Mortgage Professional Australia issue 19.05

MPAMAGAZINE.COM.AU ISSUE 19.05

RAISING THE BAR How ANZ’s head of commercial broker is supporting diversification COMMERCIAL LENDING GUIDE An overview of every area of commercial lending

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TOP 10 COMMERCIAL BROKERS Meet the best commercial brokers for 2019

SHIFTING TO ALTERNATIVES Businesses are starting to look elsewhere for finance

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MAY 2019

CONNECT WITH US

CONTENTS

Got a story or suggestion, or just want to find out some more information? twitter.com/MPA_Australia facebook.com/Mortgage ProfessionalAU

UPFRONT 02 Editorial

An overdue lesson in commercial lending

04 Statistics

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22 FEATURES

SME LENDING

Equity-One, Pepper, Moula and Prospa discuss the SME space and how brokers can explore it

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08 News analysis

Small businesses might be looking for alternative lenders

10 Opinion

33 Debtor finance

A complete guide to each section of the commercial lending space, including how to diversify, where to start and what you need to know about the market and what’s on offer

The head of commercial broker at ANZ talks about the major bank’s learnings and why he wants to work with brokers

Brokers discuss the opportunities in commercial lending

FEATURES

COMMERCIAL LENDING GUIDE

ANGELO MANOS

06 Head to head

How to solve a problem like culture

SPECIAL REPORT

BIG INTERVIEW

An overview of what small businesses are looking for from their lenders

Apricity explains an often-overlooked area of commercial lending

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37 Unsecured business loans

OnDeck looks at the market and what brokers can offer

42 Commercial product guide

FEATURES

Find out about the products available in the industry

ANZ and Connective explain how offering asset and equipment finance can help a broker’s business

PEOPLE

ASSET FINANCE

62 Career path

Scottish Pacific’s CEO is still setting benchmarks for success

64 Other life

How a property investment adviser takes to the waves to reflect and keep fit

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FEATURES

TOP 10 COMMERCIAL BROKERS A rundown of the industry’s best commercial brokers and their take on the industry

MPAMAGAZINE.COM.AU NOW ONLINE: Our daily newsletter. Keep on top of property market trends, business strategy, and what industry leaders have to say.

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UPFRONT

EDITOR’S LETTER www.mpamagazine.com.au

Figuring out commercial

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his month we have brought you a bumper issue of commercial goodness, and what an interesting issue it was to put together! The best thing about this month for me was all the interviews with our top 10 commercial brokers, where I got to delve a bit deeper into how they run their businesses and learn that commercial finance is a very wide umbrella.

Over the past 14 months that I’ve been writing about the broker industry, the occasional crossover into commercial lending has of course come up. But I’d never had the chance to really work out that while some commercial brokers might help you buy your car, a retail space or some equipment for the coffee shop you’re about to open, other commercial brokers might fund shopping centres, shipping ports and satellite cities (yes, really, satellite cities).

Another interesting thing – for me at least – was that each broker had different experiences of the lending market and the lenders they used. Where some brokers

Even if you pick up the magazine and think, ‘But I’m not a commercial broker’, perhaps it is more for you than you realise had found tougher credit conditions and a need to shift to alternative lenders, others had nothing noticeable to report.

I’d like to thank them all for taking part, as well as for giving their time to talk to me – and explain their businesses.

Beyond highlighting MPA’s top-ranked commercial brokers, we’re also bringing you a comprehensive guide to commercial lending. With all the talk about broker diversification, this guide provides a timely introduction to each of the main aspects of commercial finance.

Even if you pick up the magazine and think, “But I’m not a commercial broker”, perhaps it is more for you than you realise.

We’ve spoken to some key players in commercial lending to find out what’s been happening in their respective markets, how they are supporting brokers, and crucially, how brokers can get started.

You might not want to diversify; you might be happy doing mortgages. But let me pose a question that a broker once asked me: “What happens when you refer your mortgage client to a commercial broker for their small business and then find that the broker is also doing mortgages?”

I’ve almost definitely paraphrased, but the consideration remains the same.

Rebecca Pike, editor, MPA

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MAY 2019 EDITORIAL

SALES & MARKETING

Editor Rebecca Pike

National Sales Manager Claire Tan

Journalists Tom Goodwin, Abel Riototar Contributor Brendan Dixon Production Editor Roslyn Meredith

ART & PRODUCTION Designer Cess Rodriguez Traffic Coordinator Freya Demegilio

Global Head of Communications in Marketing Lisa Narroway

CORPORATE Chief Executive Officer Mike Shipley Chief Operating Officer George Walmsley Managing Director Justin Kennedy Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil

EDITORIAL ENQUIRIES

tel: +612 8437 4784 rebecca.pike@keymedia.com

SUBSCRIPTION ENQUIRIES

tel: +61 2 8311 5831 • fax: +61 2 8437 4753 subscriptions@keymedia.com.au

ADVERTISING ENQUIRIES claire.tan@keymedia.com

Key Media Regional head office Level 10, 1–9 Chandos St, St Leonards, NSW 2065, Australia tel: +61 2 8437 4700 • fax: +61 2 9439 4599 www.keymedia.com Offices in Sydney, Auckland, Denver, London, Toronto, Manila, Singapore, Seoul

Mortgage Professional Australia is part of an international family of B2B publications and websites for the mortgage industry CANADIAN MORTGAGE PROFESSIONAL neil.sharma@kmimedia.ca T +1 416 644 8740

Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as the magazine can accept no responsibility for loss.

