Tighter APRA-imposed controls and public spotlight through the banking and financial services royal commission is manifesting in more financing knock-backs for clients from traditional favourites like the major banks.
On the individual level, banks are pulling out altogether of perceived riskier financing arrangements, like limited recourse borrowing for SMSFs. For example, in recent days, Westpac and its subsidiaries announced they wouldn’t be writing new SMSF loans, in what is already a shrinking market for trustees.
For small business, the options on the market have tightened to the point that the Productivity Commission and the Australian Small Business and Family Enterprise Ombudsman have told government the market needs more credit options to sustain viability.
This shift has created a perfect storm of conditions for specialist brokers like Standard Integrated Lending Solutions, which focuses on sourcing financing options for accounting and financial planning firms. The firm has had the lion’s share of its growth and market penetration in the last four months, two years on from its launch.
“We’re finding our clients, who are pretty safe operators, are happy to explore new options for their clients, like low-doc options or structures which can cut out mortgage insurance,” partner at Standard Integrated Lending Solutions, Tony Caine, told Accountants Daily.
“For the accountants we work with, there’s fee pressure out there, and clients are pushing back on their fees. More and more, we’re seeing an appetite for options they might not have considered in the past,” he said.
It’s a similar story for Banjo Loans, which has been capitalising the major banks’ struggle to categorise and ascertain risks in small business lending.
“A lot of the banks have struggled to service the SME segment on a competitive basis. Small business, in that segment, is not a homogenous group. Each business is different - the financial information isn’t as good as it would be for a large corporate, and the banks struggle with that,” Banjo Loans chief executive, Andrew Colliver, told Accountants Daily. Mr Colliver was with NAB for six years prior to co-launching Banjo Loans.
“Those clients often don’t have relationship managers, and there’s no way of training the call centre managers they’ve got to understand each individual need,” Mr Colliver said.
In line with ASIC’s findings, Mr Colliver said despite a shrinking market of traditional lenders for small business, demand is building for alternative lending options, which is partly motivating Banjo’s increasing push into the accounting market.
“We’re continually reaching out to accountants and brokers across the country to increase our market awareness - in fact, we’re visiting them across the country, and building and improving interfaces for accountants,” Mr Colliver said.
Institute of Public Accountants senior tax adviser, Tony Greco, sees the evolving lending landscape as an advisory opportunity for accountants.
“Once upon a time it was concentrated by the banks and the banks dictated the rules and now with these new players, there's a lot more on offer and they've all got various conditions attached to their loans but in the main, it's become easier if you don’t have hard assets to gravitate to some of these new providers who have got a bit more flexible lending terms,” Mr Greco previously told Accountants Daily.
“If the banks won't lend then absolutely there are other lenders who are prepared to step into that void,” he said.
“They will lend on the basis of cash flow of the business as opposed to tangible assets so there's a fair but more competitive market space - there's a lot of fintechs now that have moved into that sector so obviously the marketplace is washed with all different providers,” he said.