The CEO of SME lender OnDeck has encouraged brokers to embrace fintechs and diversify into SME lending, as new research shows that nearly a third of SMEs believe bank finance has negatively impacted their business.
The global chief executive officer of OnDeck, Noah Breslow, made the comments after the SME revealed new data that showed that 23 per cent of SMEs have been knocked back by their bank (rising to 37 per cent if they have been in operation for less than five years) and have been turning to family members, friends, or relying on their credit cards to help support their businesses.
According to the SME lender’s study, those that were able to access finance from a bank also stated that the process can damage their business due to time delays in approval.
The data showed that 30 per cent of SMEs that have applied for bank finance were negatively impacted by it, with the main impact being a slowdown in the business activities (57 per cent).
Lengthy approval processes also led business to delay delivery of products or services (40 per cent), delaying debt payments (40 per cent), putting off buying new equipment (39 per cent) and hiring new staff (12 per cent).
However, the data showed that 25 per cent of SMEs are looking to seek additional business finance in the future, a figure that rises to 39 per cent for SMEs with six to 10 employees, and 56 per cent for those with 11-49 employees.
According to OnDeck’s research, 22 per cent of SME owners would consider an online lender, with the level of interest in online lenders rising to 42 per cent for SMEs that have previously had an application for finance rejected by a bank.
Mr Breslow commented: “Large numbers of Australians SMEs may not be reaching their full potential either because they cannot secure bank finance, or because an inefficient and lengthy lending process is adding to the cost burden…
“Clearly, there is strong demand for finance among the SME community. This offers a strong business opportunity for brokers to diversify their revenue base by expanding into SME lending.
“I encourage the broking profession to engage with online lenders and diversify their revenue base to include SME lending. By helping SMEs access the finance they need, this would be a win-win for brokers and the small business community,” he said.
Speaking to The Adviser at the AltFi 2019 Australasia Summit 2019, Mr Breslow elaborated that the “win” for SMEs would be access to finance, while the “win” for brokers would be stickier clients and an additional revenue stream.
“Diversification makes a tonne of sense, and we saw that in the US too after the GFC when a lot of mortgage lenders pulled back and brokers had to find other sources of income. What is nice about the commercial sector that we serve is that while a mortgage broker might only write one mortgage to a customer every 10 years, in the SME space a customer might need a loan once a year to buy inventory, for example. So, you can have more frequent transactions with small business customers.”
Michael Burke, the head of sales at OnDeck Australia, agreed, telling The Adviser: “As awareness continues to grow, diversification is absolutely the buzzword at the moment.
“Mortgage providers may be nervous about what the future means for them from an income perspective, and I think the fact that a quarter of a brokers’ book is SMEs identifies the low-hanging fruit in the commercial opportunity in which they can offer a new service and produce a new income stream,” he said.
When asked for their advice for brokers looking to break into this space, both Mr Breslow and Mr Burke suggested education was key.
“I would say my key piece of advice for mortgage brokers is just to learn the products,” the US-based CEO said.
“Mortgages are something that everyone knows but online small business loans are relatively new in comparison, so brokers that succeed in our model are those that study the underwriting guidelines, they take the training, they put in the work to really understand the product category so that when they go out to prospect, they can really do it with a higher likelihood of being approved and being served well by the product.”
He added: “Some folks might think this is easy and almost underestimate that it is different. Commercial is very different from residential, and online small business is certainly different from traditional commercial, so respecting those differences is another key piece of advice for brokers looking to succeed in this area.
“Understanding that the process is different in our world.”
Mr Burke agreed, adding: “We’ve got a team of BDMs that are in market and available to help hold the hands of brokers through this education and ongoing expansion of their service.
“So, while the time frame on doing a transaction is short and the loans are relatively simple… it’s a process that brokers can get very comfortable with after doing one or two loans. It’s just about undertaking the right education steps first in order to get comfortable.”
[Related: ASBFEO calls on brokers to help SMEs]