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UPFRONT

STATISTICS

SMEs: Looking beyond banks

Trending

The post-royal commission environment and market conditions turn the spotlight on alternative lenders IN ITS SME Growth Index released in March, Scottish Pacific has revealed that SMEs are continuing to see revenue growth in the first half of 2019 despite factors such as the royal commission’s impact on banking, and uncertainties that often arise around a federal election.

Conducted by East & Partners on behalf of Scottish Pacific, the independent research surveyed a representative cross section of 1,257 SME owners and CEOs or senior finance staff across Australia. The report predicts that if current trends persist by the second half of

8 in 10

SMEs are feeling property market’s impact on funding

1 in 5

SMEs found it harder to access business funding in 2018

2020, alternative lenders will replace banks as key funders of new SME investments.

Scottish Pacific CEO Peter Langham says “nothing is more damaging to business confidence and revenue forecasts than uncertainty and instability. Business owners are looking for ease of finance” and they’re willing to shell out a higher fee for it. However, the post-royal commission environment and uncertain property market will make it harder for banks to offer this ease and for business owners to use their property as collateral. Businesses “will need to look beyond the banks”, he says.

1 in 3

SMEs say it will get harder still to access business funding

SMEs using main bank to fund planned growth

38% 19.5% 2014

56%

2019

of SMEs say royal commission is making it harder to get funding Source: Scottish Pacific SME Growth Index, March 2019

PRICE DROPS HIT HARD

IT’S PERSONAL

SMEs having difficulty accessing funding

SMEs using cash flow strategies to boost growth

Almost 45% of SMEs blame property market conditions, like the softening house prices in major markets, for making it harder for them to access business funding.

Although 35% said they hadn’t felt the impact yet, they expect broader property market conditions will significantly affect their borrowing capacity.

39%

SMEs in the states experiencing biggest property downturn (NSW and Vic) are finding it hardest to access funding

Queensland (least affected)

46%

New South Wales

48%

Victoria

Use personal finance

69%

Cash flow forecasts

63%

Discount for early payments

56%

Use invoice, trade or import finance

47%

Make arrangements with ATO

Source: Scottish Pacific SME Growth Index, March 2019

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Over 53% of SMEs expect to experience growth in the first half of 2019, up from 51% in the six months prior. This is the most positive result seen by the report since the first half of 2016. The pressure of growth is evident from the spike in SMEs using personal finances such as credit cards to boost cash flow.

Increasing overdraft

20% 13% Source: Scottish Pacific SME Growth Index, March 2019

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NON-BANKS COULD LEAD GROWTH FUNDING BY 2020 For the first time, the Scottish Pacific Business Finance SME Growth Index saw the number of SMEs that go to their main bank to fund growth fall below the 20% mark. East & Partners conducted the research from November 2018 to January 2019, after the banking royal commission published its interim report and during the last round of its public hearings, and found that more businesses were shopping around for customised funding solutions to help boost their operations.

Trending

Banks lose ground in funding new SME growth Alternative lenders

Banks Catching up to banks

SMEs using alternative lenders to fund growth

?

17.7% 2019

Forecast By late 2020 alternative lenders likely to be ahead of the banks in funding new SME growth Source: Scottish Pacific SME Growth Index, March 2019

FUNDING FRUSTRATIONS

Nearly 87% of business owners expressed frustration over their current funding methods. When asked about their top funding frustrations, over 80% of all survey respondents pointed to loan conditions, 79% to the need to provide property security, and 73% to loan flexibility.

Non-bank

Business owners’ top funding frustrations by lender type

Bank

WINNING SMES’ VOTE Nothing has changed over the past six years – company tax cuts are the most pressing reform SMEs are calling for. With the upcoming federal election, SMEs were clear on their expectations of what the next government should prioritise for their sector.

What SMEs want federal government to prioritise 30%

Loan conditions

83%

24% Having to provide property security

25%

27% 24%

20%

20%

80%

40%

15%

Lack of flexibility

67%

18%

10%

7%

Funder is hard to deal with

8%

5%

48%

0%

Loan term too short

40% 48% Source: Scottish Pacific SME Growth Index March 2019

3% Company tax cuts

Further extend instant asset write-off

Reduce regulatory admin requirement

Reduce energy costs

2%

Implement Mandate participation proposed $2bn in Australian Suplier SME lending fund Payment Code Source: Scottish Pacific SME Growth Index, March 2019

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UPFRONT

HEAD TO HEAD

What does commercial lending offer brokers?

There are far-reaching opportunities in the current landscape, and the number of lenders opening up to the space is growing

Ren Hor Wong

Executive chairman and CEO N1 Holdings “With more and more SME lenders in the space, business owners need brokers to help them navigate the marketplace and choose products that suit their needs, which are generally in the following four categories.

Commercial property loans: these suit commercial property investors or company borrowers. Secured asset lending: suitable for SME owners or company borrowers that have equity in an asset but have yet to come up with updated income evidence.

