Brokers urged to help SMEs amid rising property risks

Brokers should discuss commercial finance options with SMEs

Brokers urged to help SMEs amid rising property risks

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Brokers should discuss the availability of commercial finance options with SME owners to keep their personal and business finances separate and avoid the risks of a property market upswing, OnDeck Australia has urged.

Indeed, CoreLogic’s latest Hedonic Home Value Index shows the three months to 31 January 2020 saw the residential property market record gains of 3.7% nationally and 4.2% across the state capitals.

And according to a recent statement by the Reserve Bank of Australia, “Lenders have indicated that at least three-quarters of their small business lending is collateralised”, often with the family home acting as the key source of security.

According to OnDeck, this means that the sustained rise in property values since mid-2019 could lead to more SME owners’ resorting to home equity as a source of business finance – a strategy that concentrates risk for SME owners and their families.

Cameron Poolman, CEO of OnDeck Australia, said, “We know that around eight out of 10 SMEs have business finance secured against the owner’s home. And this may rise following the uptick in property values.”

So, the main risk is that relying on home equity blurs the line between business and personal assets, which can put an SME owner and their family in financial jeopardy if the business fails.

Poolman continued, “Lenders such as OnDeck use advanced lending technology and analytics to assess an SME’s eligibility for finance.”

“This ensures SME owners and their families are able to keep their personal assets separate from business assets.”

Rise of alternative lending options

Based on their research, OnDeck found that one in four Australian SMEs have been rejected by banks for finance before.

According to OnDeck, this underpins the growing awareness of alternative lending options, with one in five SMEs saying they would go for an online specialist lender. 

Poolman said, “Lack of access to capital is the single greatest impediment to small business growth in Australia. So, it is good to know that alternative finance options including online lenders are on the radar of SMEs.”

“We allow SMEs owners to quarantine their personal assets, in particular the family home, from their business, which can be an effective risk management strategy,” concluded Poolman.

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