Semper’s director, Andrew Way, outlines 10 tips to bolster business through SME funding.
Despite high clearance rates and property value rises in key cities as a result of low sales stock, the property market seems set for a period of low turnover – making the ‘elephant in the room’ of offering business funding harder to ignore, when determining how to offset the diminished residential deal flow.
When considering business lending, it’s interesting to understand the factors at play that have contributed to the current landscape. It’s not news that while the Big Four Banks are particularly strong with residential mortgages and dominate big business lending, they are poor supporters of SME funding. What’s possibly less known is that this position is largely due to APRA’s warning to its ADI members in 2018 against the increased risk of lending to businesses with loans secured against residential property.
The premise was that “historically speaking” higher LVR loans to businesses represented a higher risk than the same LVR loans to non-SMEs, which resulted in the banks being forced to apply higher risk-weightings for business loans. But this is only part of the problem. By far the biggest challenge to Australian banks is APRA’s requirement that they list their capital adequacy ratios from 8 per cent to 11 per cent by January 2024 and that is a whopping 37.5 per cent increase in 4 years. And this comes after all four of the big banks each being slapped with a $500 million capital increase last year following the Royal Commission. It’s no wonder that Treasury departments are the dominant voice in the banks and not credit departments, at this time.
The fall out effect is that the previously underserved small business lending space has been plugged by the increasingly robust non-bank sector. There are now scores of products available to support the buoyant SME market, yet we consistently receive feedback that while brokers are sold on the ‘why’ to provide business lending, there’s still a dominant block to the ‘how.’ Here are some quick tips for how to increase business by providing solutions to the growing number of SMEs seeking finance:
- Know who’s who in the zoo: By far, one of the biggest hurdles to doing business funding is to know who to approach. This can be quickly addressed by approaching your aggregator, as well as attending industry events and connecting with lender BDMs.
- Drill down: Brokers in our network cite that approximately 30 per cent of a broker’s book are SMEs – which makes for an immediate opportunity to get some quick wins by cross selling to your existing book.
- Be relevant: Abide by the adage of ‘while content is king, without context it’s nothing.’ Don’t post for the sake of posting. Be specific about your message and educate your network about your extended offering. For instance, what type of small business did you help? What did you do to close the deal?
- Be a story teller: There’s nothing more compelling than storytelling to demonstrate how you’ve provided a great solution. Start compiling case studies that showcase how you’ve helped different SMEs. Cover off the opportunity or pain point, the type of product used and what the finance enabled (such as asset finance, a commercial property acquisition or refinance, equity release, etc).
- Be seen: Invest in multiple touch points to communicate your wholistic offering, including business finance. Consider sponsoring local school events or local charities, do regular social media posts (weekly at a minimum), schedule newsletters to your database, and budget permitting, consider advertising in high traffic areas in your area.
- Be proud: A good testimonial speaks volumes. Request your clients write a Google Business review or jot you a quick SMS at the completion of each successful deal, then share your celebrations (with their permission, of course).
- Be heard: Make video, otherwise known as ‘rich media,’ a core component of your communications strategy. Before you roll your eyes at the thought, think of the commercial upside: Small Business Trends* identified that businesses using video grow their company revenue 49 per cent faster year-on-year than those who don’t.
- Be bold: Don’t be afraid to ask your customers for referrals – but be specific, such as: ‘We’re now doing small business lending and were wondering if you have anyone in your network that you think might benefit from a cash flow injection?’
- Be strategic: Foster strategic alliances with local real estate agents, financial planners, accountants and lawyers to provide a more holistic service offering and boost referrals.
- It takes a village: Get known in your community. Increase your footprint by becoming involved in Rotary, Chambers of Commerce and other community groups, where networking with small businesses is possible.