Unsecured business loans: many fintech lenders offer this type of loan that is based on trading business revenues instead of taking a property as security. Cash flow loans: products that are gaining popularity, such as invoice finance, trade finance, etc.”

Whitlam Malkoun Senior broker Aussie

“Multiple. With credit tightening up in the most traditional segment of our business, brokers need to look outside the norm and expand their income opportunities, which should include insurance offerings and, most certainly, commercial. Commercial will open doors to plenty of opportunities.

It could be in investment lending or just general basic marketing of yourself and your brand. Get this segment right and it could well end up being a very long-term, solid referring partner that you can work with and nurture for years to come. Nothing is too hard. If you don’t understand commercial lending, go out and learn it. Ongoing education is a minimum staple in our industry.”

Craig McGregor

Commercial finance advisory and mentoring My Mortgage Manager Commercial “The obvious opportunity is to build a diversified income stream based on a holistic approach to serving clients. Most residential brokers may only be addressing their customers’ immediate need for residential finance. Should you extend your interviewing techniques to include discussions around business performance and cash flow improvement, you may identify solutions for financing business loans, commercial property, equipment, cash flow (debtor), insurance premiums, import finance, etc. However, as commercial lending is a specialised field with detrimental outcomes for businesses if the finance structure is not appropriate, I would recommend using a mentor to upskill or acquire expertise.”

PLENTY TO GO AROUND At MPA’s inaugural Commercial Lenders Roundtable in June 2018 in Sydney, five lenders and two top commercial brokers mutually agreed that commercial lending was “ripe for brokers” seeking to diversify their businesses, and non-banks were looking to capitalise on the distraction of the majors. The panellists reiterated that there were plenty of resources and support systems available to help eager and engaged brokers get into the commercial lending space; however, they said brokers needed to commit to upskilling in order to raise standards and expectations. For the panellists, the time and effort brokers invested in learning would be worth it, because “there’s plenty of business to go around” in commercial lending.

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UPFRONT

NEWS ANALYSIS

SMEs shifting towards alternatives As property prices continue to cool and banks’ lending appetites change, a report shows the shifting sentiment of small business owners when it comes to security and their lenders of choice THE STATE of the property market and the impact of the banking royal commission may have made things tougher for mortgage brokers, but it may have also opened up new opportunities.

A new report has shone a light on how small and medium-sized businesses are finding it harder to access finance. Not only that but, for the first time in the report’s fiveyear history, these businesses are about as likely to turn to alternative lenders as to go to their main banks, tipping the scales in a different direction.

Average property prices across Australia dropped by nearly 7% over the 12 months to March 2019, according to CoreLogic’s March home value index, and nine out of 10 SMEs are now saying they would definitely or probably pay more if it meant not having to use their property as security.

According to East & Partners, who carried out the research, if current trends continue, by the second half of 2020 alternative lenders will be the key funders of new SME business investment in Australia, rather than those businesses’ main banks.

As one of the largest non-bank lenders to businesses, Scottish Pacific is continually adapting to make life easier for its clients, says CEO Peter Langham – for example by being flexible enough to suit business owners who

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want to move away from providing property as security.

Langham says the report shows that now is the time for brokers to take advantage of the opportunities before them. It’s a win-win for the business, the broker and the individual.

The shift towards alternative lending is where brokers can make a real impact for those businesses that may be “rusted on” to their banks and not know where else to go.

The opportunities for brokers to diversify and expand their businesses are as easy as looking at their existing client base, Langham says.

clients business funding solutions – such as invoice finance – that don’t tie up the family home as security means the residential broker can help a client leverage their home for other investments.”

“There is strong demand for finance among the SME community. This offers a strong business opportunity for brokers to diversify” Noah Breslow, OnDeck “For residential brokers, this trend to alternative lending and away from using property security offers a very real business expansion opportunity,” he explains. “Many of their existing mortgage clients are probably business owners, which represents a great untapped market of potential clients.

“Finding their SME-owning mortgage

Fintech lender OnDeck has also looked into the struggle for finance that SMEs are facing. According to its research, one in four SMEs that have tried to get finance have been refused.

Businesses that have been running for less than five years are more likely to have had their application turned away.

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IMPACT ON SMES OF LENGTHY FINANCE APPROVALS

57%

experienced the slowing or halting of normal business activities

42%

had to delay the delivery of products/services

40%

were forced to delay debt payments

39%

had to delay buying new equipment

12%

were forced to postpone hiring new staff Source: OnDeck

The opportunities for brokers continue to grow: OnDeck’s research suggests that 25% of SMEs are planning to seek additional business finance in the future, and that figure grows with the number of employees the business

The online lender also found that SME sentiment was shifting to alternative lending.

“Large numbers of Australians SMEs may not be reaching their full potential either because they cannot secure bank

“For residential brokers, this trend to alternative lending and away from using property security offers a very real ... opportunity” Peter Langham, Scottish Pacific has; for instance, 56% of SMEs with 11–49 employees will look for finance in the future.

