When Adelaide Bank launched its SmartSuite Commercial product range for investors and business operators, brokers were taken with its simplicity and effectiveness. Damian Percy, general manager for Adelaide Bank, sits down with Annie Kane to discuss what’s next in the bank’s commercial lending offering.
Your SmartSuite Commercial product range has been around for nearly eight years. Has demand for this product changed recently?
It certainly has picked up in the last 12 month particularly. Brokers are increasingly looking to diversify, and we've been able to show that doing it the way we do with SmartSuite Commercial performs really well from the banks’ and brokers’ standpoint.
They wanted a product for commercial property and we built one. It's a lot simpler than most commercial credit, and we did that on the basis of broker feedback.
A lot of the brokers coming to us were primarily residential brokers, who were very familiar with resi processes, but they were increasingly getting consumers, particularly investors, who had perhaps grown tired at the lack of cash flow returns from investing in residential property. They were extending their way, incrementally, into small commercial.
So we built a commercial product, called the SmartSuite Commercial product, and it was designed to mimic style, process, language, and policy of a residential home loan wherever possible,, so the gap in terms of process and knowledge for a broker moving from resi to commercial was minimised.
Generally, we’re seeing a lot more interest in commercial loans, which triggered us to question how we could accelerate our offering in this space. If it works for brokers, and it works for the bank, why wouldn't you do more of it? So, we are.
What will the new commercial offering look like and who is it targeting?
The current SmartSuite Commercial product is very much designed for people who want to invest in commercial property and who have relatively simple needs, not business banking. That product's been really successful. We've got a nice book and it performs incredibly well. In fact, from an arrears and losses standpoint (which might not be surprising given the way we designed it), it really performs like a residential book, which is very unusual for commercial property.
But, one of the things we've observed as we move on is that there's probably larger and slightly more complex loans that we could do in that programme. We very much focused on that commercial property-owning class, and particularly the investors; the business person who is looking at a commercial property entirely as an investment.
So, we’re looking at taking our existing SmartSuite Commercial Property Owners product, and adding to that another funding line. Not just add a product, but essentially add another funding line and another credit appetite.
Historically, the Sandhurst Trustees business was traditionally a Bendigo Bank business and the SmartSuite Commercial product we had was something that the Adelaide bank developed before we merged with Bendigo. So, we have been running them in those historical silos and they have been performing very well independently. It just seems obvious, that now is the right time to bring them closer together and a real opportunity to create a quite efficient, but flexible commercial property funding platform.
How will the new product work?
What we're looking to do is to build a process whereby we'll be able to offer brokers a single application, or single accreditation, so that they can access both our simple, sub-million dollar, very simple commercial products for property owners, and then — with that same process —a broader, larger product for the bigger ticket items. These will not be for your smaller, commercial property owner, but for those larger deals, your $10-million deal, your $15-million dollar deals.
So, you'll have one process but two credit lines, one process but two credit policies, one process but essentially two funders (Adelaide Bank and Sandhurst Trustees), but all under that Bendigo & Adelaide Bank umbrella.
We also want to create flexibility within a relatively simple process for brokers so that if they submit a deal and it’s not suitable for the SmartSuite Commercial product, we can take a look at where it would be suitable for the other funding line without the need for them to resubmit.
If you narrow the focus, keep the credit and the outcomes really simple, you can keep the process and the grief for borrowers and brokers at bay, so quality's as important as quantity for us in this space.
What kind of broker do you expect to be writing these new loans?
Everyone can do it; traditional residential brokers who get the odd commercial opportunity can take advantage of that opportunity without having to worry about handing it off, or messing it up. But equally, commercial finance brokers that are specialising in this space and are looking for a market specifically for more substantial commercial property.
The idea is to create a capacity that will support some of those really big ticket items that our original product wasn't designed for, but still keep it sufficiently simple from a process and product credit policy design standpoint, that a relatively experienced, well-qualified residential broker would have no difficulty in understanding, distributing, and facilitating a property loan for their customer set.
When will this new offering be launched?
We expect this to be coming out in the middle of the year, but we may see shorter-term iterations in the near future.
Will the offering come as a white label?
There’s nothing set in stone at the moment, but we'd really love to.
I think that generally there is definitely an interest by larger groups, and even outside the broking fraternity, for a white label commercial programme of some sort. I wouldn't be surprised to see white label commercial as a more common thing in a year or two than it is now.
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