lose ground in commercial space
FAST’S research also revealed that the major banks and their subsidiaries settled fewer loans in the commercial space over the six months to April-May 2020, down from 73 per cent to 69 per cent.
Their share of equipment finance settlements also contracted, down from 76 per cent to 69 per cent.
This is in contrast to recent trends in the residential mortgage space, with recent data form online broking platform Lendi revealing that borrowers flocked to the big four during the COVID-19 crisis.
In the three months to 31 May, 38 percent of the group’s home loan customers sent their business to a big four bank, up from 16 per cent in the 12 months prior.
Lendi co-founder and CEO David Hyman commented: “It was during the final weeks of March and early April that we really saw our borrower behaviour deviate from the norm.
“Preferences for the big four peaked at this time, alongside refinancing activity and hardship enquiries.”
The surge in business was driven by refinancers, with 48 per cent of Lendi’s customers lodging applications with the big four, up from 14 per cent in the year ending 29 February.
According to Mr Hyman, the major banks capitalised on the low cost of funding in response to cash rate reductions from the Reserve Bank of Australia (RBA) by luring borrowers with cashback offers and record-low fixed rates.
“The big lenders took advantage of cheaper wholesale funding from the RBA and an influx of deposits to offer very competitive fixed-term rates to home loan customers,” he said.
[Related: Broker workloads increasing during COVID-19 pandemic]
Over the past few months, The Adviser has been covering the impacts of COVID-19 on the broking profession. As part of this, in partnership with MyBusiness, we conducted a survey that explored the short-term and immediate impacts at the height of the pandemic in this country. You can explore the interactive report of these findings here.
Australia is now moving towards a position of recovery from COVID-19, and as individuals, businesses and communities continue to adapt to the evolving landscape, many decisions are now being made around employees returning to work. This is why we’re continuing our efforts to provide insights back to the industry by conducting a second survey, particularly exploring the “return to work” strategies of Australian businesses and the perceptions of employees on this journey.
The survey will take you less than two minutes and is completely anonymous. You can share your experiences now by responding to this second survey.
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