SME lenders are calling on brokers to help small businesses access finance to help them grow their business through disruptions such as the federal election and a changing credit landscape.
Fintech lender OnDeck Australia recently undertook a survey of 430 small and medium-sized enterprises and found that almost six out of 10 businesses (59 per cent) think that major political events, such as elections, negatively impact their business.
Further, 83 per cent of SME respondents said they were not feeling “completely prepared” for the upcoming federal election.
However, the CEO of OnDeck Australia, Cameron Poolman, added that 59 per cent of SMEs believe that improved access to cash flow would help them weather the uncertain political environment created by Saturday’s election (18 May).
Mr Poolman commented: “The possibility of a change in federal government often sees both consumers and businesses put major purchases or projects on hold. This has a direct knock-on effect on the SME community.”
“While an election will change the goal posts, the key for Australian small businesses will be to keep informed, make a plan, and think ahead to create a foundation for success.”
According to OnDeck, this can provide “significant opportunities for brokers,” by generating a “ready base for brokers” to market their services in the SME lending space.
The Australia-wide study further revealed that 29 per cent of SMEs that have successfully secured bank finance in the past reported a “protracted application and approval process”, which in itself had “negatively impacted business activities”.
Further, 25 per cent of SMEs have been knocked back by their bank for funding in the past (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 OnDeck, the online lending channel can be an “attractive solution” for SMEs, even if they are eligible for bank lending, with a “swifter and less onerous” assessment process.
Mr Poolman said: “It makes SME lending a win-win for brokers – good for their customers and good for their own business growth.”
Likewise, cash flow lender Apricity Finance recently polled finance brokers about their experiences with SME clients and found that 70 per cent of brokers agreed that cash flow is “definitely more” of a problem than it was for small businesses 12 months ago.
Indeed, 92 per cent of brokers believed that finance was “more difficult” to get since the banking royal commission.
Linden Toll, CEO at Apricity Finance, said the banking royal commission has almost created a “perfect storm” scenario for small businesses, in that there is now an increased need for finance but reduced credit appetite from the major banks.
“We work closely with finance brokers and we believe they have a unique view on small businesses. Like the canary in the coalmine, the trends that brokers see across the SME sector can often be indicative of longer-term problems,” he said.
Mr Toll continued: “Our research has shown that brokers are concerned about the increasing number of small businesses suffering from cash flow challenges and the capacity of those businesses to access finance in a post-royal commission landscape. And that these cash flow concerns are largely driven by late invoices or long invoice payment terms, with more than two-thirds (68 per cent) agreeing that chasing invoices and long invoice payment terms are the main causes for cash flow issues.”
He added that finding solutions for these clients was therefore “hugely important to the Australian economy” as they employ more than four and a half million Australians, “more than those employed by the whole of the ASX 200,” he said.
The findings echo those of GetCapital’s Budget Survey, undertaken last month, which found that 74 per cent of the 216 small-business owner respondents said that they believed the banks’ appetite for lending to small business had decreased this financial year.
Indeed, while a third of businesses said that “the general economy” was the biggest impediment to growth in 2019-20, “access to capital” was in close second – with 30 per cent of SMEs stating it was the biggest barrier to growth. This was followed by “government regulation and taxes” (17 per cent) and “hiring staff” (12 per cent).
In general, 61 per cent of SMEs surveyed believed that the political policies of the Coalition government would have a positive impact on their businesses, compared to a fifth (20 per cent) who believe Labor’s policies would.
GetCapital CEO Jamie Osborn said that while “customers, brokers and the market generally [believe] that bank funding for small business continues to tighten,” brokers were well placed to help SMEs access finance from other lenders.
Mr Osborn’s comments echo those made by the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, recently, who lamented that banks are lending less money to small businesses, urging brokers to enter into this space to ensure that the “engine room of the economy” can continue to turn.
Find out more about how brokers can provide solutions to small businesses in the SME finance special edition of The Adviser magazine, out in June.