NLG Leasing recently found that the average loan size in its portfolio had increased 60 per cent, with an increasing proportion of loans financing yellow goods. NLG's director of aggregation services Frank Crombie reveals how the take-up of yellow goods has impacted the business.
A recent analysis of our portfolio revealed that the average loan size has gone from $27,000 to $45,000. The 60 per cent rise correlates with the steadily growing number of brokers who are writing commercial loans – particularly yellow goods (the term commonly used for construction, earth moving and agricultural equipment). It’s a sizable market, with Australia’s commercial loan book currently sitting at $27 billion plus, and regaining momentum.
It’s interesting to view these results in light of the recent Ernst & Young 2017 Australian Yellow Goods Report, which indicates that:
- the yellow goods market is back in recovery mode and regaining momentum;
- demand for late model, low hours equipment in the mining market is strong, whereas the value of older equipment has suffered. This reflects a preference for current technology and greater efficiency;
- the value of yellow goods in the construction market has been stable;
- the supply of second-hand equipment (mining and construction) has expanded;
- the supply of quality used assets is diminishing;
- end users are becoming more sophisticated in their capital allocation decisions; and
- strategic procurement is expected to be an emerging issue, with management teams making key decisions about whether to overhaul existing machinery, procure new equipment or hire from third parties. This will be influenced by the priority given to new technologies and digital developments.
There’s a number of direct correlations between the report and what we’re seeing at NLG Leasing. Businesses are becoming increasingly savvy about the financial options available to them and are embracing asset finance as a means to immediately acquire (and benefit from) the product without significantly affecting cash flow. This approach enables the funds to be reallocated to areas of the business that can have a positive effect on efficiencies, productivity, sales, and ultimately growth.
It's also becoming more commonplace to apply an asset finance structure to equipment purchases. Accordingly, brokers are increasingly engaging with commercial operations that seek alternate financing for large ticket items.
Brokers are steadily progressing from writing the simpler, ‘vanilla’ loans (such as motor vehicles, to more complex transactions, which reflects a pattern of a more mature market with increased confidence. Also, brokers are realising that financing yellow goods is highly lucrative and an immediate opportunity to boost their revenue. Accordingly, they are increasingly seeking out opportunities in the sector.
The demand for common yellow goods items is stable and consistent. This includes machinery such as excavators, forklifts, heavy trucks, bobcats, bulldozers, prime movers and general industrial plant equipment.
Asset finance continues to be in the spotlight as a lucrative driver of alternate revenue for mortgage brokers, particularly in this sector. We encourage brokers to continue to integrate asset finance into their service offering to ringfence clients, deepen relationships and get a competitive advantage in a highly aggressive market.