According to the latest ABS Characteristics of Employment Survey, there are around 11.8 million employed persons in Australia, of whom more than two million are self-employed. That means owner-managers make up around 17 per cent of the country’s labour force. However, research shows that when it comes to finance, these self-employed borrowers have been, and continue to be, underserved.

A recent report released by the Reserve Bank of Australia, entitled The Availability of Business Finance, notes that while large companies generally have no trouble accessing finance from the banks, getting access isn’t so easy for small business owners.

In the current economic climate, the banks appear happy to concentrate on low-risk vanilla loans, building volume in what they consider to be the safer and simpler prime mortgage and corporate finance markets. Fortunately for Australian business owners, others have recognised the benefits of serving the self-employed sector and are taking up the slack.

One of those leading the charge is Bluestone Mortgages, a specialist lender that began originating loans in the 2000 and re-entered the market in FY2014. They were voted Australia’s number one specialist lender in Momentum Intelligence’s Third Party Lending Report: Non-Bank Lenders 2017 survey and have recently surpassed the $1 billion milestone in settlements, with more than half of that coming in the last 12 months.

Royden D’Vaz, national manager – sales, marketing and distribution at Bluestone, says that this seismic growth comes down to the specialist lender’s focus on self-employed borrowers. According to Mr D’Vaz, self-employed borrowers have been notoriously underserved and now present an enormous opportunity for lenders in Australia — and for brokers, too.

“I think self-employed borrowers as a whole present a huge opportunity that hasn’t been serviced well and people are starting to realise how important and what a big opportunity there is.”

He says that a lot of self-employed people simply weren’t even given any options in the past; they were just declined, often by lenders, and by brokers as well.

Things are on the up though, with more and more brokers venturing into the self-employed space, with many focusing on these clients exclusively. However, while some brokers are recognising the potential for their own business in serving business owners, others still shy away from catering to self-employed clients, putting them in the too-hard basket.

This preference frustrates Mr D’Vaz, who says that, when it comes to serving self-employed borrowers, there aren’t any great challenges as these are “all in the broker’s perception”.

The national manager adds that, often, writing loans for self-employed borrowers can actually be easier than writing other loans, and for brokers, it’s just a matter of changing their mindset and their perception that it’s a difficult process and involves hard work.

“Their perception is that there are challenges, [that] it’s too hard. It’s actually so easy to write these types of loans. It’s just a matter of them understanding their customer’s business, understanding what their needs and objectives are and just actually doing it, rather than saying it’s too hard to get this done.”

Any apprehension of getting into this space is unfounded and can be overcome with simple training. According to Mr D’Vaz, the biggest problem is this: brokers don’t get themselves educated on what’s available.

“I think it’s like most things. It’s hard when you don’t know what you’re doing, but it’s easy once you start doing it. They’ve just got to take the plunge.

“They need to engage lenders like Bluestone and become aware of what’s available. There are no challenges; they are the gatekeeper and they just need to get moving.”

A helping hand

The key to servicing a self-employed borrower is to get a deep understanding of their business.

Ebony Maxwell, Bluestone’s Victoria/Tasmania state manager, describes self-employed borrowers as “very loyal”, adding that they’re usually a “customer for life”. She says that despite some self-employed borrowers requiring a little more time to help out initially, the work is all well worth it in the end.

According to Ms Maxwell, brokers who decline self-employed business are “letting dollars walk out the door” for no good reason.

“We are here to provide as much support as brokers need,” the state manager says.

“If they need us to come out and hold their hand and help package together their first Bluestone deal, we are more than happy to do that [and] we don’t expect them to just write deals on their own.

“We are here to help them get familiar with the space. Once they’ve done a few, then it’s like riding a bike. It’s easy and, if not easier, it’s no different from doing a standard deal.”

The specialist lender also assists brokers with their marketing, usually to referral partners such as accountants, by providing broker-branded marketing materials that offer information on how brokers can help business owners with all their financing needs, covering the types of products that are out there in the space.

Trust the specialists

Gerard Hansen, principal of FinVu, a one-stop financial services company, and a broker with over 10 years of experience in the self-employed sector, highlights how specialist lenders offer expertise in the space that the mainstream lenders just can’t match.

With the larger institutions more focused on the prime market, they are quickly losing the expertise in the specialist, self-employed space, Mr Hansen says.

“The larger institutions who don’t specialise in this type of language struggle to get their head around it,” the principal says.

“All the old credit guys who have dealt with self-employed for so long seem to be retiring… [but] these guys used to work in the old branch network and saw self-employed people coming into the branch. They’re the old accountants and bank managers that would sign off on the loans, so they had a real understanding of a self-employed person.

“Now you’ve got these young guys starting in credit in the major banks who have never come across a self-employed person before, [so] they just don’t have the experience to help out.”

According to Mr Hansen, specialist lenders are providing desperately needed solutions for Australian small businesses that the larger banks simply won’t touch.