“Clearly, there is strong demand for finance among the SME community. This offers a strong business opportunity for brokers to diversify their revenue base by expanding into SME lending,” says OnDeck’s global CEO, Noah Breslow.

finance, or because an inefficient and lengthy lending process is adding to the cost burden,” says Breslow. “It’s important for SME owners to realise that more efficient funding options are available through online lenders. Even SMEs that meet bank lending criteria can benefit from the speed and convenience of an online lender.”

Offering a helping hand to brokers who are already assisting small businesses with their finance solutions, the MFAA recently launched a campaign to promote commercial brokers to SMEs. Targeting 510,000 SME owners, operators and other finance professionals on LinkedIn, the campaign will connect businesses with local commercial and asset finance brokers.

After the significant impacts of recent regulatory curbs on residential lending, the broker market is now presented with a unique opportunity to diversify into commercial and equipment finance, says George Obeid, managing director of third party at Judo Bank and president of the MFAA Equipment and Commercial Finance Forum.

“Early engagement with SME customers and a clear understanding of their business needs is the critical step for brokers looking to build and grow their business in this segment,” he says.

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UPFRONT

OPINION

GOT AN OPINION THAT COUNTS? Email rebecca.pike@keymedia.com

The future of finance The royal commission shone a light on toxic culture, but the financial services industry has a chance to write itself a new future, says Brendan Dixon FOR AUSTRALIA’S financial services industry, 2018 was a problematic year. As revealed in its final report, the Hayne royal commission uncovered numerous counts of misconduct at the hands of the big banks, shedding light on a toxic ‘bonus culture’ that permeated through to executive levels.

These findings were undeniably grim, but also unsurprising. Over the years, the industry has often been at the centre of misconduct allegations, and these have been perpetually blamed on its persistent problem child: culture.

How to deal with this problem of culture once and for all? The answer lies in the mindset of future generations, and their changing attitudes around the viability of companies being tied solely to their profitability.

New priorities = new outcomes In its 2018 Global Millennial Survey, Deloitte discovered that 83% of millennials felt that business success should be measured by more than financial performance. And millennials aren’t alone. Globally, an intergenerational push for companies to engage in socially and ethically conscious business practice is gaining momentum. In his 2018 letter to CEOs, BlackRock chairman Larry Fink called upon business leaders to “demonstrate the leadership and clarity that will drive not only their own investment returns, but also the prosperity and security of their fellow citizens”.

Putting people before profit When businesses create an environment in which profits are prioritised, they generate a culture that deprioritises customers, and when profits become the sole objective it’s only a matter of time before customers begin to suffer.

Fundamental to any successful, sustainable business is ensuring that its purpose is clearly defined and that all actions undertaken by the business are aligned to, and not at odds with,

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that purpose. While we understand that profit is undeniably important to a healthy finance industry, we reject the idea that it can only come from an unethical climate. This is shortsighted and unsustainable and possibly the biggest issue uncovered by the royal commission.

Ethical, sustainable investment Australians are making it clear that ethical investment is imperative, and are demanding more accountability and transparency from their investments. In a 2018 Responsible Investment Benchmark Report, Responsible Investment Association Australasia found that over the past 10 years the average responsibly

donates 10% of Pure Finance’s company profit), this would equate to an incredible $295m that could facilitate positive outcomes for communities both in Australia and across the world.

Diversity and equality One topic that has been left untouched by the royal commission but that is, in our opinion, a crucial element of industry reform is the need to achieve diversity and equality in the financial services sector. Businesses that are diverse in both gender and culture are proven to deliver better outcomes across the board, and this will play an integral part in bringing about the cultural change we seek in financial services.

How to deal with this problem of culture once and for all? The answer lies in the mindset of future generations, and their changing attitudes invested share fund returned 6.3% a year, compared to a 3.8% annual return for the average large-cap Australian share fund.

Get woke, go broke? Apparently not.

Social impact Commitment by businesses to measuring and bettering their social impact is becoming increasingly important to consumers; however, it’s important to do this in a transparent way.

It’s imperative that businesses don’t use social impact as a way to offset bad behaviour or, in the case of the big banks, fix some bad PR. At Pure Finance, our donation model, Pure Community, forms an indivisible part of our service offering and is managed alongside our day-to-day operations.

And now, an idea. In 2018, the major banks reported an after-tax profit of $29.5bn for the full year. If they were to adopt a 1% ‘profit for purpose’ donation model (Pure Community

A new financial future Implemented responsibly and ethically, financial services have an immense capacity to be a force for good in people’s lives, at both an individual and community level.

Those of us who work in the industry have an opportunity to write ourselves a new future.

One that will not only seek to better the lives of customers but also be accountable for the wellbeing of the communities and environments in which our businesses reside.

We believe that implementing this ideology, on an industry-wide scale, is the future of finance.

Brendan Dixon is the founder and managing director of Pure Finance, an ethically minded finance company. He is also the founder of Pure Community, a ‘profit for purpose’ initiative.

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PEOPLE

BIG INTERVIEW

ANGELO MANOS: FIT FOR PURPOSE Faced with heavy scrutiny and emerging lenders out to challenge their position, the big four banks have a lot to prove. Angelo Manos, head of commercial broker at ANZ, explains how this major bank is learning from the last year, and why it wants to help brokers look at commercial opportunities

OVER THE past 18 months the banking industry has not only seen tightening availability of credit but also growing competition as fintechs and alternative lenders come into play – along with increased regulation. The commercial space has not been affected as much as residential in terms of credit, but banks and lenders are still having to find ways to speed up their processes and remain attractive to customers.

