As the deadline for using the instant asset write-off approaches, we outline what has been happening in the asset finance space and how SMEs can take advantage of the new package.
At this time of year, consumers would normally be flocking to brokers for asset finance or car loans, looking to get themselves a good deal in the end of financial year (EOFY) dealer sales.
This year, however, with the coronavirus (COVID-19) pandemic taking its toll on the economy and job security, the amount of consumers looking to buy new cars has dropped dramatically as spenders turn savers.
According to the most recent data from the Australian Bureau of Statistics (ABS), 31 per cent of Australian citizens have experienced a decrease in income due to the pandemic – and appetite for new cars has dropped rapidly. Finance for car loans also dropped, with ABS figures showing that the value of new loan commitments for fixed-term personal finance fell 8.2 per cent in March – at the beginning of the lockdown period – driven by weaker lending for road vehicles (down 10.2 per cent).
The trend continued in April, with the Federal Chamber of Automotive Industries’ car sales figures for the month showing that a total of 38,926 sales were recorded, representing a fall of 48.5 per cent over the same period last year (75,550 sales) and the largest single decrease of any month since the figures were first recorded in 1991.
Businesses, too, have been reducing their spending as revenue drops due to reduced foot fall given the impacts of social distancing restrictions. As such, while demand for cash flow finance and support packages has been on the up to keep the lights on (see page 30 for more), there has been a marked drop in asset finance demand overall.
Speaking to The Adviser, commercial and asset finance broker Renee Tocco, managing director of Loanezi, elaborated: “Business buying is heavily impacted by economic confidence, and the majority of industry verticals have been negatively impacted during the current crisis.
“My firm specialises in asset finance in the technology and small-ticket item niche, and we have experienced new applications to have fallen off a cliff, to say the least.”
However, Ms Tocco added that while new enquiries have slowed to a halt, the brokerage is “still doing better than most other players in this space due to [its] high level of customer care and superior service”.
She added: “My firm started diversifying into different business finance sectors over 12 months ago as part of the growth strategy for Loanezi. Fortunately, as a result, we have been well positioned to pivot into these verticals prior to the reduction in our core business taking effect due to COVID-19.
“Some of these areas include unsecured business loans, lines of credit and even personal loans. The current crisis is a great reminder that we need to be vigilant in our ability to adapt and innovate to ensure the survival of our businesses.”
The industries looking for asset finance
But it isn’t all gloom and doom. While retail shops and those working in tourism and hospitality have seen revenue dry up, other sectors that have been able to operate during the lockdown (or have pivoted their business to survive) have seen a bump in sales and are looking to asset finance to grow.
Indeed, Ms Tocco added that having up-to-date information on clients and a good understanding of their needs, the brokerage has been able to identify several industries that need asset finance at the moment.
She explained: “The trend we have noticed is that the majority of current asset purchases have been from the health, education and transport sectors. With strong data collection, we have used this to stimulate interest within our existing database in those particular sectors.”
Personal and asset finance platform Nodifi also noted that while the economic impact of the ongoing coronavirus (COVID-19) pandemic and its associated social distancing rules has resulted in the shuttering of many businesses, there are some business areas that are seeking finance to grow.
Speaking to The Adviser, Tom Caesar, the chief executive officer of the diversification platform for mortgage brokers and car and leisure dealers, outlined that Nodifi had seen a large uptick in enquiries from those seeking finance for the logistics, construction and medical industries as well as government and public services.
In fact, Mr Caesar revealed that demand for asset finance from some business industries doubled amid the social distancing environment.
He commented: “We’ve seen an influx of business from the transport industry with trucks and logistics and engineering.
“We’ve also seen a lot of tradies, landscapers and maintenance personnel and those from the construction industry come in buying new equipment.
“They’re telling us that there is still a lot of work at the moment and that they haven’t actually seen a big impact to their businesses at the moment. [However, they are concerned with where it’s going to be in six to 12 months’ time]. So, we’ve still seen a lot of them come in buying new equipment now.”
Mr Caesar also revealed that agriculture also “seems to be doing well” with high demand for machinery to help with moving and sorting crops, as well as demand for asset finance for new equipment from government workers, and demand from the medical professions for medical equipment.
