Small businesses have been called everything from the “heart and soul of Australia” to “the backbone of our economy”. So what can brokers do to help out these businesses while also growing their own?
In its most recent federal Budget last year, the federal government lowered the tax rate for companies with an annual turnover of less than $2 million from 30 per cent to 28.5 per cent.
Furthermore, the government enabled businesses with an annual turnover of under $2 million to claim an immediate tax deduction for most assets purchased for under $20,000 in total.
Employees of start-ups now also have access to tax breaks for shares they receive as a component for their pay.
It really is a no-brainer as to why the federal government made these changes. According to its 2015 budget report, Growing jobs and small businesses, 96 per cent of Australian businesses are small businesses, and this sector alone accounts for $330 billion of the nation’s economic output each year.
Figures by the Australian Bureau of Statistics show that there are approximately two million small businesses across the country, and roughly one in four employed Australians work for a small business. In addition, there were approximately 300,000 new entrants to the small business market in 2014.
But while the stats show that the small business sector is booming, most players in this market need the same thing to get them off the ground and to ultimately help them survive – funding.
The Startup Muster 2015 Report found that 67 per cent of Aussie start-ups thought they needed funding to survive the next 12 months. Meanwhile, approximately half of all start-ups use personal savings to fund their business, according to the 2012 government report Australian Small Business – Key Statistics and Analysis.
ANZ is one lender that prides itself on providing funding for small businesses, offering a number of products tailored to meet customers’ needs. From a value as little as $50,000, these products include secured, partially secured and unsecured business loans, overdraft facilities to fund working capital requirements, asset and equipment finance, and trade loans for those businesses importing or exporting products overseas. Since the small business lending pledge launched, ANZ has helped almost 20,000 small businesses and in 2015 approved close to 80 per cent of lending applications.
However, the major bank’s general manager of commercial origination, Cosi De Angelis, says that lending is only part of the banking picture for small businesses.
“They need products and services to help them run day-to-day, such as trading accounts, commercial credit cards and merchant terminals, and international services such as foreign currency and protection in case something happens to them,” he tells The Adviser.
“Our small business customers also have personal banking needs, and ANZ finds that customers expect assistance in this area as well, including personal accounts, credit cards and home loans.”
Mr De Angelis says this cross-over of small business lending needs presents a golden opportunity for residential brokers to discuss commercial lending with their clients, and vice versa with commercial brokers.
“Small businesses by their very nature are growing and therefore have growing needs,” he says. “Besides the great feeling of helping businesses to grow, the opportunity for brokers to generate greater revenue is a real benefit of diversifying into this space.”
Identifying small business clients
Your typical small business customer is a sole trader or family-owned business that operates in either the property, construction, retail or business services industries, according to Mr De Angelis.
“They also want banking solutions that make it easy for them to do business and manage their personal finances,” he explains. “They base their banking decisions on where they have their personal banking, online research and advice from peers and trusted advisers like brokers.”
ANZ estimates that up to 30 per cent of home loan customers are self-employed, which means that brokers may already have small business customers that they’re not aware of.
Brokers also tend to have a strong relationship with their clients, so they are well-positioned to have discussions with home loan customers about their broader lending requirements, Mr De Angelis adds.
“If a client is self-employed on their home loan application, ask what type of business they have and how their business is going,” he says. “Try to have a holistic conversation so you have an understanding of both their personal and business needs.”
Mr De Angelis notes that brokers’ referral partnerships also present an opportunity to attract and retain small business clients.
“Successful brokers usually have a strong referral network of specialists who support small businesses such accountants, solicitors and real estate agents,” he says. “The broker just needs to make it clear to them that they are now servicing business needs.”
Working with ANZ
In order to service small business clients effectively with ANZ, Mr De Angelis says residential brokers not only need to be accredited with the bank, but also have a high-level understanding of ANZ’s products and what constitutes a quality lending application.
“Brokers also need to have strong business development skills, particularly in establishing referral sources and recognising opportunities from within their existing client base,” he explains.
