Op-ed: Cost of living issues open options for advisers

Advisers play a key role for their clients when it comes to personal finances - like providing advice on personal loans and mortgages. But what about business finance?

The latest RFI research, commissioned by Prospa, provides insight into what might be keeping small business owners awake at night.

The current economic environment is proving tough for consumers and businesses alike. About 22% of small businesses reported that they will be seeking professional advice about their business finances in the next 12 months. So, while advisers are kept busy writing the lion's share of the country's personal mortgages (around 60%), there is definitely an opportunity for them to support small business owners too.

There are about 546,000 small businesses in New Zealand, so chances are that advisers already have small businesses on their books in the form of personal finance clients. Great advisers spend countless hours with their mortgage clients, getting to know them on a personal level to understand and meet their needs.

They probably already know what makes their clients tick and could quite easily leverage their existing customer base to diversify their own offering and include advice about business cash flow lending.

Sam Nobilo, Owner of Nobilo Finance, says understanding Prospa's niche in the market is the key to advising clients.

“When clients are after unsecured finance, we understand the time frame they have to apply, turnaround time required for funds and ongoing cashflow requirements. Having Prospa to compare with your mainstream lenders covers that void left from the main banks. Just today we had a client approved for a wholesale stock purchase. The immediate access to funds allows him to outpace competitors in supplying stock to retailers,” he said.

Cash flow, cash flow, cash flow…

The survey found that cashflow is constantly up there as one of the biggest concerns for SMEs, and this was on the rise between May and November last year. Cashflow is a concern for 25% of all small businesses surveyed, up from 17% in November and 15% a year ago.

Faced with cashflow problems and the need for investment, there is certainly an opportunity for advisers to provide timely and measured advice for these businesses. In fact, the survey showed that just over half of respondents were struggling with the official cash rate increases and just under half are expecting a decrease in their turnover in the next year. More than 40% of businesses reported that they were taking out loans in order to maintain cashflow.

Opportunity to diversify right under your nose

However, the survey revealed that just under a quarter (22%) of businesses are seeking financial advice in this challenging environment. Compare that to the 60% of mortgage holders. When it comes to personal finance and getting a mortgage or reviewing a mortgage many people turn to an adviser for help. So why don’t business owners do the same when it comes to business lending and cashflow? And how can advisers change this?

I believe it’s simply a matter of making them aware of adviser services and how these can help business owners maximise their cashflow - in the same way they rely on third party providers in other parts of their business operation.

Advisers can also play a valuable role in promoting and educating their small business clients about alternative financing. Most SMEs (66%) are aware of specialist small business lenders but only about 10% of them actually explore this as an option. And yet, 37% reported that they would be likely to consider alternative lenders for a business loan in the next year.

The main reasons for choosing an alternative lender were lower fees and charges (36%), faster access to funds (35%) and greater flexibility (27%).

So, it’s easy to see that there is lots of room for advisers to grow their client base by moving into small business lending advice. However, it is a matter of continually educating customers on the options available, particularly around cashflow management.

With the currently volatile environment, advisers would be providing an invaluable service.