Tools of the trade

These changes reflect the Australian government’s new focus on small businesses, and have given rise to strong demand in asset and equipment financing.

PLAN Australia CEO Anja Pannek says that commercial lending and asset finance are “two of the biggest growth areas in the market” and, as such, the company has been putting on digital PD days to help brokers “harness the opportunities” within this sector. According to Glenn Mitchell, head of commercial and lending at Vow Financial, the popularity and necessity for this type of lending will only continue upwards.

“I think if we have this conversation in two years, you’ll find that a lot more brokers will be writing equipment and commercial products for their clients,” says Mr Mitchell.

“The successful ones entering the industry are looking to diversify their product range and become a ‘one-stop shop’,” he explains.

What brokers are realizing is that understanding asset and equipment finance is about more than just adding new revenue streams, it’s vital for anyone diversifying into the commercial lending space.

“Asset and equipment finance is a product that almost every business needs as a component of their broader business funding requirements,” says Rob Ryan, head of northern region at FAST.

According to Mr Ryan, asset and equipment financing covers anything from car finance to medical equipment or computer software to rental agreements.

However, because it’s so varied, it can take brokers some time before they can get up to speed and make good profits.

Challenges

One of the most frustrating things new brokers report, is the high turnaround times coupled with what seems like little financial reward.

After all, there’s no trail commission, and the take out from it is substantially smaller than a mortgage.

The experienced brokers know that success in this space is all about understanding how to get the loan through quickly.

That means knowing the industry inside out, having a good relationship with car dealers and knowing where to go for a fast, successful transaction.

According to Vow Leasing director Darren Goodman, the biggest misconception new brokers have is seeing equipment finance as a simple add on, when it really requires specialist knowledge.

“If it’s something you’re not streetwise on, it can actually be very tricky,” says Mr Goodman.

He advises inexperienced brokers make connections with specialists or broking groups, like Vow Financial, that can provide assistance through the first loans.

“You get a lot of people that spend a lot of time doing it, and can actually end up doing the wrong thing,” says Mr Goodman.

“And really, if you can find a specialist that does it well, then that can actually work very well for your business and for your customers,” he explains.

Start small

“Asset finance for cars and light commercial vehicles is a good first step into diversifying your business,” explains FAST’s Rob Ryan.

“Often these applications can be submitted, unconditionally approved and you may even receive the documents all on the same day,” he says.

“In addition, many of the asset finance funders have made the application process easy and have electronic submission capability.

“Lodging an asset finance application is not complicated and can often take only 30 minutes to submit,” he explains.

Despite the initial challenges in knowing the right lenders and the right avenues for purchasing, once a broker has had more experience in the area, Mr Ryan says that the remuneration can be quite compelling, “with some brokers earning an additional 20 per cent in their business revenue by including asset finance in their lending offering”.

Referral network

Building a strong referral network is key for finding new SME clients and other experts that you can refer your customers to if you’re not yet fully clued up.

“You want your customers to call you no matter what, so that even if you can’t help them – you have something in place,” says Mr Goodman.

“At Vow we tell our brokers you don’t have to be an expert at it – you don’t have to know how to do it. But you want to be able to send them to someone in your group or in your network that’s not going to take advantage of them or try to steal your mortgage trail,” he says.

Otherwise, he warns, you can spend a lot of time earning nothing.

As an example, he says he’s received calls before from brokers that have spent half their day trying to get a $20,000 car loan over the line, when they should have been focusing on the $500,000 mortgage.

“So they’ll give us a name and number, know that it will be taken care of, and trust that we’re not going to try and pull anything out from underneath them,” says Mr Goodman.

Diversify lending

As more alternative lending options open up, clients and brokers are seeing the benefits of going to non-bank lenders for their business financing needs.

As Mr Goodman explains, when a client’s day-to-day and business banking is bundled into one bank, it makes it very difficult to obtain cash flow during a difficult financial period.

“The bank will turn around and say, look we’re at capacity with this customer,” he says. 

“What we find is that for stuff like equipment finance or debtor finance, its better to diversify away from your main business banking. And it gives you a little bit more negotiation room when you really need cash flow,” explains Mr Goodman.