We’ve heard it before – commercial lending is a “significant opportunity” for brokers looking to diversify. However, what you haven’t been told is exactly how you could implement it into your business. The Adviser’s Commercial Business Writers, sponsored by ANZ, reveals how brokers have used this part of the market as a stepping stone to future success
MUCH DISCUSSION in 2014 and 2015 was centred on diversification and as we head into 2016 momentum for diversification into commercial finance continues.
For brokers looking to advance into commercial finance and/or asset finance, things have never looked better.
In the last six months more consumers are seeking out brokers for residential financing enquiries according to The Australian Mortgage Council September results (put out by RFi Group), which presents an even greater opportunity to cross sell commercial and asset finance to business owners. If a broker is not talking to their client about these needs then someone else is.
ANZ is proud to support this special commercial finance edition and continues to support diversification through strong broker-manager relationships, customised training and bespoke events. So when it comes to conquering those big audacious goals remember by diversifying you are creating a more balanced portfolio with multiple revenue streams plus further deepening client relationships and with ANZ on hand to help, things won’t seem so scary. ANZ has always made it easy for mortgage brokers looking to build their business beyond just a residential mortgage conversation and continues to do so.
ANYONE WHO’S anyone likes to make an extra bang for a buck. Commercial business brokers are no different.
These folks, whether experienced players or new to the ring, are leading the charge to an advanced way of serving clients, growing their business in the process and paving their way to accommodate an ever-changing financial landscape.
Now, what they’re doing might seem like a waste of time or less than valuable, however what many fail to realise is that it’s purely the lack of understanding about what is required in commercial and business finance that deters so many.
The bottom line is that diversifying into commercial finance is hugely beneficial but, like all things new and different, brokers need greater education about it before feeling confident enough to take the plunge.
The commercial market is sometimes considered a tough nut to crack but, with the right approach, it can be a smoother transition than originally thought.
According to Red Finance director Peter Smith, if you want to jump into commercial finance, it is absolutely imperative to seek the support of those around you first.
“I see brokers that would like to go into commercial lending but without any training or background, and I find it very hard to believe that they can walk in and expect to write commercial finance,” he says.
Mr Smith says a discussion with your aggregator should be the first step for brokers looking to branch into commercial.
“First of all, I’d say talk to your aggregator, because they’ve got to agree to support your application for a commercial accreditation,” he explains.
From there, communicating with lenders and more experienced commercial brokers will give you an idea of the current market conditions and allow you to pick and choose your deals wisely.
Handling the increased volumes that this new line of business brings is often an area of concern for brokers. To combat the problem, many successful commercial brokers believe hiring a personal assistant or additional support staff can be a significant help for those new to commercial lending.
The best part about both commercial and business loans is that it is relatively easy to find clients, and in more cases than not, they already exist within your database – you just didn’t know it!
“We’ve all got clients that have potential multiple opportunities to do business for them,” 1st Street Home Loans director Jeremy Fisher says.
“What we’ve found is most commercial clients have residential business, and vice versa.”
Small to medium-sized enterprise owners should, in particular, be on a commercial broker’s watch list, according to Reginsun Credit managing director Jeff Pang.
“The majority of my clients are SMEs,” he says.
“They’re in industries such as retail, hospitality, property and agriculture.”
For other brokers, strong referral relationships play a key role in acquiring commercial clients.
“All of our clients are referrals,” Byblos Finance director and The Adviser’s number one commercial broker, George Karam, says.
“They either come from other clients, from valuers, accountants, lawyers and from other industry participants.”
Arthurmac and Co managing director Stuart Styles agrees that looking to your referral network is a great
way to gain new clients.
“That’s really where you’re going to get those business/commercial clients from, as opposed to the resi type loans,” he explains.
“[Resi loans will] generally be word of-mouth from somebody we’ve already done resi for, or real estate agents, whereas those business/commercial ones are really going to come from the accountants and solicitors.”
INTERIM FINANCE SHARES AN EXAMPLE OF A SHORT-TERM FINANCE DEAL…
As told by managing director, Andrew Littleford
Scenario: Property developer needs urgent cash flow to complete subdivision.
A developer required $350,000 to complete a four-lot subdivision. The project was sound and the gross realisation favourable, but the first mortgagee was limited within their credit policy to advance any further funds (odd considering it was presented as a subdivision site from the get-go).
The applicant’s original broker had ‘sat on’ the application for a number of weeks. By the time the borrower approached Interim Finance, they were under significant pressure from contractors who were well advanced with the civil works and were pressing for payment. The site was valued, priority amounts established and costs to complete quickly ascertained to provide the necessary funding and maintain contractor relationships.
Loan type: Caveat/second mortgage
Interest rate: 15.95%
Loan term: Nine months
Turnaround time: 10 business days
Location: Sydney, NSW
Why it’s interesting: Short-term financing enabled the continuation of works at a vital stage of construction that prevented significant losses associated with the project delay. The quick processing and loan flexibility converts what may ostensibly look like a possible bank deal to a favourable shortterm solution. In the process, the broker consolidated the client relationship whilst earning an alternate source of revenue.
HOW I WRITE COMMERCIAL LOANS
by Kevin Wheatley
THE ROLE of a commercial broker is more important now because you’re the financial adviser that SME clients are coming to, to structure [their business] properly and give them the right financial advice.
Let’s say someone comes to us with a development property. The first step is to ask the borrower, or the client, to send you a detailed feasibility report. I will sit down, look at the feasibility report, look at the floor plans and I’ll apply my build per square metre ratio matrices to make sure that they fall into line with the quantities of AS cost.
