Small and medium sized enterprises (SMEs) are increasingly considering alternatives to the banks for their financing, creating an opportunity for brokers to provide support and diversify their own businesses, according to a recent study by OnDeck Australia.
The lender's data showed that while over one-third of SMEs want to explore more of the lending options available, many do not know where to start.
"This is where brokers can support the funding needs of their SME clients, and at the same time, diversify their own business," explained Cameron Poolman, CEO of OnDeck Australia.
Poolman said brokers can play a valuable role in helping SME clients access commercial finances, as more businesses struggle to get approval from a bank.
The lender's study revealed 38% of SMEs that have been in operation for less than five years indicated they were not able to access financing from their chosen bank.
"We know that brokers tend to be highly trusted among their clients. This puts brokers in a strong position to play a valuable educational role among their SME clients," Poolman said.
As the CEO sees it, another key issue brokers can help SME clients address is the importance of keeping business finance separate from their personal lives.
The study showed that among the SMEs that are turned down for bank financing, close to half turned to family and friends, while a third resorted to using their credit card.
"It can be tempting for business owners to assume that friends and family may provide funding at ‘mates rates’," Polman said.
"However, the reality in many cases, is that the arrangement is misunderstood on both sides, often leading to a souring of the relationship, and in extreme cases even triggering legal action.”
Broker support is critical for SMEs in the current economic environment, a point driven home by a separate study from ScotPac which found nearly one in three SMEs are considering closing or selling their business within the next six months if conditions don’t improve.