With the federal government showing support for small businesses in its latest budget, now is the time for brokers to service this growing client base through commercial lending
There is no doubt that SMEs are major drivers of the Australian economy. The federal government recognised this in the most recent budget, lowering the tax rate for small companies with an annual turnover of less than $2 million from 30 per cent to 28.5 per cent, effective 1 July.
In addition, the government announced that businesses with an annual turnover of under $2 million are now able to claim an immediate tax deduction for most assets purchased for under $20,000 in total.
Employees of start-ups also now have access to tax breaks for shares they receive as a component of their pay.
Mortgage Choice CEO John Flavell said at the time that the tax breaks and incentives allocated to small businesses will help them flourish.
“It will give small business owners the opportunity to reinvest in their businesses and take their companies to the next level,” he said, adding: “considering small businesses are the engine room of Australia, these tax breaks should spell good news for the broader economy and employment.”
But not only are the tax breaks good news for the broader economy and employment, they’re also good for brokers, since more SMEs are likely to be looking to take advantage of these incentives to help them grow.
More SMEs will therefore be in search of funding to support their growth. According to the latest Scottish Pacific SME Growth Index, 45.2 per cent of SMEs classified themselves as being in a growth phase.
Suncorp Bank’s national manager of small business and commercial banking intermediaries, Robynne Frost, says Australia is home to more than two million small businesses – representing a huge opportunity for brokers to diversify and offer commercial lending to their customers.
“This market accounts for 96 per cent of the country’s business sector, creates 4.5 million jobs and contributes more than $330 billion annually to Australia’s economic output,” she says.
Suncorp Bank has recently strengthened its intermediary proposition to ensure its broker partners are well placed to take advantage of the “energised” SME market, according to Ms Frost.
“Small businesses are the backbone of Australia’s economy, and Suncorp Bank is committed to supporting the growth and success of this important sector,” she says.
Brokers who have accreditation to write home loans with Suncorp Bank are automatically accredited to write small business loans of up to $1 million. Ms Frost says the bank will also launch a series of education forums and workshops on SME lending for brokers later this year.
Approximately 30 per cent of Suncorp’s home loans are for self-employed borrowers – a statistic that Ms Frost suggests highlights the cross-sell opportunity for brokers.
“The important part for brokers is to have the confidence to have exploratory conversations with customers beyond their personal borrowing needs,” she says.
NAB has also acknowledged the huge opportunity for brokers to provide lending options for SMEs. NAB Broker general manager Steve Kane told The Adviser that brokers now account for somewhere between 25 and 30 per cent of the bank’s commercial loans, including small business lending.
NAB’s commercial lending activity has increased rapidly over the past few years, according to Mr Kane.
“We think brokers are now accounting for somewhere between 25 and 30 per cent of that business,” he says, adding that brokers have a distinct advantage in being able to capitalise on their existing customer base when looking to boost their commercial business.
“Twenty-five per cent of all broker-introduced housing loan customers are small business owners, so there is a natural affiliation when you look at a ‘whole of relationship’ concept that brokers have with their customers. That will continue to grow and follow the trajectory of the residential market in terms of how brokers service their customers,” says Mr Kane.
NAB launched its commercial broker business two years ago and has been steadily ramping up its offering since then.
While recent years have seen the bank operating without a small business offering for brokers, Mr Kane explains that this is about to change, as one recently piloted in NSW and Victoria will soon be implemented more broadly.
“We’re going to roll that out at the end of this calendar year to the wider market and it’s really going to be providing small business with firm funding,” he says. “It will primarily be backed by residential security, but it will be that sub $1 million small business loan, so we’ll roll that out in the last calendar quarter of this year.”
IMB Bank chief executive Robert Ryan says the SME sector is both a highly competitive and sought after part of the finance market.
“Like the consumer market, interest rates are at historic lows and SMEs are continually looking for ways to increase revenue and profitability whilst reducing their cost base,” he says.
“Diversifying into business lending allows brokers to provide a full range of services to their existing business clients. Higher revenue streams and stickier, satisfied clients equal a successful business model.”
Mr Ryan says residential brokers need to understand financial ratios and the impact of creditors and debtors on business cash flow, as well as develop skills in cash-flow forecasting and budgeting, before taking on SME clients. “Fortunately, many brokers sit in the SME space themselves, so they understand these needs and the impact of relationship, product and service,” he says.
With this perspective on your side, why wouldn’t you consider extending into supporting other small businesses operated by your existing client base?
THE KEY TO UNLOCKING COMMERCIAL LENDING
There is no need to be intimidated by the idea of moving from residential into commercial lending. Instead, take baby steps by thinking about small-deal opportunities with SME clients, writes Prospa’s head of sales and business development, Matt Bauld
As a residential broker, you’re sitting on the best business loan your current customer database. Many residential clients are likely to be SME owners, with 70 per cent of the Australian workforce employed in this sector.
Commercial lending has a place alongside your residential business as part of a diversified offering. Supplement those longer trails from residential lending with regular bonuses from small business lending – these small deals are the low hanging fruit that can deliver income to you now.
There are approximately 2.8 million small businesses in Australia, accounting for about half the value of the economy. Despite this important contribution, small businesses face a unique set of operational hurdles, and one of the biggest is access to finance, with traditional sources too challenging for most.
Small business owners are crying out for help and advice on faster, simpler ways of funding their business without impinging on their personal needs, whether it be bridging receivables gaps, purchasing inventory, building a new website, hiring more staff, renovating or expanding, or purchasing equipment. That’s the opportunity, and it’s where small business loans are having an impact. This type of loan deal is now a realistic option for residential brokers, and the sector will continue to grow as more SMEs become aware of their financing options.
Prospa uses smart technology and an online application process to offer unsecured cash-flow loans of up to $250,000 on terms of three to 12 months, and focuses on the health of the business when assessing an application, rather than the owner’s personal credit score or the family home as security.
Inexperience is no reason for brokers to avoid commercial lending. Prospa provides structured support in the form of a team of BDMs and state managers, so brokers can get in touch with any questions about the product, or even be mentored through their first experiences of commercial lending.
Education is a priority, and Prospa educates brokers on the unique circumstances that small businesses face and how cash-flow lending delivers genuine opportunities for growth. The firm runs regular webinars, presents at broker get-togethers and provides template emails and a series of ‘How to Prospa’ fact sheets and flyers to help brokers get deals under their belt.
Implementation is simple: once you spot an opportunity, call the team at Prospa to confirm your customer qualifies. You can choose to refer the customer directly, or Prospa will work through you. Either way, you are kept in the loop on all communication. Your commission is the same, and any successful deals are matched back to you.
Beau Bortoli, joint CEO of Prospa, is confident that the biggest winners from cash-flow lending opportunities are small businesses in Australia, followed closely by residential brokers. Any residential broker who makes small business lending a valued part of their offering will reap the benefits. It’s the same skill set you already have – the ability to really understand what is driving people – and that’s relevant, whether they are an individual or in their capacity as a small business owner. It comes back to having confidence in that you have the right solution for your client.