Writing SME finance for the first time can open up a huge array of opportunities to brokers – but along with opportunities come a large number of new lenders and credit policies. Getting across them all can be time-consuming, but many tech platforms have been built to help brokers navigate this growing arena. Kate Aubrey explores more
As small to medium businesses are arguably the lifeblood of the economy, banks want to ensure finance and growth are stimulated and achieved, particularly post-COVID as many recover from two years of uncertainty.
Thus, despite the challenges posed by lockdowns, low interest rates and government stimulus drove the business lending landscape to sustain growth throughout the pandemic, with the Australian Bureau of Statistics (ABS) reporting investor loans had grown for 12 consecutive months prior to October 2021.
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With the end of low interest rates now upon us, the uncertainty over future lending makes it more critical for brokers to diversify into SME lending to protect and grow Australian businesses.
Of the 2.4 million businesses in Australia, the majority (2.35 million or 98 per cent) are small businesses, according to the Australian Banking Association, bolstering a huge opportunity for brokers.
Diversifying into SME lending gives brokers the benefit of rapid turnaround times in commission; without the formal settlement period that applies to residential mortgages, SME loans tend to settle in a few days rather than weeks.
But with the variety of business loans available and ever-changing lender policies, moving into SME lending may take brokers outside their comfort zone. And it can be an equally frustrating scenario for lenders fielding calls for products that aren’t aligned with their product criteria.
The good news is that, it is not necessary to have extensive experience in SME lending practices to successfully grow a revenue stream.
In recent history, a number of tech platforms have emerged offering centralised services for lenders that are geared towards residential brokers wanting to diversify their portfolio, or expert financial consultants seeking new lenders on the market.
Brands such as idutch, Nodifi, Lend, Earlypay, Shift, and more are a godsend to brokers who are new to writing SME loans, as they remove the barriers to business funding by enabling access to an extensive portfolio of commercial finance products.
The platforms help identify where the client will be serviced and provide BDM support to ensure the broker knows where the ideal fit is, saving brokers valuable time and resources.
The centralised tech platforms achieve their results by scouring thousands of products across multiple lenders to produce aligned solutions in seconds.
What kind of loans do they offer?
The benefit of SME finance platforms is that they can provide access to a vast range of lenders and products.
Some popular lending products that these platforms are currently seeing brokers use include:
- Unsecured business loans
- Secured business loans
- Asset finance
- Line of credit/overdraft
- Trade finance
- Invoice finance
- Non-bank lending (specialist lending)
On the back of COVID, broker Abhishek Maharaj at Winquote SME Finance said there had been a “large growth” in the unsecured cash-flow space, exacerbated by traditional lenders moving away from unsecured lending.
Many of the fintech lenders are unknown to borrowers, and therefore having a tech platform that can showcase many fintech or private lenders in one space can be beneficial.
“Usually these fintech lenders have provided an efficient solution where clients receive their funds within 48 hours of applying for a loan. This speed to market, along with better priced facilities, have made fintechs a very viable option when providing SMEs with loans,” Mr Maharaj said.
“[They] have also improved their product suite to include finance for business acquisitions – making them even more relevant in the expansion phase of the business life cycle.”
Given the emergence of boutique private lenders and fintech, Mr Maharaj said SMEs also want to know they are getting a “competitive product”.
“With the tech platforms providing [brokers] with comparable solutions within a matter of days (sometimes hours), our research time is next to nothing,” Mr Maharaj said.
“This is a win-win for the customer and broker as clients get their solution they are seeking quicker and brokers have their product search finalised cutting out their research time.”
How do they work?
Private lending fintech idutch’s general manager Haim Oziel said brokers input a high-level scenario – such as the loan amount, the term and the security, as well as a brief description about the purpose of the funds and the exit – into idutch’s platform.
“From here, brokers run an idutch smart match to generate a list of lenders that have an appetite for the deal, and send it to them through the portal,” Mr Oziel said.
“idutch manage the lender responses and present the most suitable options to the broker.
“This tech-enabled solution puts alternative lenders in a competitive furnace where they are encouraged to present their best offer, and allows the broker to efficiently and reliably source the best alternative finance solution for their client.”
The private lender provides brokers access to alternative finance between $500,000 to $250 million for settlements, refinances and construction, often on riskier deals that may not otherwise be serviced.
As SME lending can often involve complex and relatively strict thresholds, Mr Oziel explained the platform can help put the brokers’ deal ahead of a group of alternative commercial lenders.
“[It] can offer a more flexible, all rounded commercial solution for SME borrowers who struggle to meet the banks’ lending criteria,” Mr Oziel said.
Victoria-based finance broker Grant Rheuben from Rheuben & Associates said the fintech platform helped secure a $24 million loan for a developer.
“The issue we had, prior to using idutch, was that we didn’t have someone who could fund $24 million. After idutch gave me access to the private lender, within 10 business days the loan was funded,” Mr Rheuben said.
“As a broker in 20 years, I have never ever seen anything like it. My client was blown away, and I was seen as a trusted advisor.”
Supporting brokers
Similarly, SME finance platform Lend.com.au (Lend) – a data-driven decision engine that matches scenarios to lenders – launched its broker platform in 2019 to save brokers time and effort by instantly providing the finance broker with suitable lenders for their client’s business (based on the business profile).
Head of asset finance at SME platform Lend, Andrew Moulds, said its centralised platform also provides brokers peace of mind through an automated credit score check.
“We have things like a lend scorer, where we score the profile of the client for the broker to make it easy for them to understand how good that client is from a borrowing perspective,” Mr Moulds said.
The system uses integrated bank statement analysis, Equifax and credit watch reports, to help brokers get through the process more easily, too.
He noted that some mortgage brokers who make the move from residential lending to SME lending can find the transition “quite daunting” and fintechs such as Lend are there to help “guide the broker through the journey”.
“There’s so many different products in commercial lending. [And] there’s such a diversity in terms of numbers of lenders,” Mr Moulds said.
“We focus our technology on doing the heavy lifting for the broker by helping them match their client to the appropriate lender. And we do that by working really closely with the lenders to ensure that we have a really good level of depth and detail about their policy and pricing.”
But while these SME tech platforms can help the less-experienced broker, it’s also tailored to suit finance brokers.
“From an established broker’s point of view, lender policies and the number of lenders in the market changes almost on a weekly basis at the moment,” Mr Moulds said.
“Platforms like Lend, enable those brokers to spend more time with their clients, and less time trying to find the right contact for a BDM.
“So for established commercial brokers or finance brokers… we’re allowing them to increase productivity for our asset product, we show them the rates and commissions available so there’s opportunity to identify potential income.”
With access to multiple products, Mr Moulds said the technological solution also allows brokers to scale their business.
“[Brokers] can potentially put on additional staff and know that those staff can become more productive more quickly,” he said.
