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Economic conditions may be signalling a tighter year ahead, but business confidence is high and brokers are in increasing demand, says Banjo CEO Guy Callaghan.
Although business confidence remains high in Australia, many SMEs are navigating tough conditions while trying to focus on revenue growth. They’re contending with inflationary pressures, higher interest rates, and a reduction in consumer spending, yet they are conscious of business opportunities and are keen to capitalise on them.
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Businesses that received government support during the peak of COVID-19 are now looking for alternative capital. Meanwhile, those who took a more cautious approach during pandemic disruptions have resumed activities that require a working capital injection, like asset purchases and technology upgrades.
These and other factors mean that demand for SME finance is growing significantly, representing a potentially strong revenue channel for brokers. This is evidenced by Banjo’s SME Compass Report 2023, its latest annual survey of more than one thousand small to medium enterprises, which examines the experiences, opinions and plans of the owners and managers of businesses across Australia.
One of the key findings was that almost half of SMEs plan to seek additional business finance this year. Business lending alternatives to the traditional banks are now well-established in Australia. They’re well-resourced and can provide good support for brokers and borrowers. Among the benefits they offer are a much faster approval process, less complex compliance requirements and fewer administrative hurdles.
An opportunity to explore commercial lending
If you’re a broker who hasn’t yet ventured into commercial lending, working with SME businesses could present a golden opportunity. The number of SMEs using a broker to help them secure finance has increased by 10 per cent among survey respondents in the last year alone. SME clients are increasingly looking for advice across a broad spectrum of financial products, not just their mortgages.
Having established their positions in the lending value chain, many non-bank lending institutions are providing extensive support to the broker channel through training, tools, and exposure to their networks.
Growing need for a ‘specialist financer’
In a further testament to positivity and confidence, more than a third of SMEs say they are planning to merge with a competitor or acquire another business in 2023.
This is one of the reasons finance brokers are making huge inroads into the SME advisory space. For the first time in the SME Compass Report, brokers have leapfrogged lawyers, management consultants and bankers as a source of advice on acquisitions.
SME owners and operators have many claims on their attention, and want to focus on driving their business forward, not on lengthy administration and exhaustive paperwork to get a loan.
For example, the SME Compass Report found that many SMEs dislike having to put their home or other asset up as security for a business loan. Alternate lenders like Banjo have removed this obstacle, offering unsecured loans for SMEs.
As a broker you can add value by using your expertise to understand your client’s unique working capital needs and preferences, and help them evaluate the various options in the market.
Leveraging Tech
With more SME owners turning to a finance broker as a trusted adviser, the opportunity is ripe for you to analyse your clients’ needs and recommend options for the right tailored solutions.
This is where broking becomes more sophisticated, competitive, and reliant on digital trends. Brokers will need to ensure they have the tools and access to a range of products on offer to address the holistic financial requirements of their customers.
Refinancing volumes to continue
Rising interest rates can be challenging for SMEs and potentially make servicing a loan more difficult. While a competitive interest rate is undoubtedly important, SMEs should also be seeking the most appropriate loan terms, features and benefits for their needs.
Brokers play a pivotal role in commercial lending just as they do in residential, property- backed lending.
With 20 per cent of businesses in the SME Compass Report saying their inability to access funding is a barrier to their growth, SMEs will look to use the knowledge of their finance broker, as well as their accounting advisers in a bid to benefit from deals and savings this year.
SME borrowers need guidance now more than ever, and diversifying into small business lending can be a great way for you to broaden your customer base. Brokers who capitalise on this opportunity have the opportunity to educate the market and deepen relationships with their clients.
Premium Members of The Adviser can find out more about writing business finance in the May edition of The Adviser magazine, out next month.
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