News analysis

Promise of recovery, but SMEs cautious

All signs point to a strong economic recovery, but many SME owners are still cautious. Despite that, there is a great opportunity for mortgage brokers to help small businesses source fi nance

THE AUSTRALIAN ECONOMY might be recovering and consumer sentiment improving, but experts fear that small businesses will remain cautious. With the delay in the rollout of vaccinations, business owners may wait and see whether more lockdowns and snap border closures will occur, says business credit score company CreditorWatch.

Despite that concern, the group’s Business Risk Review showed that credit enquiries were at their highest in 18 months. As this is an indication that business conditions are normalising, why is there an expectation that demand for fi nance will reduce?

CreditorWatch chief economist Harley Dale says there is considerable uncertainty about how the next few months will pan out, particularly with the COVID-19 vaccination delays in Australia and subsequent delays in the opening of international borders.

“That situation is naturally going to cause a bit of angst and uncertainty to businesses, and so it might delay their demand for fi nance just while they sit back and assess how things evolve over the next few months,” Dale said.

Overall, the recovery of the Australian economy looks promising. The NAB Monthly Business Survey released in April showed that business conditions were at a record high in March. Business confi dence dropped compared to February but remained at an above-average level.

“Businesses are telling us activity continues to increase at a very healthy rate as we have moved past the rebound phase in activity with the earlier removal of pandemic-related restrictions. Overall, the recovery over the last year has been much more rapid than anyone could have forecast,” said NAB’s group chief economist Alan Oster.

“Despite the dip in confi dence [in March], it remains well above its long-run average. This in

combination with a very strong read for forward orders points to ongoing strength in activity, which hopefully sees conditions remain elevated, even as we pass through the end of the JobKeeper program.”

Figures released in the MFAA’s 11th Industry Intelligence Service report show that a record-high number of mortgage brokers are also writing commercial loans. Year-on-year there was a 24% increase, possibly in response to COVID-19.

Looking at the current market and its opportunities, Dale said a strong economic recovery was on the cards, and therefore it was

a good time for mortgage brokers to consider o ering commercial fi nance.

“The data continues to reinforce that the economy is recovering. So in terms of mortgage brokers, that sends a signal that businesses are getting back on track, and what they’re reopening for is probably relatively normal commercial business operations [compared

“It’s about having a deep dive into where the opportunities lie, because there are sectors which are still struggling and probably will do for some time”

Harley Dale, CreditorWatch

to] what they had last year, where they were heavily constrained and in a lot of instances couldn’t operate at all,” Dale said.

He warned that there were two caveats to that, however – one being the lack of demand for business fi nance thanks to the delayed

COVID-19 vaccine rollout; the other that di erent industries are having di erent experiences with recovery.

“The aggregate recovery looks good, but it disguises the fact that some sectors are doing better than others, so it’s about having a deep dive into where the opportunities lie, because there are sectors which are still struggling and probably will do for some time,” Dale explained.

As small businesses are facing into the uncertainty of the future, the FBAA has urged more mortgage brokers to upskill in order to properly service an SME market that

is increasingly frustrated by the big banks.

While many brokers are already undertaking independent professional education to help them better understand details like business balance sheets and profi t and loss statements, FBAA managing director Peter White said knowledge was essential to meet a widening gap in the fi nance market.

White pointed to a recent report from Judo Bank and East & Partners which found that 12% of SMEs had no interaction with their banks in 2020, but felt they needed more engagement. The report also found that of the businesses that had any sort of interaction with their banks, only 15% rated it as high-quality, and 54% said their interaction was low-frequency and low-quality.

“These fi gures confi rm that there is a huge market being taken for granted by the big banks, which fi nance brokers can tap into through o ering quality service and knowledge,” White said. “The government’s current decisions around responsible lending ensure easier access to credit by SMEs, many of whom brokers already deal with through home mortgages.

“Many business owners are not aware of the signifi cant increase in fi ntech and nonbank lenders, but unless fi nance brokers understand this market – and this includes the ability to comprehend business accounting practices – our industry won’t be able to take full advantage of it.”

“There is a huge market being taken for granted by the big banks, which fi nance brokers can tap into through o ering quality service and knowledge”

Peter White, FBAA

MANY BUSINESSES FEAR THEY WON’T SURVIVE

SMEs’ level of concern about survival

12%

31% 15%

27% 13%

39% 12%

36%

31%

34% 32%

42%

26%

24%

57% 58% 16%

48% 10%

November December February March

% total concerned

Note: Of those utilising Jobkeeper in March 2021: 83% were concerned about business survival (up from 76% in February)

Source: ACA Research SME Sentiment Tracker March 2021