Mr Hansen says: “At a certain major bank, the old credit manager used to teach all of his credit guys about the self-employed sector. He said, ‘Let’s look at this deal and let’s look for a reason to say yes rather than no.’ But they’ve lost that mentality now.

“He’s left, and all the new guys don’t understand it very well. Contrarily, that’s actually Bluestone’s philosophy now: Let’s look for a reason to say yes rather than no.”

Long-term care

Colin Kidd, director of Loan Saver Network, says that self-employed clients are looking for those with specialist knowledge, which is a boon for brokers as it tends to be a longer-term proposition that builds strong relationships with many touch points.

“With the self-employed sector, everybody likes to have forward planning,” Mr Kidd says.

Each of his self-employed clients gets a six-monthly review of their entire financing situation to ensure that their current product mix is right for them. This puts the broker in front of his clients at least twice a year.

The Loan Saver Network director says that, in these meetings, he learns the client’s current goals and outlines future plans to meet his client’s ambitions.

Self-employed borrowers are susceptible to radical change in their financial situation as factors they can’t control often impact their business, so steady contact and in-depth knowledge can prove invaluable to these clients in the long run.

“They always want to know: What’s the next step? Where are we going to head? And if you’re providing them with that information, you are putting yourself forward as an adviser that’s going to stay with them for the long term.”

No other clients are as loyal as self-employed borrowers, Mr Kidd says, adding: “They’re always going to come back.”

Continuing, the director says: “You might clean up a bit of mess for them and then six months or 12 months down the track, they’re in a much better position and they may be seeking car loans or an investment property, or they might need some form of finance for another venture they’re looking at. So, you’re in front of mind if you’ve got that constant contact.”

Of course, the specialist sector requires specialist knowledge. Brokers must understand the self-employed sector, what products are available and exactly how they can help clients before diving into the space.

According to Mr Kidd, the best way to do that is to meet with the business development managers (BDMs) from some of the specialist lenders and learn from them.

Mr Kidd says: “Keep the prime going, but spend time with the BDMs from Bluestone or any of those specialist lenders and it won’t take too long to gain some knowledge and some experience.”

He concludes that this preparation is vital to succeeding in the self-employed sector, but he warns brokers not to be too hasty to jump in.

“You really need to dedicate yourself and gain expertise and specialist knowledge in the self-employed area first,” Mr Kidd says.

“Then you’ll do great.”

Broker Tip: BUILD A PROFESSIONAL REFERRAL NETWORK

Because of the specialist nature of self-employed borrowing, referrals are vital in building a self-employed loan book. I’ve got leads coming in from everywhere at the moment: accountants, financial planners, insolvency specialists, business restructuring specialist and solicitors. Clients themselves may be a good referral source for traditional forms of finance, but not really for nonconforming. You’ve got to have a fairly strong lead source. If your clients are coming in with a tax debt or some financial problems or they’ve got credit defaults, judgments, debt collectors chasing them, normally they don’t want to tell their friends and family that they’ve got these sorts of problems. So, you don’t tend to get too many referrals from the current clients themselves, because they don’t tend to talk about their mess too much. As a broker in the self-employed space relying on referrals from other professionals, your reputation is vital, and you must go in prepared. When you speak to an accountant or a solicitor and you talk in a well-informed way about some of the solutions that you have got, that’s when you’ll start getting a lot of business.

Colin Kidd Loan Saver Network

Broker Case Study: THE FLOW-ON EFFECT OF GOOD SERVICE

I recently received a call from one of my referral partners, an accountant who refers me quite a few clients. He said that one of his clients had an issue and needed to raise some money as soon as possible. Unfortunately, in this instance, for whatever reason, the accountant had not done the up-to-date tax returns for this particular client, which can put off some lenders. We put the client to Bluestone and it was all approved, done and settled really quickly, which took a lot of stress away from the self-employed client. This accountant works really closely with his clients and knows their business inside out, and we were able to get a declaration from the accountant regarding the client’s income, which satisfied Bluestone, in turn making them decide to service the loan. The accountant was so thankful we were able to get this deal done, which strengthened our already strong referral relationship. And he was actually so busy doing all his clients’ work that he hadn’t done his own taxes, so we did a Bluestone loan for him as well, and then we did another Bluestone loan for another one of his clients.

Gerard Hansen FinVu

A WORD FROM BLUESTONE

As Australia’s number one specialist lender*, Bluestone provides alternative financial solutions for self-employed and credit-impaired borrowers unable to secure a loan through mainstream lenders. Bluestone’s offering continues to resonate with thousands of customers, who can now access a suite of financial solutions that support their needs and objectives, by assessing each borrower on their unique circumstances. Since 2000, Bluestone has originated over $6 billion in loans for more than 39,000 customers in Australia. It operates in the UK, Ireland, Manila and New Zealand. *Voted number one specialist lender in the Third Party Lending Report: Non-Bank Lenders 2017 survey by Momentum Intelligence.