Brokers poised to seize opportunity in SME space

Small businesses may need $10.7 billion in funding

Brokers poised to seize opportunity in SME space


By Ryan Johnson

In the midst of a rapidly changing economic climate, brokers have the potential to expand into commercial lines, as small businesses remain optimistic about the future.

With approximately 2.4 million small businesses in Australia, research commissioned by SME lender Prospa and YouGov in May reveals an estimated opportunity of about $10.7 billion in funding to support these businesses over the next year.

Isabella Constantinou (pictured above left), associate director of sales at commercial finance brokerage Simplicity Loans & Advisory, said commercial mortgage brokers could seize this opportunity by transitioning from mere facilitators of mortgage transactions to offering an “advisory role” to their clients.

“Clients will be looking for more proactive guidance and assistance in asset structuring, cost minimisation and advice around how best to support growing business during a turbulent market,” Constantinou said.

“Those who have typically approached lenders directly for their debt will likely look to using a broker in a time where obtaining the right lending solution is more critical and likely more difficult to get done.”

Small business optimism

Small businesses have experienced volatile conditions in recent years, with the COVID-19 pandemic, natural disasters, supply chain disruptions, staff shortages and now rising inflation and costs all posing significant challenges.

While these factors have made some SMEs adjust their business, with many planning to move their supply chain onshore, it has not dampened their optimism.

Prospa’s research showed that small business owners are backing in their operations, with more than four in five (83%) anticipating growth for their business over the next 12 months. 

Ben Lamb (pictured above right), Prospa's chief commercial officer, attributes this optimism to small business owners' ability to adapt and find new revenue streams and operational efficiencies in the face of adversity. 

“I think small business owners who are optimistic have found ways or are confident in finding ways to pivot their business as required to navigate these new challenges,” Lamb said.

The research also found that 43% of Australian business owners and decision makers anticipate revenue growth in the next 12 months compared to the previous year. On average, they expect a 23% annual revenue increase.

This optimistic cohort of small business owners are also more likely to access extra capital to support the growth, with each SME owner expected to access $25,000 of external funds over the next year. This is higher compared to January, where small business owners were expected to access $23,000 to support their business needs.

Adding it all up, with 2.4 million SMEs in Australia, the Prospa research showed that 43% - or roughly one million small businesses - anticipate growth in the next year. Of those, a further 430,000 are likely to take on funding with an average of $25,000 each. This equates to a $10.7 billion opportunity. 

To keep up with the demand, Lamb said the ASX-listed online lender had focused its technology foundations to ensure that it was agile enough to adjust its products to fit the current market trends and conditions.

“We have been continuously monitoring our risk policies to ensure that we are assessing our customers with the consideration of the economy whilst continuing to build new products and services that add value to small business customers and our partners when managing business finances and cashflow,” Lamb said.

The opportunity for brokers looking to diversify

As the lending landscape evolves, brokers are presented with new opportunities to diversify their services and cater to the needs of SME clients.

Lamb said one strategy for brokers was to create awareness among their existing self-employed clients and communicate about the solutions available for small business funding.

“Then identify the appetite. Understanding why they need the funding, what are their business pain points and how they intend to use the funding is key finding the right product,” said Lamb.

“Asking questions such as ‘how do you manage your cashflow?’ or ‘are there any opportunities or challenges coming up?’ can begin the conversation.”

Constantinou suggested that there were a number of different avenues for brokers to diversify into the commercial space and that current market conditions would determine how that benefitted business growth.

“A business primarily writing residential transactions may choose to partner with another broker in the industry who specialises in the commercial space,” Constantinou said.

“This approach provides the residential broker with the opportunity to provide a holistic offering to their clients whilst still maintaining a degree of specialisation in the area they know best.”

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