Keeping the Lights On

Social distancing measures introduced in March to contain the spread of COVID-19 in the community led to many small and medium-sized enterprises (SME) shuttering their businesses, while hundreds of thousands of their employees lined the streets to register for entitlements at Centrelink. The accommodation, food and hospitality sectors took a particularly brutal hit following the implementation of social restrictions.

According to the Australian Bureau of Statistics (ABS), between 14 March and 4 April (the three weeks after Australia recorded its 100th confirmed COVID-19 case), the accommodation and food services industry saw the largest reduction in jobs, plummeting by 25.6 per cent.

This was followed by the arts and recreation services industry, which shed jobs by 18.7 per cent.

In this same period, total wages in the accommodation and food services industry dropped by 30.1 per cent.

To understand the impact of the virus on small businesses – including the broking industry – The Adviser’s SME-facing sister title, MyBusiness, commissioned Momentum Intelligence to undertake an ongoing survey of a cross-section of Australian business owners and employees.

The COVID-19 Business Confidence Survey encouraged participants across a range of Momentum Media’s professional services titles (accounting, aviation, defence, financial services, law, mortgage and finance broking, and real estate) to take part in an online questionnaire between 2 April to 22 April.

A total of 6,740 responses were received, and the results were evenly weighted across each industry.

Across all industries surveyed, over half of businesses said they have already seen a decrease in revenue, while a staggering 66 per cent said they expect the coronavirus to have further financial consequences over the next three months.  

Those that have already taken a hit said they mainly expect the trend to continue, with 88 per cent predicting the slide would endure over the next three months (May- July).

Given the ban on travel and auctions, it is perhaps unsurprising that the aviation and real estate industries were found to be the worst-affected sectors – with 60 per cent of respondents indicating that their revenue has decreased and would decrease further.

Interestingly, asked how they plan to offset the loss in revenue, less than half (46 per cent) of those that have sustained a drop said they have already reduced employee hours, while 52 per cent said they were yet to make workplace decisions. 

The statistics show the critical need for SMEs to access finance so that they can keep the lights on, pay staff and deliver much-needed services now and once the storm has passed.

A package of support

To help SMEs survive the pandemic, the federal government announced a range of stimulus or “survival” measures to “cushion the blow” for SMEs from the economic fallout of COVID-19.

Some of these measures include initiatives that bolster lenders’ ability to lend money to small businesses, such as the $15-billion Structured Finance Support Fund, the Coronavirus SME Guarantee Scheme and the Reserve Bank of Australia’s term funding facility (TFF). While others – such as the JobKeeper allowance – aim to help businesses keep paying their staff. (Turn to page 25 for more details of what each initiative entails.)

According to the COVID-19 survey, the Coronavirus SME Guarantee Scheme was seen to be the most popular government package that SMEs are looking to use, with over 1,600 business owners reporting they count on this measure.

This was followed closely by JobKeeper, with over 1,500 businesses looking into this support mechanism.

The popularity of the JobKeeper measure was also confirmed by Treasurer Josh Frydenberg, who revealed that in under four days, 275,000 businesses have applied for the $1,500 wage subsidy. Interestingly, he said, sole traders make up around half of the total applications received.

Following the government’s announcements of these packages, various banks and non-banks announced loan relief measures and new SME products following their inclusion in the schemes.

A chance for brokers

While the economic challenges of the coronavirus are causing headaches for business owners, this is an opportune moment for brokers to demonstrate their value proposition as the trusted adviser SMEs can rely on to navigate them through the measures.

Indeed, AFG head of sales and distribution Chris Slater says that as the landscape becomes complex for SMEs, more clients will be turning to brokers for support. This presents brokers with an opportunity to help more Australians with their finance needs.

“Traditionally, a very low number of SMEs use a mortgage broker,” Mr Slater tells The Adviser.

“We think those numbers are going to lift and there’s going to be more and more SME customers reaching out to brokers.”

Mr Slater believes brokers who opt for diversified offerings within their brokerages across residential, commercial and asset finance loans are going to be in high demand from clients, especially as SME clients seek support from an adviser who has expertise in multiple segments of the market.

However, Mr Slater notes brokers are also attempting to decipher the government’s measures and understand how they apply to their SME clients in practical terms.

“A lot of lenders have been tightening their credit criteria, which means they’re asking for a lot more detailed information before they make a decision,” Mr Slater says.

“As every week goes by, there are a lot more answers coming, but I think it’s been an uncertain time for a lot of our commercial brokers in terms of what each lender is going to do and what’s available to them.”

As such, aggregators have been busy rolling out new calculators and COVID-19 support pages for their brokers outlining the packages and financial assistance being offered by lenders. For example, AFG launched a new calculator in April that helps brokers outline to clients how the different repayment options affect the loan balance, maturity date and monthly repayments.

Speaking at the time, Mr Slater said: “The relationship between a broker and their customer continues to be strong, and at times like this the broker’s ability to work with their customer and their understanding of lenders and the available options are just as important as the assistance the broker provides a customer when considering a home loan choice.

“Our brokers have always worked hard for their customers and done what’s in their best interests. So, this is just another extension of saying that.”