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SME and self-employed borrowers have been facing a “yo-yo economy” throughout 2024, according to one non-bank, but anticipated rate cuts could boost their fortunes as they flow through in 2025.
Prime Capital CEO Steve Sampson (pictured above) said while the market for SMEs had been stronger this year compared with 2023, there had been some challenges for borrowers in 2024.
“There’s definitely been a few ripples along the way, I think, mainly because of the on-and-off rate cut speculation that has taken place during the year,” Sampson said.
The market was creating a “paradox” for SME borrowers, Sampson said, where they were hungry for finance to expand, but also impacted by constrained consumer spending in the economy.
“We still seem to be in this kind of yo-yo economy,” Sampson said.
“I think cost-of-living pressures are biting everywhere. While they [SMEs] are looking for working capital to expand, cost-of-living pressures naturally affect the cashflow and income flow for SMEs.”
“They’ve made it through the pandemic. They want to grow. They want working capital to expand, but there are now these cost-of-living pressures. Many businesses are thinking, ‘We're coming to Christmas, are people going to have the money in the pockets to spend?’,” he said.
There is medium and long-term confidence in the market, Sampson said, but actualising that confidence may depend on how quickly and heavily interest rate reductions will take place.
“I do see light at the end of the tunnel. We’re expecting some rate cuts that will ease the pockets of almost every Australian. I think we’re all waiting for that. I think that will build confidence in the market, and I feel property will get a bit of a push along as borrowing becomes more affordable.
“I’m fairly confident that SMEs will see an uplift in 2025; more cash in people’s pockets will create more spending.”
Prime Capital understands that SMEs and self-employed borrowers have some tax challenges in 2024, as the ATO becomes more active in their collections after the pandemic.
Many businesses in city locations are also still dealing with a lack of labour in the capital cities, which can create problems for them when they want to staff and scale their businesses.
The financing challenges facing SMEs include the stricter servicing criteria of the major banks, Sampson said, as well as the ability to get money quickly when they need it.
“SMEs can’t afford to wait around. The banks have notoriously long-term times for processing applications; whereas non-banks can provide finance pretty quickly and flexibly.”
Sampson said while brokers were seeing majors turning applications around in anywhere between three to six weeks, non-banks were approving applications “much, much quicker” to get cash to borrowers.
“I think 40% of customers come to a non-bank because they need a quick solution,” he said.
Sampson said brokers had played a key role in opening the door to non-bank lending for customers.
“Where in the past self-employed borrowers have gone to their bank to sit in the queue and wait, I think brokers have done a really good job of diversifying into the commercial SME market.
“That opens up the customer’s eyes; so where a customer would not have thought of going before, brokers are armed with a selection of banks and non-bank lenders that will suit the customer’s needs, whether that be for speed, cash flow, security or whatever – they are more flexible.”
Prime Capital’s lending business is up 40% in 2024 on 2023. This follows an almost doubling of funding from its warehouses, as well as now featuring on 13 aggregator panels.
Sampson said the non-bank lender was pursuing a “deep and wide” strategy with the broker channel, to educate and engage a wider number of brokers across a range of commercial broker profiles.
For instance, Prime Capital’s Broker Growth Centre, launched about a year ago, is designed to support and attract those brokers that haven’t worked in commercial or SME finance before.
The non-bank has also expanded its BDM team, which works with commercial brokers who are using Prime Capital on a more in-depth basis to support them with their commercial deals.
Prime Capital has also been working on digitisation of its lending processes, alongside personal service, so brokers can get faster responses to their scenarios for SME business finance.
“Our plans are to be a very competitive player in the market in 2025,” Sampson said. “We’ve recently reduced our interest rates and reduced our establishment fees, so we plan on capitalising on that competitiveness. We also plan on further digitalisation of the business, so that we’re very fast to deal with.”
