Small commercial lending - Deeper client relationships

Diversifying your value proposition by including commercial lending allows you to meet the needs of existing residential clients who need a commercial loan, rather than having to send them to a referral partner

“There are not enough brokers who can write commercial loans as they don’t understand the intricacies of balance sheets and profit and loss statements,” says John Swanson, chief executive officer of All Finance. “But to bring that skill set to the table – that says I can do all things and makes you a far more rounded broker.”

It also positions you as someone who can meet many, if not all, of your client’s lending needs.

With many potential clients on your existing database, an important part of the work is already done if you decide to move into the commercial space.

“I believe every broker out there has a real opportunity with their current database to add another product, and if they’re prepared to offer commercial lending then they can easily add that to their suite of services,” managing director at GoldKey Financial, Mark Golding, says.

It also takes brokers down the road of offering other commercial products. Once an SME client knows you offer commercial leasing, they may ask for products such as motor vehicle or equipment leasing finance as well.

“I would encourage brokers to offer all three: residential, commercial and leasing finance,” Mr Golding says.

However, according to Mr Swanson, diversifying here is like putting fences up around your clients. “The more loans you write for them the more likely you are to keep that client as you’re far more intrinsically involved with them,” he says.

Liquidity Finance’s Danny Luu adds that your role as broker quickly changes to that of confidant and adviser with the more services you can offer.

“The more you can get yourself in line with a client, the more likely you are to become their ‘private banker’,” he says.

“I view a client like a circle,” he adds. “If I surround myself with the relevant people for the client’s needs there’s no need for them to exit my orbit.

If I don’t offer a particular service, then they will go to a different provider who will try and move that client towards their inner circle.”

WHAT THE BANKS MISS
“If the banks continue to not touch commercial clients, then they’ve got to find someone who will help them, and that’s why I think there’ll be a huge growth for brokers in this space,” Mr Luu says.

A significant proportion of his clients who are seeking a commercial loan have already been knocked back by a bank.

“Some banks have requirements that the investment be 100 per cent risk-free before they’ll even write the loan,” he says.

From a client’s point of view, says Mr Swanson, dealing with a broker can potentially be much easier than dealing directly with banks due to their reluctance to deal in certain security types.

“We’re in a little bit of a credit squeeze at the moment so there is a tightening of funding to businesses,” he says.