The ability to have a holistic, needs-based conversation with clients is also crucial.
“For example, the first critical assessment that needs to be understood is the cash conversion cycle before a conversation about debt occurs.”
And for those resi brokers who are still unsure about whether or not to diversify into small business lending, ANZ has a Commercial Spotter Program designed to make the initial phase of servicing small business clients easier.
“Accredited brokers can refer business opportunities to ANZ and will be financially rewarded if the deal settles,” Mr De Angelis says. “Brokers can start servicing business finance enquiries while developing their commercial lending skills.”
If residential brokers wish to be full ANZ commercially accredited brokers then they can apply via their aggregator. The process is fairly quick and is completed via a two-page application with some verification documentation and a commercial knowledge competency test.
Proof in the pudding
One broker who has successfully diversified their offering to include ANZ’s small business solutions is Paul Shahinian, director of Econ-Finance in Sydney.
Having offered small business loans for 16 years, this type of lending now makes up 27 per cent of Mr Shahinian’s overall portfolio.
“I worked out early in the piece that if I didn’t offer the service, someone else would, and I would miss out on the work and the spin-off residential lending that comes with it,” he tells The Adviser.
Mr Shahinian believes the key to attracting small business clients is by listening and understanding their business, and the issues that come with it.
“Most small business owners are looking for an adviser that they can have an open conversation with to gain feedback on the best way forward for their specific situation,” he says.
“Retention is easy. Do a good job and they will come back.”
In terms of mastering small business lending, Mr Shahinian says it’s not that difficult, but there are certain skills that need to be learnt.
“Studies in business, law, accounting, economics and computing all help. You also need to be patient, as deals take a long time to finalise and some deals never get there,” he says.
“[Small business lending is] pretty competitive, more and more brokers are having a crack. However, it’s not just other brokers – the banks hire highly-skilled bankers in this area, and they are our direct competition.”
Mr Shahinian says ANZ is the best option when it comes to cash flow lending for small businesses. He adds that the bank also offers a higher LVR on small business property loans compared to other lenders.
“In one particular situation, one of my clients was looking to purchase a business and his total property assets did not value enough to allow the amount needed to purchase the business,” he explains.
“ANZ understood what the client was trying to achieve, and based on the strong cash flow of the business being purchased, ANZ structured an over-lend to facilitate the purchase, which was required to be amortised over a three-year period. This flexibility made the deal happen, and the three-year amortisation gave the client a comfortable repayment program which didn’t suffocate the business. A great outcome for all parties involved.”
The changing lending landscape
The world looks very different to what it did 10 years ago, and Mr De Angelis says the small business landscape is no exception.
“As we know, the mining boom which has driven growth is now receding and, as Malcolm Turnbull said in his speech to launch the government’s National Innovation and Science Agenda in December last year, ‘new sources of growth [are needed] if we are to maintain our high standard of living’,” he says.
“This is supported by state-based economic activity. Western Australia’s growth is below trend and decelerating, whereas the eastern seaboard is growing above trend and accelerating, predominantly due to high housing and service industries growth.”
Mr De Angelis notes that alternative forms of financing are gaining traction. “The crowd-sourced equity funding bill which passed through the House of Representatives earlier this year seeks to make crowdfunding easier for businesses and safer for investors, and is expected to have an impact on the funding landscape,” he says.
“Also, many small businesses are increasingly expected to have online offerings, more professional websites and adapt to new technologies such as online accounting software. That’s why we’re working with third parties such as Honcho that can offer these services to customers, as we recognise that they need assistance with their entire business, beyond traditional banking.”
PARTNER MESSAGE: Cosi De Angelis, General Manager of Commercial Origination, ANZ
Small business is the backbone of the Australian economy, with around 300,000 small businesses starting each year. One of the biggest frustrations these businesses face is that it takes weeks to get started, and they often don’t know what steps to take next. This is where brokers can play a role – and it’s never too early for a broker to help a business.
At ANZ, our strong commitment to small business continues with the recently launched ANZ ‘Business Ready’ offering, which includes a very easy way for start-up businesses to get going in just one day.
