There are about 2.8 million SMEs in Australia and roughly 200,000 new businesses are launched every year. With a market this size, brokers might want to consider adding commercial finance to their product suite
Small businesses are crucial in driving growth throughout the Australian economy.
The majority of Australian companies – 95 to 97 per cent of them – are small-to-medium enterprises employing 49 per cent of the Australian workforce. That’s a serious market for brokers to sink their teeth into.
Over the last 12 months The Adviser has watched the commercial lending space grow; with that growth the opportunities for mortgage brokers looking to integrate this new revenue stream into their businesses have multiplied.
Greg Wells, Finance Broker of the Year at the 2014 Australian Broking Awards, says lenders are now gathering more detailed results from their books that show brokers are generating an increasing amount of commercial business.
Banks are pouring over data showing the quality of business coming through the third-party channel, he says.
“The average loan size, the cross sell, the new-to-bank-client: all these things are key profit drivers for the banks and they’re being monitored a lot closer.”
The opportunity for brokers in the commercial and SME finance space is significant to say the least.
FAST chief executive Brendan Wright says the total system among commercial business banking or business lending products written via brokers, including asset finance, would be somewhere between $30 to 40 billion per annum. Looking at these numbers, commercial lending tells a compelling story.
“SME's are crying out for the kind of specialised service that only a broker can provide,” says Mr Wright.
While banks look to brokers as a key distribution channel and way of introducing new customers, brokers have an increasng appetite to grow their businesses and develop a more holistic product offering.
Your aggregator should always be the first port of call once you’ve made the decision to add a new revenue stream to your business.
Commercial can be a different animal, particularly for resi brokers branching out for the first time. It’s important to get the right guidance and support as you enter uncharted waters.
“Support from your aggregator with commercial lenders is essential,” Mr Wright says.
“If you have access to a good BDM, they can be a key resource for product support, training and strategic planning.”
Mr Wright endorses the view that specialist expertise is needed to be able to write commercial finance.
“You could do it through your aggregator – we certainly do that with FAST – for brokers who want to become capable in writing business lending or commercial lending,” he says.
“A referral model with a more experienced commercial or asset finance specialist can be a good first step for many brokers, offering an introduction to the area and reducing the amount of training required.”
The benefits of adding commercial finance to the product suite are huge. The first obvious advantage is a significant boost to income, and adding commercial finance options provides a great way to diversify as well as boost revenue streams to gain a more stable cash flow.
Depending on the makeup of your book, Mr Wright says commercial finance can improve the net value of a broker’s business anywhere between 10 to 30 per cent.
Another benefit, he says, is the ability to reinforce your client base.
“Meeting more of your clients’ needs strengthens the relationship, as the number of touch points between you and your client increases with the addition of new finance deals,” Mr Wright says.
“It also helps hedge against the risk of losing a client to another broker or group,” he says, adding that commercial lending is generally a good fit for residential brokers as it can help support a broker’s existing residential business.
Thinktank’s Peter Vala encourages brokers to get involved in commercial finance for its cover of a broad range of financial products and services, from asset finance and debtor finance solutions to cash flow, construction loans and general commercial property-secured transactions.
“Commercial lending can provide an additional stream of revenue while, just as importantly, consolidating and deepening relationships with clients who have a call on finance outside home or residential investment loans,” he says.
Daniel Green, a mortgage broker and director of Green Finance Group, says resi brokers looking to crack the commercial space for the first time should partner with an experienced commerical broker and split commissions.
Others have found commercial clients by mining their existing client base.
Brisbane-based broker Jayden Vecchio has only been in the industry for a few years, but has already managed to build an enviable amount of commercial clients.
“At first it was plenty of door knocking and grunt work,” he says. “That’s what you have to do when you start out. Now I’ve built some networks and I associate with the right referrers.”
The right referral partners are typically accountants, who are closer to the business needs of their clients. Aligning yourself with a trusted accountant could provide a steady stream of SME leads.
Assistance and support
FAST is helping brokers build their businesses with commercial finance and sees it as a revenue stream that is just as valuable as the residential mortgage space.
“More than half of new mortgages written in Australia are done through brokers and it’s certainly playing out the same way right now in commercial and asset finance,” Mr Wright says.
“We’re helping brokers build that capability in their business, whether it be by being able to write the business themselves or referring it on.”
ANZ general manger of commercial origination, Cosi De Angelis, says brokers should feel confident that the major lender can work with them and their clients to support and solve even very complex financial needs.
“ANZ recognises that commercial lending may appear too hard for mortgage brokers, but it’s not,” Mr De Angelis says.
“We offer a spotter program, an offline asset finance process right through to setting up brokers to complete a full credit application. ANZ can transact with all types of brokers,” he says.
Thinktank offers a similar support program. Brokers can get started with their existing knowledge of residential finance and extend their skills and experience working with relationship managers, Mr Vala says.
“Our relationship team provide training and direct support in preparing credit submissions for commercial loans and are there every step of the way to help a broker with their first and subsequent commercial property transactions,” he says.
Thinktank runs free commercial lending workshops and commercial courses that attract MFAA CPD hours. The lender’s sales team members offer brokers transactional support, deliver workshopping expertise, CPD compliant training, a willingness to be accessible beyond the normal nine to five and even assistance on getting deals set elsewhere that don’t fit within the group’s own lending criteria.
“We specialise in commercial property, which allows us to add value to each and every party in the transaction chain by delivering focused, unbiased structuring support and execution,” Mr Vala says.
Many brokers are starting to realise the huge opportunity commercial finance presents. Mr Wright credits this to the type of clients they’re encountering in their business.
“Typically, at FAST we’re known for having more commercial brokers who have been in business for a long, long time – so they can be existing clients, but there’s also an opportunity for brokers to go to existing home loan clients,” he says.
“The reality is, anywhere between 10 to 30 per cent of a broker’s existing client base would be self-employed or small-to-medium enterprise business owners.”
As a result, brokers can easily make the transition to commercial finance and become a one-stop-shop for those clients, he says.
Brokers are business owners as well, so they can talk to other business owners who share a similar mindset.
Looking ahead, FAST plans to continue to support mortgage brokers in the distribution of commercial finance.
“Pleasingly for me, our drive on this opportunity is for the benefit of the industry,” Mr Wright says. “We see upsides for brokers beyond FAST, but we are certainly the market leader in commercial and asset finance as an aggregator because of the nature of the brokers who aggregate through us … we’re committed to helping brokers be successful in that.”
Thinktank expects commercial third-party lending will continue to grow, based on market metrics and the drive to deepen relationships with new and existing clients.
“From our understanding, the residential market has seen significant growth, which sees brokers introduce more than 50 per cent of residential loans to financial institutions,” Mr Vala says.
“Commercial lending seems to be the next wave, which has seen broker-introduced business increase from 15 per cent to just shy of 30 per cent in the past two years. Our expectation is that this will continue to grow.”
As borrowers become more sophisticated, Mr Vala says there is an expectation that business owners and investors will take on board accounting and financial advice to shift property ownership into more effective tax structures – all of which a commercial broker can assist with.
Mr De Angelis agrees, saying there is little doubt the commercial broker market will continue to develop rapidly.
“More and more commercial clients see their broker as their trusted adviser,” he says. “Provided brokers are transacting with banks that respect the customer’s decision to transact via a third party, there is a considerable upside for brokers.”
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