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The results are in on how things are travelling in the finance broker and SME worlds thanks, in part, to the release of MFAA’s Industry Intelligence Service report and last week’s Scottish Pacific SME Growth Index. It seems there’s an opportunity for both parties to fill a void in each other’s busy lives.
In the finance broking profession, ongoing uncertainty again highlights that diversification and scalability are key to future-proofing and profitability. Meanwhile, for Aussie SMEs, availability of credit and cash flow are the main hurdles to growth. It seems to me that if one party wants money, and the other knows where to get it, then this date’s going to get off to a flyer.
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You can rattle off a long list of factors that are causing concern for residential finance brokers at the moment; broker numbers are increasing while broker market share has plateaued (or decreased 4 per cent if you operate in NSW), so the jaws are tightening. Property markets have been great but alarms have truly sounded. Application conversion rates have dropped significantly given tighter regulation and intense broker competition, not to mention proposed remuneration changes courtesy of the ASIC review. This all indicates that maybe the grass can be greener and settling might not be the best option in this market….
Those who have sought the best adjacent market opportunity with low barriers to entry have found it difficult to look past the expanding Australian SME market. It provides an opportunity to diversify, and to do so in a scalable manner, given large innovation in the space. And why not, when there are over two million SMEs in Australia employing 45 per cent of the Australian private sector. Over 60 per cent see funding, and primarily cash flow funding at that, as the primary barrier to growth, yet only 8.5 per cent are happy with their cash flow position, according to the latest Scottish Pacific SME Growth Index. Plus, all this with increasing business sentiment. So, now our broker friend thinks this is one hell of a big pond and maybe settling really is a bad idea…
The emergence of a number of fintech lenders within the unsecured business lending space has provided a nice little foundation for this relationship, and it’s set to grow. Enabled by new technologies including cloud accounting platforms, these funders give brokers an easy transition to commercial lending as they seek to diversify.
The sheer number of SMEs looking for additional cash flow means there’s no shortage of demand. High volumes and fast deal turnover has helped build a scalable channel of new business. Scale gets easier given a number of providers offer commissions for life and streamlined subsequent applications.
Around 2,400 (predominantly) residential brokers wrote $8.2 billion in commercial loans over the six-month period, representing an annualised growth rate of 8 per cent, according to the MFAA Industry Intelligence report. So whilst it might be early days for this relationship, the signs are very, very strong.
The Australian alternative finance market, primarily made up of business lending, grew 320 per cent in 2015 with exponential growth expected. When a market shows signs of capacity, new markets tend to emerge, as the savvy pivot their businesses towards a more sustainable model. With consolidation expected within the residential brokerage industry, it is no surprise that the most progressive brokerages have stepped up their offering and shifted focus to a diversified and scalable model encompassing a suite of commercial products.
The markets in the US, UK and China indicate that online commercial funders are going to continue to take market share and many brokers see the point…. When dessert arrives, you don’t necessarily have to share the pie.
Interested in talking to someone about getting into alternative lending? Come visit Bigstone’s broker partner page and book a time with Paul!