The financial needs of businesses can be so fluid, so the more quickly a new business becomes operational, the more needs there will be for brokers to help solve. ANZ is not just about the big end of town either – we will do small business finance starting from $50,000.
Lastly, diversification is such a hot topic. We are not here to just talk the talk because it’s suddenly popular – we have easy and practical ways that brokers can make the transition to include commercial broking alongside their residential lending with the full support of our commercial broker management team.
At ANZ, we want to provide outstanding solutions for your clients to build long-term and profitable relationships.
SUPPORTING START-UPS THE ANZ WAY
ANZ recently collaborated with business software provider Honcho to launch an online platform which enables customers to set up their own business in just one day.
‘Business Ready’ allows ANZ customers to register their ABN, business and domain names, and set up a simple website, email addresses and ANZ business bank accounts without having to use multiple websites and suppliers.
“Each year in Australia around 300,000 small businesses are set up, and one of the biggest frustrations our customers have is it takes weeks to get started and they often don’t know what steps to take next,” Mark Hand, ANZ’s managing director of corporate and commercial banking, said at the time of the announcement.
“This tool is a simple, efficient and cost-effective solution that guides customers through the process so they can be effectively up and running in a day.
“Combined with our $2 billion pledge for new small businesses and discounted banking packages, our Business Ready initiative is another way ANZ is providing ongoing support from the start-up phase through to the growth phase and beyond.”
Honcho CEO Matthew Abrahams says the company chose to work with ANZ because of its commitment to small businesses and its shared goal of making life easier for small business owners.
“The single biggest issue that new small businesses face is time. Being able to fast-track starting up a business from weeks to hours with only a small capital outlay enables people to start earning revenue faster and to concentrate on building their customer base,” he says.
BROKER Q&A: Eamonn Keogh, business finance professional, Business 500
Small business lending specialist Eamon Keogh shares some words of wisdom on the sector and how resi brokers should approach it.
What’s the one thing that all small business lending clients have in common?
The key issue is access to funding for their business in a timely fashion. Rates and terms are all important aspects of the loan facility. However, it is the ability to actually obtain funds as quickly as possible that is their main goal and also their biggest hurdle.
What are some of the misconceptions that resi brokers may have of small business lending?
I think the biggest misconception is that a business application will take the same time as a home loan. The average business loan process is about three months or more compared with a normal home loan taking one month. I am currently finalising a business application that has taken 12 months.
Tell us more about how this particular application has played out?
It’s for a medium-sized trading business which had split banking that hadn’t been reviewed for some time. The client has been in the current business for nine years and generated more than $12 million in turnover.
I held an initial meeting with them to ascertain their main objectives and preferred outcome. Following that meeting, I provided the client with an information request document outlining all of the information I would need to assess their lending requirements and provide my best recommendations.
Upon receiving the information, I conducted a full review and provided recommendations on how to improve cash flow outcomes, achieve cost savings and structure flexibility.
I then provided the client with a full relationship report (application pack) to be signed off before submitting it (along with an official tender of all business) to four lenders on their behalf, seeking indicative offers for presentation to the client.
Once the offers were received, I collated the data in a document to represent each offer fairly and without bias. Each offer was rated based on a number of factors including cost, loan term, security structure, response time and ongoing loan conditions. The client was given this document to review and came to a decision on the best offer for them.
Once the client confirmed their lender of choice, formal approval was sought and we started to address the numerous bank conditions, such as business valuations, property valuations and vetting of trust deeds.
This application has taken 12 months and some variations were made during this time. The client decided to go with ANZ, as they were the quickest to provide an indicative offer and were also very competitive from a cost perspective. The biggest advantage was the significant cash flow benefits provided by the new offer.
What does the future hold for the small business lending landscape, and where will brokers fit into this?
I think the small business lending space will continue to be difficult for clients moving forward as compliance requirements increase and economic conditions remain volatile. It is because of this that it is more important than ever that small business clients have the support and guidance of an experienced and knowledgeable business broker.
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