Even with their bigger cash flows and branding, the major banks know they need to keep up. Angelo Manos, ANZ general manager of commercial broker, says his bank has had to consider whether its model is fit for purpose given the more dynamic and nimble market it is playing in as more niche lenders come into the space.

A big part of what the emerging fintechs aim to do is to provide faster and simpler ways to access money. Manos admits that sometimes ANZ tends to “overcomplicate” what it does. He makes a comparison to when he buys a new phone.

“If I think about my personal consumer activity – why do I go back to Apple for a new phone every year?” he asks. “It’s because

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I know what I’ll get and, mostly, I know how it works. It’s predictable. At the end of the day, banking is a service. Customers want us to provide a solution to their financial needs, so we need to find our element of predictability again.”

Manos has been in the banking industry

An unparalleled change Looking back, Manos says the GFC was an “unforgettable period” for him. He was living and working in New York at the time.

In the build-up, a lot of the banks were opportunistic and ultimately not building sustainable businesses, he says.

“Whether it’s the GFC, the Asian financial crisis or the regulatory reforms we are a part of today, the bottom line is that evolution is unavoidable” globally for more than 24 years, including a number of years as part of ANZ’s specialised business team that works with the health, emerging corporate and property finance sectors, among others. Towards the end of 2017 he became head of commercial broker, with reponsibility for third party in business banking, small business banking, specialist distribution and asset finance.

With so much experience in the industry, Manos is no stranger to big changes and reforms. When these obstacles come about, he learns from them.

“The lesson for me was that in the broking industry it’s not always about having the most aggressive appetite; it’s about having an appetite that’s reflective of where you want to focus, and being responsible for the customer, which provides them options.

Customers should be given flexibility.”

Putting the customer first is the priority for Manos. After all the challenges he has worked through, he says the organisations that commit to customer-first decisionmaking are the ones that prosper.

“What this time taught me was that there

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PROFILE Name: Angelo Manos Company: ANZ Title: General manager, commercial broker Years in the industry: 24 Career highlight: “My time in the USA, pre- and post-GFC. Whilst I was working in tough times, this experience was invaluable.”

Career lowlight: “I don’t have any ‘lowlights’ as such; however, working in the USA over the course of the GFC was challenging. When you’re submerged in challenging times it’s hard to see the positives. However, looking back, this time has become a career highlight.”

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PEOPLE

BIG INTERVIEW

will always be challenges in the banking industry,” Manos says.

“Whether it’s the GFC, the Asian financial crisis or the regulatory reforms we are a part of today, the bottom line is that evolution is unavoidable and is often a result of customers’ changing expectations and those of the wider community.”

With the banks in the spotlight more than ever over the last year, it has been another time of reflection and learning. “In the past 12 months, we all experienced unparalleled change, irrespective of whether you were a banker, aggregator or broker,” he says.

Earlier this year ANZ announced a series of initiatives as a result of the royal commission, including around its treatment of small businesses. Manos says the bank is learning a lot about itself, the industry,

The bar has been raised While the royal commission may be over, Manos expects that the scrutiny of the industry will continue, whether of bankers, brokers or aggregators – but the bar has been raised. He says customer expectations have changed, and brokers need to focus more on enhanced oversight.

As for ANZ, he says the bank is committed to brokers and that, while the complexity increases, brokers will continue to be a vital cog in the customer and bank relationship.

“We understand the value customers see in guidance from brokers through some of the most significant transactions of their life,” Manos says. “I see a far more sustainable and professional industry emerging, which is good for those of us looking to grow and strengthen our businesses.”

“It’s not always about having the most aggressive appetite; it’s about having an appetite that reflects where you want to focus, and being responsible for the customer” community expectations and areas in which it needs to improve.

Working with commercial brokers is one area it will focus on. “ANZ is striving to be the bank of choice for the commercial broker industry,” he says.

It is looking to be a bank that partners with brokers and aggregators, is authentic and honest in how it communicates, and is responsive to feedback and change.

Manos lists two areas in particular in which the bank needs to improve. The first is to make its processes simpler and faster – he says ANZ needs to improve its methods and processes for taking action. The second is to keep its promises and continue to listen and learn. Manos says not only does ANZ need to be clear on its promises to brokers, customers and the community, but it must deliver on those promises.

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In order to support the broker channel, ANZ has created webinars and face-to-face training to help brokers expand from residential into the commercial space. Manos says asset finance is a great introduction to commercial lending and a natural progression from residential.

But before brokers jump into commercial lending they need to be educated – and education is a key factor for both new and experienced brokers, Manos says. While ANZ’s training sessions are still in their early days, there have been more than 2,000 brokers involved so far.

At a day-to-day level, ANZ’s residential and commercial BDMs sit side by side nationally, allowing brokers a seamless transition from one side of lending to the other.

