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Branching out into SME lending could derisk a mortgage brokerage, which is vital in a cooler housing market, according to Stuart Donaldson.
Business coach and co-founder of Accendo Financial, Stuart Donaldson, has underscored the importance of a fully diversified brokerage ahead of The Adviser’s SME Broker Bootcamp, where he will explore how brokers can tap into SME lending and bump up the value of their clients’ businesses.
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Noting that the SME market forms a substantial portion of the Australian economy, Stuart Donaldson told The Adviser that “it is potentially more important now than at any other time in the last 10 years” for mortgage brokers to diversify their brokerage, given the cooling off of the property market.
“Until recently, mortgage brokers have not really had the time or capacity to be able to upskill and start participating and diversifying into the SME lending space,” Mr Donaldson explained.
“However, the housing market has shifted around the country. Some areas (more so than others) have tightened up and demand has dropped. So, for a mortgage broker, there’s an opportunity now to de-risk their business by identifying alternative revenue streams.”
Recent research revealed that amid rising interest rates and inflation, national home prices continued to fall in the past few months (although the rate of decline eased), while regional properties fell at the “fastest pace” since 2011 in September.
The Commonwealth Bank of Australia’s (CBA) recently predicted that dwelling prices would drop by 8 per cent across Australia this year, and another 3 per cent in 2023.
“The housing market will ebb and flow, and it may bounce back,” Mr Donaldson said.
“What we advocate for with diversification is not to shift your focus from one market to another but to be able to meet all of your clients’ needs, whether they are a business owner or a mortgage holder looking to purchase a new home or investment property.
“The ideal brokerage is a full brokerage that can meet all of their clients’ expectations.”
Diversification would not only create new revenue streams for brokers, but it could also increase profitability and the value of their brokerage, Mr Donaldson added.
“It also de-risks their business, as it becomes less reliant on one source of revenue that is often held to the mercy of what’s going on in the economy or the market,” he said.
Accessing funding in challenging times
A key role brokers could play is assisting SME clients with securing funding as a recent survey revealed that over March and April, nearly two-thirds of respondents were struggling to secure funding.
Businesses are being battered by supply chain issues, declining consumer confidence, rising interest rates, inflation, labour shortages, and a crackdown by the ATO to collect SME debt that was paused during the pandemic.
But recent data has suggested that there is appetite among SMEs to access funding despite the challenging economic environment.
“It is in these more trying times that the broker, as the finance professional, plays a critical role in managing funding to meet the SME’s growth profile and working capital requirements,” Mr Donaldson said.
“Supply chain shortages and disruption is a good example. Businesses are likely to need additional short-term funding to manage their inventory levels, and potentially, hold higher levels of stock to counter supply chain challenges.”
Thane Financial managing director and broker Neil Tunstall recently said that brokers could proactively help SME clients not only access funding and ongoing working capital but meet their ATO obligations to service mounting debt.
Diversifying successfully into SME lending requires brokers to understand a business’ financial statements and balance sheet, calculate its profitability profile, and identify trends, expenses, and the amount of available working capital, Mr Donaldson suggested.
“All of this is important because it will enable you to engage in deeper conversations with your clients,” Mr Donaldson said.
“Once you are across this, you can build a financial scorecard that will provide you with three or four talking points and enable you to extract the information you need to compile an effective lending submission.
“Attending the SME Broker Bootcamp is a great start to building your skills around this.”
To hear more from Stuart Donaldson on how to fully diversify your brokerage, expand your client database, and service SME clients, come along to The Adviser’s SME Broker Bootcamp 2022.
It will be held in the following locations:
- Thursday, 17 November: Waters Edge, Portside Wharf, Brisbane
- Tuesday, 22 November: Parkroyal Parramatta, Sydney
- Thursday, 24 November: Crown Promenade, Southbank, Melbourne
Click here to register for free and make sure you don’t miss out!
For more information, including agenda and speakers, click here.
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