Finance Brokers Association of Australia
August - September 2008
At a time when many larger financial institutions are taking away
rewards from Brokers, Octet finance is rewarding them for promoting a
unique trade credit card facility for Australian SME’s that are
importing from one of the largest markets in the world: China.
Why China?
With the 2008 Olympics on the horizon,
China is growing exponentially and taking one of its closest trading
partners, Australia, along for the ride. As a trading partner, China has
a lot to offer in terms of the enormous size of its population, which
is relatively well educated in comparison to other developing nations,
hard working, conscientious, efficient and who are open to applying new
ideas and technology. Perhaps most significantly, China and most
other industrialised Asian economies, will not feel the full brunt of
the Western economies credit squeeze because of its positive trade
balance. China’s domestic market is a significant force that can help to
shield it from the wake of a significant slow down in the US economy.
Credit Crunch and Broker Fall-Out
Australian Banks have reportedly tightened lending rules in response
to the reported US$379billion written off by major banks and other
financial institutions around the world as of May 21st this year
(Bloomberg).
In this increasingly tough world market, where debt
has become progressively more expensive – brokers are doing it tough.
Caught between the larger financial institutions cutting them out of the
equation and a scared market of consumers no longer demanding loans,
broker revenues are expected to decline. Octet Finance is pleased to
provide brokers and their clients with an alternative working capital
solution in such financially turbulent times.
There have been
predictions that the number of brokers operating across the country will
fall by as much as 40% in the next 12 months. The concentration of
market lending power into the hands of the biggest four or five lenders
in the Australian market will make it increasingly difficult for
deserving applicants to secure loans, which is particularly true for
SME’s. Commonwealth Bank, St. George and National Australia bank have
all changed their lending commission schemes for brokers. As the major
banks replace current flat up-front and trailing commission structures
with performance-based regimes, the impact on bottom line profitability
will inevitably take its toll.
SME Loans – alternative revenue streams for Brokers
As smaller players exit the market, competitive lending practices
will take a hit. This will significantly affect personal and business
loans across the board. SME’s that import need considerable financial
backing in order to successfully navigate foreign markets. When starting
out as an SME importer, there is usually an initial negative impact on
the businesses cash flow, as the SME generally has to provide bank
security in order to meet the payment demands of the exporter. These
demands include setting up bank letters of credit on order acceptance or
providing the required 20 percent to 30 percent deposits on acceptance
of orders and then the balance of the payment on shipment. China is a
prime example that demonstrates why SME’s need to evaluate their cash
flows from the outset. Importers from China need to pay 30-60 days in
advance of receiving their goods. This means that the SME’s cash flow
can be substantially constrained during these periods. Brokering finance
becomes essential at this stage of the importing process.
Octet’s Business Transaction Facility
Time lags and credit approval periods can often create a difficult
barrier to entry for many SME’s but there are ways to overcome this by
considering the use of alternative financing products. Business
Transaction Facilities recently introduced into the Australian market by
Octet Finance can provide unsecured (no debenture, no property, no
personal guarantee), up to 60-days interest free import lines of credit
to tie SME’s over this initial period before they receive and sell the
goods.
This new facility also allows payment to be made to the
Chinese exporter by letters of credit. The process is similar to that of
a credit card. Applicant importers negotiate a credit limit, with which
they can then use to trade freely and as often as they like within that
limit. Both the importer and the beneficiary are given a special smart
trade credit and card reader with which they can keep track and confirm
the transaction.
OCTET’S TRANSACTION PROCESS
What is in it for Brokers?
Octet has a potentially lucrative base incentive scheme for brokers,
with commissions starting at 0.15% of the balance drawn for each
transaction passing through the Octet Business Transaction Facility.
Octet also negotiates separate establishment fees for the implementation
of the facility, which is then passed on in to the broker as a reward
for their input and support of the facility and concept.
Clive Isenberg is the founder and Managing Director of Octet Finance.
Clive has specialised in providing financial services for SME’s
throughout his career spanning 26 years. He previously owned Scottish
Pacific Business Finance, the regions foremost specialist SME financier,
which he sold to St. George Bank in 2000.