Brokers play key role in gaining access to capital, report says
The struggle to access finance is real for small businesses, with just 16% believing it is easy to secure a loan, a recent RedZed report shows.
Of those who had applied for a loan through a bank, one in five (21%) were unsuccessful, the research showed. Risk-averse lenders, an abundance of red tape and paperwork, credit rating issues and the age of the business were among the key roadblocks identified by respondents.
The RedZed Self-Employed Business Index 2022 report, released in December, captured the responses of 501 self-employed, micro and small business owners in July and October 2022. Conducted by SenateSHJ Insights, the findings showed that almost three quarters (71%) were confident about their future, and 84% drew satisfaction from their business.
RedZed head of customer experience Angelo Klidomitis (pictured above) acknowledged that since respondents were surveyed, the official cash rate had risen further, with recession warnings issued in developed nations.
Confidence was down across the board, and an increasing number of RedZed clients were feeling the pinch, which he acknowledged made accessing finance harder than ever.
“Unfortunately, this is one of the key challenges many self-employed face,” Klidomitis said. “Whether this is a mortgage to purchase a residential property, credit to finance working capital or growth or using an existing property as security to source credit, our research found that the major banks are not always attuned to the needs of this segment.”
Report findings showed one in five business owners had tried to get a bank loan and failed. This could be a crushing blow emotionally, mentally and in terms of plans for their business, he said.
“This is where brokers play an integral role in assisting the self-employed to achieve their funding needs,” Klidomitis said. “In many of these instances a broker’s expertise can really add value by identifying a range of different lenders that have solutions that allow them to achieve what they are trying to do.”
Many respondents cited the number of documents needed as a roadblock to getting finance approved. Klidomitis acknowledged that provision of the required documentation could take up a lot of time – something self-employed people were short of.
He said business owners wear multiple hats, and the last thing they wanted to do at the end of the day was chase down a laundry list of items, pay an accountant for updated accounts and wait for it all to be finalised.
“There are solutions such as alternative documentation loans that many self-employed customers don’t understand how to access,” Klidomitis said.
Mortgage brokers had the opportunity to help self-employed customers who didn’t have a finance department supporting them, to find solutions, he said.
Mental health was identified as a significant issue in the report, with almost half (49%) of respondents citing that running a business had a detrimental effect on their mental health.
When it came to dealing with major banks, RedZed said there were significant gender inequalities, with women being much less inclined to have a positive opinion (29%) compared to men (53%).
Women were almost three times less likely to apply for a business loan in the future (9%) compared to men (26%), findings showed. RedZed said this may be related to the fact that 27% of female respondents were denied a business loan in the past.
SenateSHJ Insights head of research Paul Di Marzio said major banks failed to impress the majority of respondents, whose main criticism related to a lack of understanding, flexibility and empathy.
“Self-employed and small business owners are seen as a risk by the major banks and when they are knocked back for a loan, it leaves them feeling rejected, which takes an emotional toll,” Di Marzio said.
Respondents’ overall perception of large banks could be best summed up by a response from one survey recipient who said, “they listened but can’t relate,” Di Marzio said.
RedZed said this sentiment had caused many self-employed and small business owners (and the brokers they engage with), to turn to speciality lenders.
The findings showed that 30% of respondents were aware of alternative financing avenues or alt-doc options. Of those who were aware of the options, just under two-thirds (64%) had successfully sourced a loan from a specialist lender.
“Our challenge is to ensure that when borrowers go to their trusted advisors be they accountants or brokers, they consider the opportunity that a specialist lender can provide from a service and empathy perspective,” Klidomitis said.
