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Why Should Finance Brokers Diversify Into Small Business Lending?

finance broker diversification with small business lending

Diversification is a way to spread risk and expand opportunities. For finance brokers, diversification makes it possible to add more value and better serve your clients. Discover how small business lending offers an opportunity to leverage your existing client base and meet the needs of a fast-growing market.

Small businesses lack finance options

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has led banks to tighten lending to small businesses. In addition, falling housing prices have led banks to look more closely at securing business loans with residential property.

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell highlighted the lack of small business finance in an interview with TheAdviser, stating, “Lending in the SME space is actually declining when it comes to the banks. And it is declining because the major banks – over the last 18 months or so – have really clamped down on lending to small businesses where there isn’t significant equity on property. So, if a small business doesn’t have significant equity in property, then the capacity to get a loan from a bank is very low, really.”

Non-bank lenders rise to serve the finance needs of small businesses

Non-bank lenders, such as Moula, have stepped in to fill the gap by offering unsecured finance options to small businesses. By meeting an important need, online non-bank lenders have experienced phenomenal growth. Beginning in 2013, $10 million in alternative balance sheet loans were originated by non-bank online lenders. By 2017, this had increased to $398 million, which represents a compounded annual growth rate (CAGR) of 79%. At this rate, it’s estimated that this number will grow to $2,231 million by 2020.

In addition to catering to small businesses, online lenders have simplified the application process. Instead of requiring large amounts of paperwork, the application process is fast and easy. With Moula, for example, the online application can be completed within 10 minutes. Bank account and accounting data are safely and securely analysed online to make a lending decision and determine the loan amount.

This growing avenue of small business lending has created opportunities for finance brokers looking to diversify in a fast-changing environment.  

Diversification to protect against potential remuneration changes for mortgage brokers

Although the Coalition won the election in May 2019 and didn’t implement the Hayne Royal Commission recommendations concerning mortgage broker remuneration, that can change in the future with a change in government. Unfortunately, mortgage brokers could still be used as a scapegoat for any isssues that arise in mortgage lending. 

By diversifying into unsecured business lending, you can protect against future mortgage broker remuneration changes and decrease your reliance on trail commissions and contract renewals.

 

Leverage your contacts and add value

Diversifying into small business lending is easier than you think. If you are have been specialising in mortgage lending, a significant percentage of your clients will have a need for business finance. Research shows that 25% of mortgage borrowers own small businesses or are self-employed. More and more, consumers are looking for a single source to meet all their finance needs. This creates an opportunity for you to broaden your services and assist many of your existing clients. By widening your services and becoming a multifaceted lending expert, you can build stronger relationships and make a more meaningful contribution throughout the customer’s journey.

If you don’t offer business lending to clients who need it, they could go elsewhere and eventually switch their mortgage lending as well. So why not leverage the relationships you have with existing clients by offering unsecured business lending?

Diversify to protect against economic changes

Relying on one form of finance broking could leave you exposed if market conditions change. For example, if demand for mortgage lending decreases, offering other products will lessen your exposure to market changes. The numbers show that unsecured small business lending from non-bank online lenders will continue to grow into the future. By diversifying into this area, you can ride the growing trend to boost your business.

Diversification makes sense

If you were investing in shares, it wouldn’t be wise to purchase shares in only one sector. The same applies to finance broking. Relying on one type of lending can be risky if underlying factors change and demand declines. The continued growth of unsecured business lending from a new breed of online lenders provides an opportunity for finance brokers to diversity and boost their value to existing clients.

Are you ready to meet the growing demand unsecured small business lending?

Find out more about this business loan broker opportunity and partnering with Moula.

Author:

All the thoughts, ideas and musings from the Moula team! Covering everything from work/life balance to general finance tips plus everything in between!

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