COMMERCIAL LENDING AT ANZ

Vehicle and equipment finance • Cars • Trucks • Forklifts • Machinery • Medical equipment • Office equipment

Commercial property • Retail or office space • Rural property • Investment property

Business loans • Cash flow help • Overdraft facilities • Larger cash injections

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE

PREPARING YOUR BUSINESS FOR CHANGE In an environment in which commissions are under threat, the message is loud and clear: prepare your business. In this Special Report we take a look at each area of commercial lending to help you do just that, with analysis of market trends, the opportunities in each space and what your next steps should be

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WHILE COMMERCIAL LENDING has not taken as much of a hit over the past 12 months as residential, the industry is still seeing slower growth and a shift towards alternative lenders as businesses struggle to find finance.

In February, lending to businesses – including everything from construction finance to plant and equipment purchase and lease finance – dropped by 7.6% year-on-year, according to the ABS. At the same time, the number of mortgage brokers who are also writing commercial loans massively increased. MFAA research shows that the number more than doubled within two years, increasing by 123% from 1,641 in the period October 2015 to March 2016 to 3,668 in the same period two years later.

The value of commercial loans settled by mortgage brokers, while not increasing as

steeply, is also now at its highest level. In the October 2017 to March 2018 period, mortgage brokers settled $8.94bn in commercial loans.

Contrast this with the $4.81bn figure in the period October 2015 to March 2016 and the opportunity for brokers despite the tough lending conditions can be seen clearly.

As an interesting aside, NSW and the ACT seem to be steaming ahead with diversifying into commercial lending, overtaking Victoria in terms of the number of mortgage brokers writing commercial loans, as well as the volume of loans.

The opportunity for brokers will become apparent over the following pages as we speak to lenders and aggregators who are observing the shifts in sentiment and the gaps in the lending market.

For instance, they tell us that businesses are struggling particularly with cash flow at

the moment and might need help with debtor finance. In terms of credit tightening, they say the major banks are not looking below a certain loan size, so business owners are seeking out professionals – like brokers – who can find solutions for them.

With more than 2.2 million businesses in Australia, it is highly likely that as a mortgage broker you are already helping them with their finances in other areas. Whether you have dabbled in commercial lending before or you have stuck tightly to your residential guns, this guide aims to help you better understand the wider commercial space so you can offer those customers help in other areas when they need it.

Read on to find out exactly what you need to know about each sector, and how the various lenders are helping brokers diversify into the space.

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COMMERCIAL PROPERTY

Building business as a commercial broker ‘Diversify or die’ has become the unofficial motto of the broking industry.

But diversification doesn’t have to be a daunting prospect; MPA speaks to some of the leading lenders to find out how brokers can better diversify THE VALUE of diversification remains an increasingly important discussion in the modern broking industry. Traditionally, Australian brokers have oriented themselves towards residential lending while commercial has been the domain of the banks. But the tide is starting to turn; the recent downturn in the Australian residential market is

starting to encourage brokers to have a broader approach to their portfolios.

There are other contributing factors too.

While the full extent of the fallout from the royal commission is yet to be realised, there have already been changes. The major banks are beginning to tighten their lending policies, or are simply refusing to deal with

LENDER’S TAKE How are you supporting/educating brokers who want to diversify?

Liberty has an extensive BDM team who run numerous training sessions to help equip brokers with the skills they need to start branching out. Additionally, brokers are always welcome to sit down with underwriters and tour the commercial department.

We want brokers to know there’s no mystery around the topic. We want – no, need – brokers who are advocates of commercial lending to their clients.

Q

loans below a certain size. This has placed borrowers who do not fit the traditional mould in a difficult position, particularly if they are SME owners, self-employed or borrowing in an SMSF. As a result, customers who might have traditionally gone direct to the banks are in search of expert advice from professionals.

Non-banks and smaller lenders – many of which already have close relationships with brokers – are also stepping up to help meet these needs for finance. Brokers who are able to provide the bespoke care that these nontraditional customers require will be the most likely to thrive as the broking market continues to change.

What is commercial property?

What opportunities are there for brokers, whether Q they are already in commercial finance or want to start diversifying?

One of the biggest opportunities is aiding small business owners with cash flow – it’s a major issue for smaller traders. Brokers have an opportunity to help them get the finance they need, all while building a better relationship with the client for future transactions.

John Mohnacheff, national sales manager, Liberty

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Some reluctance to get involved in the commercial property space can stem from a lack of awareness of what actually constitutes ‘commercial property’. Generally, the term is intended to cover office, industrial and retail spaces. However, it also extends to other mainstream commercially utilised properties, such as childcare centres, medical and professional centres, boarding houses, serviced apartments, motels, clubs and pubs.

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Additionally, there may be some overlap between residential and commercial, particularly when it comes to rural/ agricultural properties. In these cases, the nature and purpose of the property is for dual residential/commercial use.

At a glance, it would seem that residential and commercial lending would have drastically different requirements due to the diverse nature of the properties involved.

However, as Peter Vala, general manager partnerships and distribution at Thinktank, points out, there isn’t much difference between self-employed residential lending and commercial lending.

“The process is similar, and while the products, eligibility and serviceability might demonstrate differences, there are common underlying credit considerations and deal construction principles,” says Vala.

Seeking stability in diversification Many brokers still have concerns about the potential risks associated with diversifying and find the transition process daunting, which puts them off getting involved. But diversifying can in fact provide additional stability for a broker, helping insulate them against tougher markets in an individual field within their portfolio.

