Brokers can play a key role in helping the small-business sector navigatethe challenges and opportunities as financial assistance pares back and theeconomy recovers, says Nick McGrath, CEO of business growth-platform Moneytech.
Small and medium-sized enterprise (SME)borrowing has been subdued during COVID-19 as the sector received-substantialassistance from the government and private sectors and put growth-plans onhold. However, recently we’ve seen loan applications start to pick up, a trendwe expect to accelerate in coming months after Job Keeper rolls off completelyin March, commercial rent relief schemes wind up and loan deferrals expire.
The debt cliff
As assistance is phased out, manybusinesses will likely struggle to meet their obligations as expenses return topre-COVID levels, but incomes remain stalled. Some so-called ‘zombiebusinesses’ have been so reliant on the stimulus; they are unlikely to surviveon their own. Deloitte estimates up to 240,000 companies could fail duetoCOVID-19, a nearly 3,000 per cent increase on a normal year1.
This time will be particularly tough forbricks and mortar retailers, with UN research suggesting the global shift inshopping behaviour during the pandemic is here to stay2. Residentialconstruction may also remain weak, weighed down by a pandemic-related drop inimmigration.
Many businesses will need flexible formsof credit to help manage their cash flow and meet payments to staff, banks,landlords and suppliers until revenues recover or, in some cases, they canadapt their operations to the new normal.
Growth sectors need to borrow too
As the economy pulls itself up from itspandemic-related stumble, some sectors will experience rapid growth and demandcapital to invest in and expand operations. E-commerce provider shave alreadybegun to invest following exponential growth in retail sales during thepandemic. Manufacturing businesses are also set for good growth this year withthe interruption of supply chains during the pandemic forcing a lot ofmanufacturing back onshore and the government planning to invest $1.5billionover four years to help local manufacturers scale up.
Infrastructure businesses andtheir subcontractors and suppliers are also preparing for a strong periodahead, with Australia expected to deliver a record $435 billion worth ofeconomic and social infrastructure over the next five years3. Meanwhile,exporters are likely to get a boost from the recently formed RegionalComprehensive Economic Partnership.
The crucial role of cash flow lending
Small businesses often can’t borrowenough from the major banks to meet their needs, or access funds fast enough.Fintechs have filled this gap in recent years and offered products tailored tosmall-business owners, such as cash flow loans. Unlike traditional bank loans,which are usually tied to the purchase of a specific asset, these unsecuredloans can be used in a flexible way to fund whatever working capital needs thebusiness has on a day-to-day-basis – such as payroll payments, rent orinventory – and are then paid back by the business’s incoming cash flows.
At Moneytech, we recently took our cashflow lending to the next step with the launch of a new interest-only revolvingline of credit designed to help the micro-SME segment navigate the complexoperating environment. When a business needs cash flow assistance, atypicalcash flow loan, with interest and principal repayments and a fixed tenure,isn’t always the right option and may even compound cash flow problems. Aninterest-only revolving facility, which allows businesses to redraw capital asneeded, can provide invaluable breathing space at this time of flux.
The opportunity for brokers
While borrowing options for SMEs haveimproved in recent years, it isn’t always easy for business owners to find themost suitable solution for their business. Often, business owners who have beenunable to get their needs met by their bank have turned to Google and riskdestroying their credit rating by applying for multiple loans.
Brokers are an invaluable guide forbusiness owners who aren’t able to navigate the lending market. By providingclients with options based on their understanding of the market and how thebusiness’s credit profile might fit each lender, brokers are critical toensuring businesses obtain the right loan for their needs, from a credible,supportive lender.
At Moneytech, we generate around70 percent of our referrals from brokers. Recognising the importance of brokers toour business and as a source of support to SMEs, we continued brokercommissions for clients under hardship request during the pandemic. We alsorecently partnered with Lend to implement a referral partner portal for brokersto efficiently input customers’ loan applications.
While brokers in recent years havediversified beyond residential mortgages into commercial lending, many stillfocus on asset and equipment finance and commercial property loans. Expandinginto cash flow lending is another way to create new revenue streams, add valuefor customers and make your business more sustainable.
1. Deloitte, Hundreds of thousands of businesses face closureas the ‘fiscal cliff’ looms, June2020:https://www2.deloitte.com/au/en/pages/media-releases/articles/businesses-face-closure-fiscal-cliff-looms.html
2. United Nations Conference on Trade and Development,COVID-19 has changed online shopping forever, survey shows: https://unctad.org/news/covid-19-has-changed-online-shopping-forever-survey-shows
3. Australian Constructors Association (ACA), Sustaining theinfrastructure industry, September 2020:https://www.constructors.com.au/wp-content/uploads/2020/09/ACA-IA-Response-Final-Version.pdf
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