MELBOURNE, Australia -- Brokers are lately becoming the lender of choice for small businesses in Australia.
According to the 2006 East and Partners, Pty, Ltd. business lending report, 17.4% of all business loans were sourced through brokers, which represent more than $90 billion of Australia's $520 billion business lending market. Just five years ago, brokers accounted for less than 6% of activity.
"Businesses are going to brokers primarily to secure better and more flexible terms and collateral than they perceive they will get from their banks--it's not just purely about price," said Paul Dowling, principal analyst at East and Partners. "Businesses, particularly smaller ones, can find the experience of applying for a loan from their bank cumbersome and generally quite negative."
The report found more than a third of micro companies, which are those with annual revenues of $1 million to $5 million, were using brokers to source regular financing. Almost 30% of all small to medium enterprises, those in the $5 million to $20 million category, used brokers as did almost 12% of businesses with $20 million to $340 million in annual revenue.
East & Partners Pty Ltd, is a market research firm in the corporate and investment banking markets.
"What is most worrying for mainstream commercial banks is that the third party channel is increasingly being regarded as 'what good banks used to be', that is, it's the brokers who are taking the time to get to know the customer's business," Dowling said. "It's another example of the shallowing of relationships between banks and their small business customers."