In and Out of China: Brokers and SME’s Benefit from Trading with the Tiger
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?
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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. |
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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.