Small businesses are the engine room of the Australian economy – crack this market and you’ll have clients for life
According to the Australian Bureau of Statistics, there are almost two million small businesses in Australia, with around 200,000 new businesses launching each year. That’s quite a market.
Brokers are in the perfect position to grab their slice of it as more and more lenders look to bolster their business lending books.
By aligning yourself with a solid referral partner like an accountant, and with a good team of business lenders, there is no limit to how far you can go in the commercial space.
By now, all brokers should agree that writing home loans and nothing else is unlikely to see your business reach its full financial potential.
Diversification is not just an option – it’s required of all brokers if they want to keep their clients.
But given that requirement, there is still choice regarding the areas into which you might move.
In this feature we look at some of the brokers operating in the small business space and find out what opportunities exist there for residential loan writers.
Reshaping the industry
Industry veteran Barry Oxley has been a mortgage broker for the past 16 years.
Mr Oxley worked for CBA for 28 years before setting up his broker business, Lending Specialists, in 1999. He was also the first broker to join aggregation group PLAN Australia.
“When they started up they only had five lenders on their books and were purely residential,” Mr Oxley says.
“I used to push PLAN pretty hard to get commercial on board because we thought there was an opportunity there.
“I remember getting a call from the CEO and he showed me the agreement they had just signed with ANZ. They became the first commercial lenders with PLAN.”
That was in 2001, two years after the aggregator began operating. Mr Oxley says his push for commercial lending through PLAN came from his experiences as a small business lender while working at the Commonwealth Bank.
“I used to enjoy doing commercial lending at the bank. It gives me more satisfaction than home loans,” he says.
“I think we complicate things with commercial lending. It’s basically no different to home lending – you’ve got to be able to prove security and servicing.”
Unlike residential lending, however, commercial allows brokers to have as much involvement as they like.
New brokers can choose to provide leads to their lender and then watch and learn how it’s done.
More experienced writers can share the load with the bank, while others can be fully involved in the end-to-end process.
“With lenders like ANZ you can become a bit of a spotter,” Mr Oxley says. “But I like sitting down and preparing a proper submission – it keeps me active.”
Right now, the banks want more exposure in the commercial lending space, and it is fiercely competitive.
Brokers are writing about 50 per cent of all home loans, but only 30 per cent of commercial loans. So there is plenty of room for growth.
ANZ has devoted a significant amount of resources to new small business. The lender pledged $1 billion to small business lending in 2013 and, due to its success, this pledge doubled in 2014 to $2 billion.
According to Melbourne-based broker Petro Trianta, ANZ has been innovative in developing lending products and in assisting brokers to dedicate their resources to lending to the small business market. It is now a significant revenue stream within his business, Podium Financial Services.
“Our goal is to devote a significant amount of time to further grow our presence in this market,” Mr Trianta says.
“We find home lending is more transaction-based while small business lending is more hands-on.”
Clients are looking to establish a long-term business relationship with their broker, intending that the broker will assist with the future growth of the business.
“Once we have established a strong relationship with our small business clients, we find they turn to us for advice and guidance with all their financial needs,” he says.
Financing the future
Mr Trianta first got into mortgage broking 14 years ago, while completing a business degree.
Now Managing Director of Podium Financial Services, he remembers one of the first loans he completed as a new broker was for a client purchasing an IT business.
From his first day in the industry, he has always kept his mind open to the opportunities in business lending.
Mr Trianta believes that whether a client is purchasing a business or equipment or requires working capital, given the number of lenders and lending products available in the small business market, it is important to engage a suitably qualified small business broker to act as the conduit between client and lender.
“The role of a broker is to evaluate the lending needs of the client and source and recommend the most suitable lending product for them,” he says.
“With small business lending, it’s not always about the interest rate, fees and charges. While these things are important and are likely to be critical in the broker’s decision to recommend a particular product, it is important for the broker to also consider the terms and conditions and restrictive covenants that may apply when recommending a particular lending product.”
Mr Trianta admits he gets a buzz out of assisting start-ups with obtaining finance.
Working with like-minded business people to help them achieve their goals is one of the less talked of but most rewarding gifts of being a broker.
“With all the start-ups I’ve assisted to obtain funding, I’ve made sure I keep in touch after the funding has been finalised,” he says. “I get a great deal of satisfaction from seeing a business succeed.”
One of Mr Trianta’s clients was looking for funding to open their first retail store. The business has since grown and now employs 80 staff.
For brokers, that’s 80 potential clients – not to mention the ongoing, multiple finance needs of the original client.
So, a real benefit of broking in the small business market is the cross-sell and repeat business opportunities.
As a business expands, there is likely to be a need for further funding. This may be to acquire another business, for working capital, to purchase equipment or purchase a property.
About 12 months ago, Mr Trianta assisted a client restructure his business debt. Since then the client has required another six transactions.
Business lending will significantly boost a broker’s bottom line through repeat business and referrals.
As the late American scientist W Edwards Deming said, “Profit in business comes from repeat customers, customers that boast about your project or service and that bring friends with them.”
Like Mr Oxley, Victorian broker Simon Cai started his career with the majors.
He has been in the third-party channel for less than five years and while residential is his core business, he also writes a fair chunk of commercial loans.
Most of his clients are looking to acquire businesses, rather than starting out.
“I don’t do many start-ups, usually four or five a year,” Mr Cai says. “I have a lot of repeat customers that I have helped set up businesses for.
“I have an advantage over [residential] brokers because with commercial finance you get more involved. You talk about their business strategy, their goals and when they need a home loan they come straight back to you.”
With commercial lending, the banker will often get more involved, Mr Cai adds.
“With resi you just do everything yourself and submit it. With commercial – and with ANZ typically – they have a banker who will help you along the way.”
Brokers have the freedom to do more or less.
“I choose to get more involved with my client, but I know some brokers that are just starting out in commercial are less involved,” says Mr Cai. “That way they learn.”
Unlike other new revenue streams, breaking into business lending offers flexibility, allowing brokers the time and space to work it into their service suite.
Repeat business, cross-sales and the satisfaction of knowing you helped launch a new Australian business are just some of the rewards on offer.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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