If I’m comfortable, once I’ve costed the development, that there’s not going to be any additional funding required I’m then confident to put a submission together and present it to a financial institution, knowing that we’ve got the complete business model and construction in line with the feasibility costs.
I’ve had [commercial] deals take me up to nine months to complete; I’ve had them take me three weeks. One I worked on in Elisabeth Street, Brisbane – a 27-storey new Ibis hotel – took me around five months to get the costing right.
It’s very detailed but a short answer is, find the detail in the costing so when you go to the bank you can make sure the financial facilities that they are about to provide you are going to complete the development. That’s the key.
A step-by-step guide on how to write a business loan, as told by our number one business broker, Peter Schroeder
1. Talk to your client and find out what they would like to purchase.
2. Ask immediate questions so you can work out how you need to quote and whether it falls under NCCP. For example, if it were a car they were interested in buying ask: what type of car are you looking to purchase? Is it for business or personal use?
3. From there, complete your NCCP process or if it’s for business use provide the client with a quote and some alternative options to make sure you’ve got the right structure of a quote that suits the client’s needs.
4. Once the structure is approved by the client, take down all the normal data such as name, date of birth and supporting documents before loading the application into the lender’s online system.
5. If approved by the lender, let the customer know the outcome, detailing any changes before arranging an invoice with the supplier, whether it be a car dealer or a private seller.
6. Once the invoice is arranged, prepare the lender’s documentation by entering all of the car details, including registration number, into the system and match up the amounts that have been approved to the amount that’s going to be financed.
7. Print off all the documents, get the customer in to sign them all and then lodge all the documents into settlement with the lender. The lender will then pay the dealer or private seller and then advise the broker so the client is able to pick up their car.
If you want to become a commercial broker, it goes without saying that you’ll need to continuously educate yourself on bank products, rates and policy changes.
“Upskilling is a continuous process,” Mr Karam agrees.
“You should never miss an opportunity to know what else is out there and try to educate yourself in what the banks like and how they like things to be presented.
“We’re constantly meeting with banks, continually educating ourselves on a deal-by-deal basis, taking lessons from each deal to apply to the next one,” he says.
Mr Smith recommends brokers attend regular PD days and conferences, and upskills at least once a month by conversing with commercial lenders, seeking out what’s new to offer clients.
“I get a lot of commercial lenders that I deal with to come out and talk to me about various things such as the financial market and all the options that can be done with commercial bills,” he says.
Bayside Commercial Mortgages managing director Kevin Wheatley is another broker who sees the necessity in upskilling despite previously coming from a commercial background.
“I upskill through extensive study [so I have an] understanding around economics and more importantly, an understanding of money markets not only in Australia but globally too,” he says.
“You’ve got to be very, very aware of the consequences if things go wrong…We’ve experienced the GFC and seen all sorts of market crashes, so you want to make sure that when you’re investing [in education] you’ve got contingencies around your service ability.
A lot of brokers see the benefit of covering all corners of the ring, writing any commercial and business deal that comes their way. However there are some that prefer starting off with a niche.Supra Finance director Michelle Ivanov is one of these, settling 280 vehicle finance loans out of her 313 total business deals over 2014-15.
THE $26 MILLION CLIENT
Jeff Pang, managing director, of Reginsun Group, wrote over $26 million in business finance over the 2015 financial year.The Sydney broker explains how his working relationship with ANZ helped fund the expansion of a small business.
There’s one particular client I have. They are running a couple of supermarket stores. Basically, they’ve been growing fairly rapidly over the last two or three years.
We actually managed to get funding for them last October and they’ve grown from three stores to five.
That lending is quite substantial. So far it’s up to $26 million lending. For SME probation, that is substantial. We basically help them understand the business strategy, help them understand where they are and also look at the cash flow forecast.
The main business is around the cash flow drivers so we work out a structure for them then talk to the bank. We deal with the corporates at ANZ Bank so they do banking fairly well and are really knowledgeable with cash flow. We work with them well and help the client achieve what they want and help the business to grow.
In the beginning the client thought they would have to put lots of money into the expansion but actually, when we organised the funds for them, we found much stronger support than expected.
They were quite happy with our ability to help them. They also realised that they’d found the right bank. We helped them find the right people that understood their business.
That’s the client feedback. We help clients achieve their business goals.
The client always comes to us first once they’ve found a project or new idea, they only talk to us first. I would say that’s good feedback from clients because the relationship has been enhanced.
This client probably has more than 50 stakeholder suppliers. He actually introduced us to those people. That’s how we extend our business. We haven’t done any advertising yet.
We will work on our sales plan and advertising channels – we’ll do whatever our peers do to position ourselves first. We’ll choose our advertising channel accordingly.
“I have a fairly significant database which is made up firstly as car clients and then [they] want to go buy offices or other business [assets], so I end up becoming the be-all and end-all for my clients,” Ms Ivanov says.
“I do pharmacy refinances, Priceline stores, office buildings, gym purchases and factories, so it’s very widespread.”
However, Ms Ivanov encourages newer brokers to stick to one aspect of business lending while in the early stages, saying unless you come from a commercial background, it may be difficult to juggle.
“It took me a long time to learn how to do things with business as it’s very different,” she says.
“If I was a new broker, I’d be sticking to one thing and learning that heavily before I move to the next.”
The good thing, Ms Ivanov says, is that more banks are starting to cater for brokers specialising in business finance after seeing a stronger demand in the marketplace.
“With business lending at the moment, you have got your lenders like ANZ and St George that are really trying to get out there and promote the business stuff,” she explains.
“A lot of my initial conversations are about finding out exactly what the client is not happy with, because a lot of it is refinances, so trying to pinpoint the reason why they want to move and exactly what they want out of the loan is a big thing.”
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