Opening the door for SME finance

So, it’s unsurprising that the Australian government released its Small Business campaign in April 2017, launching initiatives that are meant to help small businesses grow. Budget announcements In the budget for 2017–18, it was announced that, among other measures, the government would extend: the lower corporate tax rate (of 27.5 per cent) to businesses with turnover of less than $50 million by 2018–19; the incentives for state governments to cut red tape; and the instant asset write-off for equipment purchases of up to $20,000 by 12 months.

The Council of Small Business Australia (COSBOA) applauded the new measures, with CEO Peter Strong saying: “For the third year in a row, the federal government has demonstrated a genuine commitment to small business. “By setting aside almost $1 billion for the $20,000 instant expenditure write-off during the next financial year — in addition to the expansion of tax cuts and instant asset write-offs for businesses with annual revenue of up to $10 million — the Australian government is clearly walking the talk when it comes to supporting Australia’s small businesses.”

The CEO of specialist lender Scottish Pacific, Peter Langham, said that he thought the impact of the $20,000 instant asset write-off deduction “may be overstated”, though it was “a welcome move that will encourage investment in plant and equipment for the more than three million small businesses with annual sales under $10 million.” Mr Langham further said that it would not, however, have the same “long-term positive impact that would come with an extensive SME tax and red tape overhaul”.

Cameron Poolman, CEO of online small business lender OnDeck Australia, commented: “Small businesses will benefit, as a reduction in their tax liability will allow them to focus on business growth and expansion... and it could help plug the gaps in investments and tax management.” The Commercial Asset Finance Brokers Association of Australia (CAFBA) also welcomed the writeoff extension but argued that the budget could have gone further.

David Gill, CEO of CAFBA, told SME Adviser: “We have been pushing for an extension of the instant asset write-off and we also wanted an increase from $20,000 to $50,000 for the limit, because it would capture a lot more SME business.

“They didn’t do that, but at least they extended it by 12 months, which we are grateful for.” CAFBA president David Gandolfo added: “There could have been things that were in there that weren’t… we would have liked the asset write-off to at least include indexing of the $20,000 limit — but further expand to $50,000 — and certainly [for SMEs] to be able to claim 50 per cent of the cost of an asset, in addition to normal depreciation… “But I’m happy that the asset write-off is continuing... it’s not just about the money, it’s what [SMEs] do with that money and the plant machinery equipment that they buy to equip their businesses to increase their throughput capacity and employ more people and create wealth. It has a huge knockon effect.”

Increasing focus on SME lending In October 2017, Secretary to the Treasury John Fraser told a Senate Estimates committee that business conditions were at their highest level since 2008, and new business investment grew by 1.5 per cent over the year to the June quarter, the first positive through-the-year growth since the end of the mining investment boom. But cash flow is still seen as a major barrier to business growth.

Scottish Pacific’s September 2017 SME Growth Index showed that 60.9 per cent of SMEs said that cash flow and its security were a barrier to business growth, up from 55.9 per cent in the previous index (for the first half of 2017). Lenders have been reaping the rewards of being open and ready for SME business.

Specialist lender Bluestone surpassed the $1 billion milestone this year, with more than half of that coming in the last 12 months. SME lender OnDeck set its sights on distribution through the broker channel to great success. And peer-to-peer lender RateSetter ramped up its lending to businesses after partnering with Connective. Likewise, aggregators and mortgage brands have also been taking notice: Connective launched its new asset finance platform, BOLT, in May; AFG launched its new commercial lending platform, AFG Business; Mortgage Choice launched its own branded asset finance solution; and Platform Consolidated Group hosted

the first asset finance–focused conference in the Gold Coast. Such has been the focus on SME lending that investment researcher Morningstar announced in October this year that Australia’s business lending will soon overtake that of residential lending — to grow to 5.5 per cent (from 4.5 per cent) compared to residential lending’s expected growth rate of between 4.5 per cent and 5.0 per cent. Brokers are taking note of, and increasingly turning to, SME finance as a means of diversification.

The Adviser’s Bootcamp SME Broker event in November sold out in Sydney and Melbourne in record time, with nearly 400 brokers attending the Sydney event. In relation, Choice Aggregation Services revealed that a quarter of their brokers are now writing commercial loans. For 2018, it seems more than likely that the uptake of commercial finance, and brokers offering it, will continue to rise.

Sean Reid, the head of aggregation at Choice Aggregation Services, commented: “Commercial lending is a key growth area that will at least match what is happening in the residential market. The opportunities that exist in that space are huge.”

Likewise, OnDeck Australia’s head of sales, Michael Burke, commented: “Beyond the next 12 months is certainly about growing that channel. We see [that] it provides enormous value to the Australian business market and we want to be part of that growth.”