Case study: Steve Keefe, Dirigo Group

I was a commercial banker with Westpac for 10 years and left in 2009 to start a commercial broking firm. I wanted to provide SMEs with choice and options rather than simply accepting what their bank was saying given that policies – even across the majors – differ significantly, and appetite for risk varies.

What benefits are there for brokers in commercial lending?

The first is that it provides diversified incomes streams: commercial property, business cash flow, equipment finance, and home and investment lending. The second thing is that it’s a great way to increase your own knowledge base about business by speaking to and reading business’ financial statements. And thirdly, it increases your network, as you have the skills to discuss business finance with accountants, business advisers and commercial property agents.

How competitive is this space?

There is competition in this space – however, the pure number of SMEs in Australia outweighs the number of brokers, so there is plenty of business to go around. SMEs need finance both in strong economic times for growth and in weak economic times in order to manage and/or restructure debt. Therefore, the need for brokers is continuous.

What sort of feedback have you received from commercial clients?

They like us because we understand business, but we also understand banking. We’re intelligent in how we structure debt and the advice that we give, but at the same time, we can clearly articulate that to the bank. The biggest feedback is probably around the products that are available. Businesses are now realising that there’s so much choice and other options available than just the ones provided by the banks.

What are the key areas that brokers need to understand when writing a commercial loan?

I feel the key with commercial lending and analysing a business/transaction is to be able to explain succinctly the following:
• What the business does, how it makes money, who is behind it and how it has performed historically compared to now.
• What factors/risks now and in the future will/can impact the business’ ability to maintain cash flow to make loan repayments.
• What steps the business has taken to address these factors/risks to ensure they can maintain repayments.
• Whether or not the transaction makes commercial sense, and why.

You need to have an understanding of financial statements (profit and loss, but importantly, balance sheets). It’s also vital to understand the industry and business, as that will allow you to critically analyse financial ratios that impact/drive profit and cash flow. You should also know how debt will affect the business.