The past 12 months have seen dips in the residential market, yet the commercial market has been largely unaffected. The two operate in separate cycles without competing with one another, notes John Kolyvas, national sales manager commercial, at ING. “The commercial space has stayed pretty consistent really,” says Kolyvas. “It didn’t see the same rapid growth as in residential property values over the last four to five years – but likewise it hasn’t experienced the same downturn.”

The last 12 months have also seen non-banks continue to expand their market share as banks have adjusted their risk appetite, pricing and products.

LENDER’S TAKE How has the royal commission affected ING’s lending policies?

Our underwriting standards have always been thought through to ensure borrowers are best placed to meet their repayment commitments.

Q

How are you supporting/educating brokers who want to diversify?

Currently we run a full-day workshop which serves as an introduction to commercial lending. We’re looking at ways to make it more accessible to brokers, maintaining a hands-on feel rather than simply putting it online. A smaller workshop allows questions to be more effectively handled.

Q

John Kolyvas, national sales manager commercial, ING

“We are seeing increasingly broad acceptance by brokers and consumers of non-banks generally, especially where a borrower who has always been a bank customer is now finding it much more difficult to obtain finance from the banks,” says Cory Bannister, vice president/chief lending officer at La Trobe Financial.

While it’s likely that things will revert to how they once were, he believes this will take some time. And he remains confident that the non-banks will instil long-lasting confidence that they are a viable ongoing alternative for all seasons.

“Tremendous opportunities will prevail over the next 12 months for both brokers and non-bank lenders in the commercial property space,” says Bannister. “Consumer demand for commercial property finance is incredibly strong, as many of the traditional supply channels are heavily restricted and some closed altogether.”

Getting started Complexity within these loans is frequently a matter of scale: as the parties to the loan become more numerous, working out

servicing can become more complex. This can also occur if the loan size increases or the nature of the security goes outside of the standard processes.

“While more sophisticated commercial property lending does require a certain level of expertise, it’s a skill set that can be learned over time,” says Vala. “It begins most readily with simpler, self-employed transactions.”

It’s also crucial to develop relationships with lenders outside of the big banks. While smaller lenders and non-banks have always been there, recent years have highlighted their ability to meet needs that won’t be met by larger organisations. Most lenders provide education services to help brokers get to grips with branching out into new areas, and demystify the lending process for them.

From a practical standpoint, they also present opportunities for brokers to de-risk their clients’ banking.

“Working with multiple lenders provides more opportunities and more choice for clients,” says Kolyvas. “Some brokers try to keep individual clients aligned with a single lender, which is easier but may not always result in the best outcome for their clients.”

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Rather, Kolyvas suggests, brokers should see themselves as a central manager of their clients’ loan needs.

Vala also suggests that brokers should look within their own client networks for a

starting base. After all, many of them will have commercial as well as residential real estate needs.

“For those brokers who either have selfemployed and SME clients in their network

LENDER’S TAKE Residential lending has taken a hit, but what have you seen in the commercial property space over the past 12 months?

While house prices and housing finance softened over the past year or so, traditional commercial property finance has remained in strong demand. With consistent GDP growth, low interest rates and low unemployment, the economy has remained resilient through to 2019 and with it activity in property, equipment and most other forms of commercial finance.

Q

How are you supporting/educating brokers who want to diversify?

We work closely with all the major aggregators in running or contributing to professional development, information and education events mostly in person but also via webinars.

We also conduct our own more targeted sessions that go into other high-value-add areas such as prospecting, deal identification and conversion as well as mentoring.

Q

Peter Vala, general manager partnerships and distribution, Thinktank

LENDER’S TAKE What opportunities are there for brokers, whether they are already in commercial finance or want to diversify?

Finance brokers have a golden opportunity to increase market share in the wake of the major banks’ credit tightening and product simplification strategy. For brokers not yet operating diversified businesses, the time to move is now, as monoline businesses post-Hayne royal commission are likely to get left behind in the wake of full-service, diversified broker operations.

Q

How are you supporting/educating brokers who want to diversify?

Our suggestion for new finance brokers looking to enter this market is to keep things simple initially, starting with non-complex transactions to build confidence and experience. Another critical component is that of alignment, with both your aggregator and your chosen lender, as both should be able to guide you through the process as part of their value-add strategy.

Q

Cory Bannister, vice president/chief lending officer, La Trobe Financial

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or avenues such as professional referral partners to access them, there has never been a better time to look at getting more involved in commercial,” says Vala.

The importance of good old-fashioned advertising can’t be discounted either. John Mohnacheff, group sales manager at Liberty, believes that brokers need to get better at marketing themselves to prospective commercial clients. After all, if potential customers aren’t aware that they can use a broker’s services for these transactions, they’re not likely to ask.

Currently, the number of commercial property loans going through brokers is minimal. “SMEs tend to go to their accountants and then to the banks,” says Mohnacheff.

“Brokers haven’t always promoted their commercial capabilities very effectively, so the banks remain the go-to option.”

Social media, peak bodies and more traditional forms of advertising can all have benefits, notes Mohnacheff.

“Broking has a major foothold in residential loans, but it didn’t start that way,” he says. “Brokers need to put themselves out there if they expect to capture the commercial market.”

