Brokers and other advisers are “losing ground” in the SME advice space, which represents a “massive opportunity” to engage with and educate clients, according to an SME lender.
According to new research commissioned by Scottish Pacific, only 4.1 per cent of SMEs have nominated their finance broker as their key trusted adviser.
The September edition of the lender’s SME Growth Index, which saw banking analysts East & Partners survey more than 1,000 Australian businesses, reveals that 40.7 per cent of business owners stated that their business colleagues are their most trusted adviser.
The second most trusted adviser, according to the report, was the business’ trading partners or suppliers (22.2 per cent).
Moreover, the research found that fewer SMEs are turning to advisers with specific expertise, such as accountants, as their trusted source of advice.
Only 5.7 per cent of SMEs said that accountants were their key trusted adviser, down from 10 per cent in 2017.
Brokers were only nominated as the most trusted adviser by 4.1 per cent of growing, stable and consolidating businesses – behind only bankers (2.6 per cent), personal coaches (0.9 per cent) and other (0.2 per cent).
Growing businesses were found to be almost three times as likely to name an accountant over a bank manager, and twice as likely to name their broker ahead of their bank manager.
The index revealed that SMEs were more likely to contact a broker when they were in need.
For example, businesses that were contracting were the most likely to name their broker as their most trusted adviser (7.4 per cent) but fewer than one in 100 (0.8 per cent) of start-ups said they were.
Friends (8.6 per cent) and family members (7 per cent) remained a key source of advice for SMEs overall.
However, more SMEs are reportedly seeking advice in general. In 2015, for example, 38.6 per cent of respondents said that they had no trusted adviser, falling to 8 per cent today.
‘Opportunity for brokers’
While there is a low number of SMEs currently turning to their brokers for advice, Scottish Pacific CEO Peter Langham told The Adviser that he sees this as an opportunity for brokers to build on new and existing client relationships, and add value to their businesses.
Mr Langham stated that while brokers can play a critical role in helping business owners get the right funding, many SMEs are “unaware that brokers can play this role”.
“Previous rounds of the index have highlighted that just over one in 10 SMEs seek a commercial finance broker when reviewing their borrowing requirements or deciding on new providers, and only 4 percent actively keep an eye out for what financial products best suit their SME,” Mr Langham said.
The invoice finance lender CEO emphasised that these figures allow for brokers to become more involved in the SME finance space, and grow their “market share” as trusted advisers to their clients.
“Brokers can take advantage of these low statistics by being the ones to start a conversation with SMEs around how best to fund their businesses.
“This is a massive opportunity for brokers to become their trusted adviser, showing them how to seek new or alternative finance options that might better suit their business,” Mr Langham said.
He also highlighted the unique benefits that brokers can provide to SMEs when it comes to securing the right funding.
“[W]e encourage brokers to keep an eye out for clients who would benefit from funding outside a traditional bank loan,” Mr Langham said.
“When assessing the client’s needs, if brokers see debtors on their balance sheet, they should consider invoice finance as an efficient way to fund such a business.
He went on to say: “Brokers can start a conversation with their clients about invoice finance, by talking to them about the fact that there is an alternative to using credit cards, personal loans and the security of their house to fund their business.”
Critical time for SME lending
The results come amid growing concerns over the availability of credit in the SME space, with some reports estimating the “funding gap” is now over $83 billion, which highlights further the need for brokers in the SME lending space.
Additionally, SMEs face increasing confusion around their options for finance, borrowing capacity and correct loan documentation.
In response to the struggles faced by SMEs in securing funding, Scottish Pacific and the Australian Small Business and Family Enterprise Ombudsman created an “industry first” guide to help brokers and other financial advisers “tackle the access-to-funding crisis” faced by SMEs.
It came with a supplementary guide for SMEs that aims to help small businesses become “finance fit” in order to give them their best chance at securing the funding they need.
The Business Funding Guide is not alone in its attempt to close the funding gap for Australian SMEs, with the Australian Banking Association and SME lender Prospa both releasing guides or programs aimed at assisting SMEs understand and secure business finance.
[Related: SMEs funding growth through non-bank lenders]