As more and more mortgage brokers look to break into asset finance, there have been warnings from some camps that the sector can be more complex than brokers may realise. SME Adviser takes a look at what the arguments are for and against mortgage brokers entering this arena.
It seems that the word on everyone’s lips nowadays is asset finance. It’s a lucrative industry, with figures from the Australian Equipment Lessors Association suggesting that the overall asset finance market in Australia over the last full financial year was about $40 billion in new business.
Further, recent figures from Alleasing reveal that one in four Australian businesses intend on increasing their asset base in the first quarter of 2017, with SMEs being the “most bullish” in this assertion – with 34 per cent stating they were planning to do so.
Not only that, but the report reveals that more than half of the businesses that think capital constraints are hampering their ability to grow and function efficiently, are also having fundamental problems accessing sufficient capital from banks, investors and other lenders, meaning that the time is ripe for mortgage brokers to step into the fray and win some very lucrative business. And the best part? A lot of the business can come from an existing database of home loan customers — a veritable gold mine of untapped potential.
So, if the economic reasoning is there for brokers to be writing asset finance, it makes sense that they would be thinking of branching into this area. But should they?
The argument against
David Gandolfo, director of Quantum Business Finance and president of the Commercial Asset Finance Brokers Association of Australia (CAFBA), has warned that while the entry point to asset finance, car finance, is relatively easy to tap into, other areas require more knowledge, experience and time.
He explained: “I have read some articles from the mortgage space that say asset finance is fairly straight forward, you can do motor vehicle finance up to $100,000 and all you have to do is tick a few extra boxes. That is true, motor vehicle finance to that point, in some circumstances, is actually a fairly straight-forward, low-doc kind of product.
“In a way, I lament the fact that it actually dumbed down the industry. It makes it easier for people to get into a market that they are perhaps not experienced in. Even if you can put in a motor vehicle application for $60,000 it doesn’t necessarily mean that you know how to structure the transaction correctly in terms of the term, the balloon, the life of the asset, the usage of the asset etc. All that means is that you know how to put in a car application, which any broker can do… That is not what makes them asset finance brokers.”
Perhaps unsurprisingly, those in the asset finance business agree that the best course of action is for mortgage brokers to refer on to third-party specialists. Frank Crombie, director of aggregation services for NLG Leasing, told SME Adviser: “We’d agree that a mortgage broker just trying to write asset finance on their own with no prior experience is a big mountain to climb.
“We share the same view that a mortgage broker going off and getting an asset and equipment finance accreditation and lodging a loan on behalf of their client, especially if it’s a little bit more complex — say, manufacturing equipment and machinery, writing up extensive proposals about the impact on the business and value, etc. — I’d agree that it’s probably an area where they don’t have the skills and the experience today to do.
“A mortgage broker’s experience is normally going to be in and around having a residential mortgage to do. So, even though each one is different they are very much the same — whereas in our business we find that each of the elements in the different classes are slightly different.”
Likewise, CEO of asset finance brokerage stratton.com.au, Rob Chaloner, has said he believes mortgage brokers should generally “stick to their skill set” rather than try to diversify.
“Diversification is not a bad thing… but I think some mortgage brokers potentially try and stretch themselves a little bit too thin and they might be better off deferring diversifying by referring to people who are really experts in their field. For example, we offer mortgages to our clients, but we know that we’re never going to be a big mortgage broker, we’re not an expert in that field… If we wanted to expand, we’d join forces with a bigger one to ensure that the expertise is there,” he said.
He added: “To do automotive… you don’t have the headspace to do mortgages really, really well. There’s a small percentage in every industry that can do all these things and are absolute geniuses, but not everyone is a genius…
“We have lots of referrers and a lot of those are mortgage brokers. We’re happy to expand that panel. We would like to be the people that handle the process though, because that’s our expertise. In the same way, I wouldn’t refer a car loan for a mortgage broker to do, because people, including brokers, should stick to their skill set,” he concludes.
The argument for
On the flip side, there are more mortgage brokers, and traditional mortgage brokerages, breaking into asset finance.
In 2016, Aussie announced an expansion into asset finance and encouraged its brokers to tap into this growing market. Launching with an initial panel of four lenders including ANZ, Commonwealth Bank, Macquarie Bank and Westpac, the offering covers property, equipment and transport leasing and purchases, as well as other commercial uses.
Aussie CEO James Symond said at the time: “Asset finance will help our brokers to diversify their product offering, create stickier customers and ultimately, continue to grow the incredibly strong monthly settlement averages they are achieving…
“Many of our brokers are already accredited and actively selling asset finance, but we’ve now formalised our offering and, importantly, integrated asset finance into our sales software to make sure the application process is quick, easy and seamless for our brokers and customers,” he said.
Touching on the fact that brokers have around a 30 per cent share in the asset finance market in Australia, Mr Symond said it was a “no brainer” and a “natural extension” of offering home loans, personal loans and insurance.
While car loans may be straight forward enough for most brokers to delve into without any additional help, it’s the assets and equipment outside of this area that has some — such as specialist asset finance writers — concerned. The crucial thing to make it work, though, is support.
FAST, PLAN, and Connective have all ventured into the asset finance model, and provide support and assistance to mortgage brokers that need it – so that they can ask for help and find the solutions they need and then go back to their client, rather than losing a client to an external party.
Mr Crombie of NLG agrees, conceding: “Rather than saying do it or don’t do it, I think we would suggest mortgage brokers refer it on to us. We're not saying mortgage brokers can’t do asset finance. On the contrary, we’re very much about supporting the mortgage broker and they're really our clients, not the end user. For us, it’s about the broker relationship and making sure they have a good experience and have the tools that they need and the education that is required so that they are able to undertake different types of transactions beyond just your basic car loan.”
He adds: “We understand what the lenders are looking for, we understand what will get that loan approved. So, it’s not down to the broker to know what the lender is keen for, we’ll get them to extract that information from their customers.
“But, I think like any skill it can be acquired. It’s just about understanding the problem space doing it a few times and learning from those experiences.”
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