What's driving demand for asset finance?

Brokers' market share increasing, says aggregator

What's driving demand for asset finance?

Demand for asset finance has progressively increased over the last couple of years and several factors are driving it, says Platform Finance.

The asset finance aggregator said its strategic partnerships area grew by 50% in May 2022 compared to May 2021. The business was on track to achieve 30% growth year-on-year, which reflected growth within the business and in the commercial finance market.

MPA asked Platform Finance CEO Ryan Young (pictured above left) and director aggregation and strategic partnerships Damian Mantini (pictured above right) about the factors driving growth, and opportunities for brokers considering diversifying into asset finance.

Asset finance can be broadly described as finance for “anything that depreciates in value”, essentially, plant and equipment, Young and Mantini said.

Contrary to a mortgage, where borrowing is linked to an asset that appreciates in value, asset finance is linked to a depreciating asset (i.e. it does not apply to a property or a building).

It can be anything that’s used by a business, for example a vehicle, goods used as an input for production, solar panels on a factory roof, office equipment, furniture and fittings. The value could start from $10,000, to several million dollars.

“A typical customer is an SME business that’s looking to expand or upgrade their equipment, or facilities within their business,” Mantini said.

Read more: Asset finance demand drives growth at Platform Finance

Several factors have driven demand for asset finance, the pair said. Supply chain disruptions in the wake of COVID-19 have forced businesses to plan ahead. Pent-up demand, government spending on infrastructure (e.g. civil works and construction), and ongoing replacement of equipment due to normal wear and tear were also pushing up the need for asset finance.

Demand from key industries such as transport and agriculture remained strong throughout COVID-19, and more recently, demand from the manufacturing sector also increased.

“There’s been very strong growth in asset-intensive industries … looking at the ABS data, the market is quite flat, which suggests that a lot of people are moving towards brokers,” Young said.

“I’d say there’s been a pivot in market share towards the broker channel, which we’re obviously benefiting from.”

Private motor vehicle sales was one of the aggregator’s strongest performers.  Mantini said the private sale market had “increased exponentially” through COVID-19, which he largely attributed to supply chain issues. 

“What we’re finding is that pent-up demand … and people upgrading through COVID, towing caravans, boats and travelling domestically rather than internationally meant they needed to change their vehicles,” Mantini said.

Instant asset write-off (also referred to as “temporary full expensing”) allows eligible business to claim an immediate deduction for the business portion of the cost of an asset, in the year that it is used or installed.

The months of May and June were particularly strong, as businesses sought to purchase assets to take advantage of tax strategy, Mantini said.

“In times of high profit, particularly toward the end of the financial year, when people start to appreciate their company tax position, they’ll start buying assets, so it creates a real benefit for the business.”

As it could take 12 months to get a prime mover, or up to 18 months to get a new vehicle, Young said businesses increasingly saw the need to plan further ahead.

“As when any scheme comes to an end, we think there will be a flurry of activity in April-June 2023 where we’re forecasting that we’ll have a spike in that activity before it ends,” Mantini said.

Residential mortgage brokers considering moving into the commercial sector could start to look for opportunities through regular conversations with customers, he said.  These conversations could extend to referral partners, such as accountants and lawyers.

“The more conversations you have with your customers about the diversification of the business, the more you have the trust of that customer,” Mantini said.

“This is one of those pathways [where brokers] can help customers – and be in touch with their customers more regularly.”

Read more:  Asset finance surge shows SMEs investing for growth

Platform Finance has agreements in place with around 400 broking groups, ranging from sole operators to household-name networks with upwards of 1,000 brokers on their books.

“Brokers in our network will write 120,000 loans this year and we’re constantly expanding on that number, volumes are up 30% on the year, so I think what we do is resonating with the market more and more, and more people are seeing the value of dealing with a specialist,” Young said.

Platform Finance is owned by COG Financial Services Ltd (Consolidated Operations Group), a finance broker aggregator and equipment leasing business for small-to-medium businesses. Established in 2006, Platform Finance has a direct broking business, an asset finance aggregation business and strategic partnerships, which works with the mortgage industry.

The group is on track to do $7bn in asset finance this year, which Young said constituted around 18% to 20% of the asset finance market in Australia.