Aggregator Connective has also identified some industries that are particularly seeking asset finance. Connective’s executive director, Mark Haron, said the group’s asset finance arm had seen an uptick in asset finance demand from not only transport and delivery businesses (such as couriers needing trucks and bikes), but also “professional services” and “pet supply businesses”.
“There’s been an unprecedented uplift in pet services and places like Pet Barn that supply pet goods. They’ve had a significant uplift in business during the pandemic and require moving machinery to replace stock and assets like that.”
Why the time is right for asset finance
With easing of restrictions now starting, asset finance demands have started to rise. Connective’s Mr Haron said that during the last few weeks of May, Connective Asset Finance had seen volumes pick back up in both the commercial SME space and the asset finance space.
“In [recent weeks], asset finance has had a significant uplift,” he said. “We’ve had tremendous growth in that area, and we’re up 58 per cent year-on-year on comparable months.”
While the aggregator director said that some of the uplift is due to the fact that more brokers had joined the asset finance arm of the group (and was therefore natural growth), he added “anecdotally, we’re hearing from a lot of major asset finance brokers that things have started to pick up from the beginning of the lockdown”.
The instant asset write-off surge
The next few weeks are expected to see a surge in asset finance applications as small businesses rush to take advantage of the expanded instant asset write-off, which now reaches up to $150,000 and to businesses with aggregated annual turnover of less than $500 million (see boxout for more details).
SME lender OnDeck has suggested that an incorporated small business taking advantage of the $150,000 instant asset write-down can save up to $41,250 in tax for the current financial year – a significant plus for cash flow.
The expanded scheme has been warmly embraced by industry, with Loanezi’s Ms Tocco stating: “I feel this was a great initiative to encourage business buying of assets.”
While Ms Tocco added that the asset purchase and finance she specialises in tends to have a “shorter life span and may make more accounting sense to purchase through a traditional lease and rental model”, she did add that
she expected the inflated instant asset write-off to “have greater impact in different asset purchase verticals.”
Indeed, Nodifi’s Mr Caesar said the platform had already seen the extension of the instant asset tax write-offs being predominantly used for trucks and machinery from transport, medical and agricultural sectors.
SME Finance Group founding director Michael Pratt warned, however, that approximately three-quarters of eligible SMEs appear to have “forgotten” the availability of the $150,000 instant asset write-off through the ATO, which is in place until 30 June.
“Maybe it’s because they’ve not had the time needed to really consider what they need to support and grow their business in terms of an injection five times what they were originally considering at the start of the financial year,” he said.
“Maybe they don’t know how to go about securing the monies, especially smaller private companies with a turnover of less than $50 million that have likely structured their business financing in a way that’s unique to them.
“They often haven’t been given the data they need by their accountant to tick all the necessary boxes to help ensure their applications are successful through many traditional sources,” Mr Pratt said.
It’s therefore critical that brokers and accountants work together to help businesses “maximise this opportunity appropriately before it’s too late,” Mr Pratt said.
Likewise, the CEO of OnDeck Australia, Cameron Poolman, cautioned that time is running out to take advantage of the offer, stating: “Plenty of small businesses are likely to take advantage of the initiatives, especially the expanded instant asset write-off, but it is important for brokers to have conversations with their SME clients around these measures.
“Small-business owners need to be aware that the stimulus measures are temporary… The instant asset write-off is only available on new or second-hand assets that are installed by 30 June 2020, so time is of the essence.”
“It is critical for SME owners to act fast to secure finance to purchase the asset and have it in situ before 30 June to be eligible for the instant write-off.”
In conclusion, Connective’s Mr Haron suggested that as we approach EOFY, brokers must ensure they can help their SME clients access asset finance should they wish to take advantage of the write-off.
“We’re getting to the end of financial year, and there are a lot of businesses now that have had a lot of growth because they’re in industries that are extremely necessary in this COVID environment.
“With some businesses picking up and government outlining how long we can expect the restrictions to continue, some SMEs are now saying that they need to borrow money and gear up and grow their business.
“This is an opportune time for brokers,” he said.
Likewise, Nodifi’s Mr Caesar outlined that “while the environment is very different to what it was before COVID-19, there are opportunities in the market”.
“It’s just we need to look at it with a glass half-full, not a glass half-empty. And I think that’s the biggest challenge,” Mr Caesar told The Adviser. “But don’t forget: if you aren’t confident in writing asset finance yourself, you can always refer it out to those who can.”
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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