Small commercial lending - The target market

They’re not hard to find, and you probably already have some in your database, which should be your first port of call.

They’re self-employed business owners for whom you’ve already written a residential loan; they’re ‘mum and dad’ businesses that want to buy a shop front; they’re developers and builders who’ve been turned down by the banks.

SMEs, in fact, are the prime target for commercial lending, says Mark Golding, managing director at GoldKey Financial.

“Many already have a range of products, from equipment leasing to residential loans,” he says.

Better yet, according to John Swanson, chief executive officer at All Finance, the number of self-employed professionals who are looking for a loan and entering the commercial lending space is growing.

The commercial property sector will likely to see an upturn in growth over the next 12 months with rates currently sitting at lower levels than traditionally, Mr Swanson says.

“Because of this, there are currently a lot of self-employed clients wanting to buy their own premises instead of renting as they can fix the rate for five years,” he says.

So, while brokers may not have to look too far to find potential commercial clients, they also shouldn’t be too surprised if the clients come looking for them.

Financial Alliance’s director, Alfred Buttarelli, says high-end clients in particular are looking for brokers because they offer an important view of both the client’s specific and more long-term financial goals.

“As companies have become more sophisticated, we’re seeing blue ribbon clients coming to brokers for more of a financial advice session and to gain a different perspective on what they’re trying to do,” Mr Buttarelli says.

SMEs, however, remain the heartland of potential commercial clients and due to lower staff numbers they are frequently time-poor and therefore in need of support.

“Because of the cutbacks in staff, most businesses are doing more of the financial side of things themselves,” Mr Golding says, “so that gives us an opportunity to come out and look after their needs at no additional expense.”

NOT YOUR TYPICAL CLIENT
Commercial clients can also regularly be found via referral. SMEs transact much more frequently than the typical Australian residential borrower, speaking to their banker or broker at least four or five times per year.

This represents a significant opportunity for brokers: not only is there great scope for continuing business, but most commercial clients are SMEs that normally associate with other SMEs, which means considerable potential for referred business and development of a commercial client network.

Commercial clients’ borrowing needs are more sophisticated than those of the average Australian residential borrower. “They have trusts, companies and typically put extra into their super fund, so  you need to understand the whole of that client if you’re to service their needs,” says Liquidity Finance’s Danny Luu.

Having access to the right product range, of course, can add significant value to this market and is therefore more likely to prompt referrals of new business. ING DIRECT has an outstanding commercial lending product that caters extremely well to the self-employed market, Mr Swanson says.

“A lot of them [the self-employed] don’t realise they can get 75 per cent LVR with ING DIRECT because the banks are only offering 60 per cent LVR,” he says.

ING DIRECT offers a ‘set and forget’ type of loan for which there’s currently a big appetite, Mr Swanson adds. With this type of loan, it is not mandatory to complete an annual review if the loan is under $2 million and performing well, thus providing certainty around rates.

With all that brokers can offer potential SME clients, it’s not surprising that they can be easier to find than many brokers think initially.