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ISCOVER
Fifty years ago the great Aussie achievement was to own a home in the lucky country. Now many younger business owners are waking up from the property dream and leveraging their business acumen instead.
Property in Australia is not the must-have it once was. In 1971, 64% of 30-34 year olds in Australia were home owners, but by 2021 this had fallen to 50%. There’s been a similar drop for the 25-29 year old age group – 50% home ownership in 1971, plunging to 36% in 2021. Much higher property prices, finding a life partner or having children later or not at all, and smaller household sizes are likely to be among the contributing factors.
Fortunately, none of this has deterred entrepreneurial Australians from starting and growing businesses. In December 2020 alone, there were 2,830,764 registered companies, over 18,000 of which were new businesses.
Yet the Australian major lenders continue to be geared towards property, despite the declining interest in it among the under-40s. This leaves a growing number of young, switched-on, successful entrepreneurs who don’t own property or securable assets getting stymied when they want to source funding.
According to Banjo’s Business Development Manager Frances Rickard-Bell (known as Frankie), there are lenders who believe that not owning property is not a problem.
“For SMEs, the simple fact is that owning property is often not as important as the business’ assets. Profits, creditors, stock, equipment and inventory can all be leveraged with the right lender to get the funding to power a business,” Frankie explains.
“Currently 40% of Banjo clients with working capital and asset finance loans don’t own property.”
“For example, one of my clients is a company run by two young entrepreneurs – a financier and a chef - that manufactures a range of ready meals for the fitness and health- conscious consumer. Their business is hugely successful, and to keep up with demand they recently needed to borrow $1.5 million. They had been putting all their profits back into building the business, and consequently didn’t own any property assets to secure against the loan.”
“We could see their business was profitable, the owners had a strong track record and a good balance sheet. As a result, we funded their working capital loan, based on their business assets.”
In other circumstances, getting the right amount of funding as soon as it’s needed, eclipses cheaper funding that an SME has to wait around for.
“I recently worked with a broker whose client manufactured electric scooters. A container load of parts had shipped earlier than expected and was waiting for them at the docks. The client didn’t have the $250,000 to get it off the dock at that point, and it was costing $10,000 a day to leave it there. Again, they didn’t own property,” Frankie says.
“The client couldn’t sit around waiting for lengthy processing and approval times. In a case like this, time is literally money, and the only solution is a fast solution. Banjo’s approach is to make decisions quickly and responsibly, using technology to source the right data, and the credit assessors speaking directly with the business owners. Within 48 hours we had provided their working capital loan.”
Research repeatedly shows that SMEs find it difficult to get unsecured funding, especially for the amounts they need in today’s business environment. Traditional banks may approve some unsecured loans, but they’ll typically be for a much lower amount than the business has asked for.
Frankie recalls another recent client, a 29-year-old man with a solar panel installation business, who did own property, but like many SME owners, didn’t want to use it as security for a loan. He needed to borrow $1 million and had been offered only $500,000 by a major bank. Banjo provided $1 million unsecured funding, enabling him to achieve the growth goals he was aiming for.
“There would have been an opportunity cost to this SME owner of accepting the smaller loan. Instead he was able to use the full amount of funding delivered straight away, to make a 40% margin that took his business to the next level.”
Commercial brokers may not be aware that there’s considerable untapped opportunity in certain SME sectors. These include:
• manufacturing
• wholesale
• online retail, especially wellness and alternative products
• hospitality, especially cafes, and small bars.
These and other established, property-less SMEs who are relatively early in their lifecycle are no impediment to a more enlightened lender, who can help you find the right solution for your SME clients. With working capital facilities tending to go on a 12-18 month cycle, these clients will keep coming back to you as the business grows.
Unpublished, AIHW analysis of Census data
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