SMEs most likely to turn to brokers for buying assets

Indeed, the index shows that even before the summer bushfires and coronavirus outbreak had taken hold, small businesses were scaling back revenue projections for the first half of 2020 to an overall average of 1.6 per cent growth (down from 2.7 per cent).

According to SME lender Scottish Pacific, this was the weakest revenue forecast in two and a half years – and largely came down to working capital constraints. 

When asked how they looked to access finance for growth, SMEs also suggested that they would look to take on whatever they could get, which Scottish Pacific said was a worrying trend. 

Speaking earlier this year, CEO Peter Langham said: “While many SMEs are thriving, overall the gap is growing between those preparing for the worst and those with the best outlook. There are clear signs from these results that the situation is likely to get worse for many small to medium businesses in 2020. 

“In our more than 30 years in business, and in particular since 2014 when we started documenting Australia’s SME growth, the grit and resilience of small-business owners has been very clear to us – but how long can this continue without trading conditions improving?”

He outlined that trusted advisers, such as accountants and commercial brokers, are well placed to help SMEs access appropriate forms of finance, noting that only two-fifths (39.8 per cent) stated that they turn to brokers for sourcing new finance.

While fewer than one in 10 (8.8 per cent) of SMEs had never used a commercial broker, almost 90 per cent said they had no negative issues resulting from their use of a broker. 

East & Partners’ equipment finance research showed a high level of satisfaction among businesses who used the broker channel for asset sales and to get the best deal when purchasing new assets, plant and equipment.

The advantages listed for using a broker included better pricing, time saving and access to a broader range of funding solutions.

For those not using a broker, East & Partners’ 2020 Asset & Equipment Finance research found that the key reasons were a perceived lack of customer support, changing end financiers frequently, inability to meet whole borrowing needs and the perception that brokers were “chasing their own best interests”. 

Overall, the report shows that more than a third (35.2 per cent) use brokers for refinancing existing credit lines, with 10.4 per cent using brokers for price comparison, 8.2 per cent for advice on selling a business and 7.1 per cent for assistance with major acquisitions.

The vast majority of SMEs (52.9 per cent) said they used brokers for buying or selling assets, plant and equipment.

“Given the challenging business conditions in 2020, there is a clear need for brokers with commercial knowledge to help SMEs understand their businesses and how they can get them to thrive,” the report reads.

“Brokers are obviously an important channel for advice on asset purchase or sale,” it continued.

“There are clear opportunities for brokers to climb the ranks of trusted advisers, by also assisting small-business owners to find the right finance,” it concluded.

The findings are particularly pertinent given the growing concerns the SMEs may be missing out on the extended instant asset write-off, which expires at the end of June.

Following on from warnings that small businesses are “concentrating” on other stimulus measures released by the government throughout the COVID-19 pandemic and appear to have “forgotten” the availability of the $150,000 instant asset write-off through the ATO, which is in place until 30 June, research has shown that a third of SMEs are actually unaware of the new scheme.

According to research conducted online in April 2020 by Honeycomb Strategy on behalf of SME lender OnDeck, 35 per cent of the 300 surveyed Australian small and medium-sized enterprises (SMEs) have not heard of the instant asset write-off.

Under the instant asset write-off, businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used, or installed ready for use.

The government announced earlier this year that it was extending the instant asset write-off from $30,000 to $150,000 and expand access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million) up until 30 June 2020. The extension aims to act as a means of support for SMEs during COVID-19.

According to OnDeck, while a third of SMEs didn’t know about the write-off, nearly half (46 per cent) of those who did said they would be likely to take advantage of the new upper limit. 

[Related: Ignorance of extended asset write-off a boon for brokers]