Broking in the regions

Tas Bindi 10:00 AM, 8 Feb 2019 10 minute read

Broking in regional, remote and rural areas comes with many advantages, but it can also be challenging at times. Tas Bindi chats with brokers about what it’s like to run a business in regional towns.

The grass is greener, the air is cleaner, and the community is more connected. While some believe strong opportunities only exist in the city, there are many perks to running a broking business in regional areas.

For example, Doug Bohmer, founder of Bfinance who moved interstate from Melbourne to Alice Springs nearly five years ago, says one of the greatest benefits is that “word-of-mouth travels fast” in regional towns.

“In a small town, everyone relies on [word of mouth] for everything from where to eat and where to go camping to which mortgage broker to use,” he says.

“If you do a consistently good job that people appreciate, then they will tell [others].”

Deborah Ebert, South Australia-based credit adviser and partner at Directional Finance, agrees, saying that there’s the additional pressure to do an excellent job for clients because “it’s very hard to walk up the main street [of a regional town] or be in a neighbouring town without bumping into them”.

“Part of our job is to educate people. We spend quite a bit of time [helping clients with] budgeting and letting them know what the banks require these days. A lot of people don’t understand what the implications [would be if, for example], they wanted to buy a property but they’ve actually spent most of their money on buying a car [to avoid] getting a loan,” the Riverland-based broker adds.

“Then [they] come to buy property and find out they need a minimum 5 per cent genuine savings and an extra 5 per cent to cover the fees.”

Out in Goondiwindi, Queensland, Timothy Gibbons is managing director at AgLend Finance and he suggests that the ability to develop “a strong point of difference” is one of the key benefits of broking in regional areas.

“We live near some of the best farming land in Australia, so our industry knowledge is high. With regional banks closing down, we can attract some extremely talented and experienced staff,” he explains.

“I believe there is a high demand [from] people in rural areas with no access to a good local banker that require help, so now they can have an agri-broker speak to them via video call or similar.”

Another upside, especially given the ongoing scrutiny of loan serviceability assessments, is that regional clients tend to borrow smaller amounts and stay within their means, according to Mr Bohmer.

“It’s very, very rare that a client of mine [in Alice Springs] is borrowing anywhere near their serviceability limit because they’re borrowing $200,000 to $400,000, [compared to] my Melbourne clients who tend to borrow $1 million,” the Bfinance broker says.

The downsides

On the other hand, as property prices are notably lower in regional towns than in CBDs, so are average loan sizes, which means the commissions paid for servicing regional customers are also smaller, Mr Bohmer adds.

“In order to get a similar amount of commission [to an average broker in a bigger city], you probably need to write double or triple the amount of loans, because [clients] are borrowing significantly less,” the Bfinance broker explains.

Similarly, Ms Ebert further notes that a million-dollar deal and a $150,000 deal require about the same amount of work.

Limited support from lenders is also a challenge for regional brokers, Mr Gibbons says.

“We tend to get forgotten about until our volumes get someone’s attention or we go chasing updates,” the AgLend managing director comments.

“With a heavy focus on commercial agri-lending, the lack of communication in an already difficult space can make things more interesting.”

He also laments the lack of understanding of what is considered a regional area, explaining that when a lender claims to provide regional support, the support service may not necessarily be available to all regional operators.

“We are four hours from a major city in a town of 6,500 people (including surrounding areas). I have had BDMs say they are regularly in contact with regional brokers, but on checking locations, their brokers operate within populations of 100,000-plus, or a short distance from major CBDs,” Mr Gibbons says.

“Brokers that operate in small regional areas can at times have a unique set of problems… It can be difficult knowing who we can turn to that can fix our current problems.”

In the aftermath of the Hayne royal commission and ongoing inquiries from the regulators, the AgLend managing director suspects some brokerages may find it more difficult to write loans in regional towns.

“With local branches closing, industry in a state of confusion, I find most bigger brokerages will struggle with writing business in small country towns as it requires a lot of local knowledge, including product knowledge specific to lending in rural areas,” Mr Gibbons says.

As such, he says a regional broker could be “a valuable source of direction in these confusing and unstable times”.

“But they also need to have good systems to allow them to process deals promptly,” Mr Gibbons recommends.