Should brokers ride the wave of SME lending?

Now just might be the time to do just that – here's why

Should brokers ride the wave of SME lending?

News

By Mina Martin

Now might be time for brokers to ride a wave of small business lending as residential lending wanes, more businesses need liquidity, and funding requirements seem set to swell as SMEs anticipate growth despite the successive interest rate hikes.

Roberto Sanz, Prospa national sales manager, said brokers “should be mindful of the challenges that lie ahead in the economic landscape, but also aware of the potential for growth.”

“Cash flow, managing demand, and access to working capital remains a constant need,” Sanz said. “SMEs with lower turnover are more likely to face challenges relating to cash flow, whilst higher-turnover SMEs are more challenged by economic and supply chain concerns.”

The repeated rate hikes the past year have pushed up operating costs and eroded the already-slim margins of businesses, adding to the already-heavy load small businesses carry.

A Prospa-commissioned RFi report revealed that the negative effect of rate hikes on SMEs surged in the second half of 2022, with businesses significantly more likely to scale back operations, seek professional advice, and negotiate on receiving customer payments.

The same research found that newer businesses were more likely to seek financial advice and take up a loan, while micro-businesses and the construction industry were the hardest hit.

Despite this, some of the struggling sectors remained bullish about growth prospects, with areas such as healthcare or trades and services tending to be more optimistic, according to a January YouGov sentiment report commissioned by Prospa.

“While this growth may take various forms, it will likely require funding to be realised,” Sanz said. “Not surprisingly, 26% of business owners intend to borrow funding in the next 12 months.”

With more SMEs facing challenges when trying to secure funding, there is no shortage of demand for expert advice on how to navigate the waters – another reason why brokers should consider diversifying into SME lending.

Especially so, considering the crowded field chasing a shrinking prize in residential.

Recent MFAA data showed the broker-derived proportion of new loans for residential is close to 72%, much higher than brokers’ share of the business loan market; while February lending figures showed the value of housing loan commitments declined 30.9% year-on-year to $22.6bn.

“By diversifying their offerings, brokers can tap into a growing market and position themselves for success in the current and future economic environment,” Sanz said.

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