Small commercial lending - Breaking into new areas

Fortunately, establishing the client network that will allow you to break into this area successfully is not as hard as some people think.

Financial Alliance’s director, Alfred Buttarelli has a ‘top tip’ to pass on to brokers: don’t give up – persist.

“There’s a lot of work involved at the beginning, and remember to not put all your eggs in one basket with one bank,” he says.

Mark Golding, managing director at GoldKey Financial, says a broker first needs to consider the make-up of their existing client database. “If a lot of your clients and referrals are SMEs, then building up a network from there is a natural fit,” he says, but cautions if clients are mostly ‘mums and dads’ then a new business model is likely to be needed.

If you find yourself in the second category, then it’s all about setting up new relationships with the right referral partners.

“When we started our business, we focused very heavily on gaining business through intermediaries,” says Mr Golding, “but now the majority of our business comes not only from our database but from those relationships we’ve built up.”

GETTING EDUCATED
You can’t put the cart before the horse and so before they can confidently diversify into the commercial area, brokers need to know the basics of writing this type of loan.

It is crucial to have the education and experience required as, among other things, it instils confidence in the client. “A client can immediately tell if a broker has experience or not, and if a broker starts making simple errors they’ll lose that client straight away,” he says.

Being able to understand a balance sheet and a profit and loss statement is imperative, but brokers also need to understand the details of percentage lending, such as the restrictions around certain properties, Mr Golding says.

Choice Aggregation Services’ Dennis D’Angelo, however, argues that vanilla deals are straightforward and a broker should be able to write them without any up-skilling.

“It really is similar to the process of writing a self-employed home loan,” he says.

ING DIRECT acknowledges that a lot of brokers are currently less familiar with commercial mortgages than they are with residential home loans.

Sergio Delvescovo, national partnership manager at ING DIRECT, states that where  brokers need further information or training on commercial lending, “our BDMs are out and about and readily available to educate brokers on our commercial products and processes”.

John Swanson, CEO of All Finance advises brokers to attend any relevant courses available in their area. The Australasian Academy of Mentoring and Coaching (AAMC) offers a ‘diploma upgrade’ for those already holding a Cert IV as well as a full diploma.

The diploma covers financial statement analysis and other areas that make commercial loans more complex such as the EPA, SMSFs’ ending and divorce issues.

“By completing the diploma course, brokers can freely discuss a client’s financial situation on equal terms with an accountant or financial planner because they will have a full understanding of what the financial statements mean,” says Barry Doherty, senior assessor at AAMC.

But while education is crucial, so too is experience, says Mr Buttarelli.

“It’s 50/50 – brokers need education but they also need the experience in terms of understanding the dealer, the transactions, and the types of security – you can only learn that by working on commercial loans,” he says.

GENERATING REFERRALS
In this area, getting educated is arguably as valuable as your database when it comes to generating referrals.

The more people who know you are educated in commercial loan issues, the more referrals you’ll receive, Mr Swanson says.

“Even local branch managers are referring me clients because they don’t know how to read balance sheets and profit and loss statements,” he says.

“This is where our skill sets come into play because we can make transactions work from a servicing perspective which some brokers can’t do.”

Mr Swanson also cites ‘buy and sell agents’ as potential referral partners.

“While they get a property on the market, we actually go in there and assist the vendor and/or the purchaser to get the funding to acquire the business.”