2020 and beyond With 2019 almost at the halfway mark and the financial year drawing to an end, it’s prudent for brokers to consider their future plans. The regulatory environment around loans is likely to undergo changes as recommendations from the royal commission are placed into legislation, but demand for commercial property in Australia remains strong, and more specialists will be needed to help consumers negotiate the complexities of the modern loan environment.

Having strong fundamentals in play and a willingness to learn are essential qualities for the mortgage broker as the market enters a new phase. For those who are well equipped with these, the future looks to be a bright one.

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SME LENDING

A growing opportunity

With the number of SMEs continuing to grow, brokers can play an important role in helping them get finance as mainstream lenders pull back IT IS estimated that another 250,000 new small businesses will open in the next 12 months, but as mainstream banks pull back from lending to SMEs, where will they get the money they need to run those businesses?

Small businesses already make up 97% of the 2.2 million businesses across Australia and rely on funding for many things, such as hiring new staff, buying new equipment, or keeping on top of their cash flow.

research shows that SMEs are turning more and more to those alternative lenders.

Fintech SME lender Prospa commissioned a report to assess its impact on the small businesses it lends to. It found that its lending had contributed $3.65bn to nominal Australian GDP and resulted in more than 52,000 annual full-time equivalent positions being maintained over the period 2013–18.

More than one in four businesses surveyed

DECREASING APPETITE OF BANKS

Based on your experience, do you think that in 2019 the banks’ appetite for lending to small business has:

Decreased

74%

“There are now so many lenders on the market; brokers are becoming more important as they help SME owners navigate the options” Tas Tzimos, Moula A Sensis Business Index report released in February 2019 showed the percentage of businesses finding it difficult to access finance was around 30% and those that found it easy had dropped to 9%.

There have been some changes in the industry to try to help the SME market. The government has announced a $2bn securitisation fund to help make finance available to small business owners more affordable by lowering the wholesale cost of funds for alternative lenders.

With the mainstream banks pulling back,

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were unsure whether they would still exist without Prospa’s lending.

Matt Bauld, Prospa’s general manager of sales and business development, says there has been increasing red tape making it harder for small businesses to access finance from traditional lenders.

“Traditional loan applications can take weeks just for a response, and often require a family home as collateral,” he says. “So many traditional products aren’t designed for small business owners, which can be frustrating for both brokers and their clients.”

Stayed about the same Increased

20%

6% Source: GetCapital, Budget 2019 Customer Sentiment

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COMMERCIAL LENDING GUIDE WHAT ARE BUSINESSES USING THEIR FUNDS FOR?

A report by Prospa shows what its customers were using their finance for, with the largest proportion used for working capital Machinery, vehicles, tools

Inventory 24% 12%

Use of most recent loan funds

by Prospa customers*

5%

Existing/new employees

27%

Other

32%

On average, a total of 32% of Prospa lending used for working capital

32%

Working capital

*Average use of loan funds, by value Source: Prospa and RFI, The Economic Impact of Prospa Lending to Small Business

But this is providing an opportunity for alternative small business lending. “Small businesses are looking for a lender who listens to what they need and delivers the right solution without the red tape,” Bauld says.

The opportunity extends to brokers, and Bauld says he has seen a shift in the broker

options that allow them to avoid that.

Offering unsecured business loans is one of the big advantages of fintech lenders, says Moula head of sales Tas Tzimos.

Moula saw a 51% increase in loan approvals in September 2018 from June 2018, and Tzimos expects growth to continue as falling

“The good news takeaway from all this is that SME lending is back, and looks like it is going to stay” Dean Koutsoumidis, Equity-One mindset towards diversification.

Brokers can help their small business customers navigate the confusing red tape and changing bank appetites to find the right lender for their needs.

“Brokers are more important than ever for promoting choice and competition in small business lending, and the future looks very bright for those that step up and embrace the opportunity,” Bauld says.

With research showing that the majority of small businesses would rather not use their property as security, brokers are well placed to guide their small business customers to

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house prices have led some banks to refuse residential property as security for business loans and others have decreased their loan-tovalue ratios for business loans secured with residential property.

“Fortunately, fintech lenders have been filling the gap in the market to meet the finance needs of SMEs,” he says. “However, as there are now so many lenders on the market, brokers are becoming more important as they help SME owners navigate the options and find the right one for them.”

While traditional bank loans may be taking up to two months to process, fintechs

are able to provide a faster and more streamlined service. Moula’s applications can be completed in 10 minutes and a decision can usually be made within 24 hours, meaning brokers can provide an “outstanding service”, Tzimos says.

Moula has invested in brokers, and in 2016 the compound growth rates of its partner channel hit 100% per annum for the first time.

“As Moula’s SME borrowers work to escape the restrictions of mainstream finance, Moula believes that the broker channel will gain even further significance,” Tzimos says.

Small businesses are commonly labelled as the backbone or the engine room of the Australian economy. But we can become numb to phrases like this and end up listening to them with a degree of cynicism, says Equity-One MD Dean Koutsoumidis.

He says these businesses are not just the engine room; they are most of the moving componentry of the economic vehicle.

“Whether it is a mum-and-dad fish and chip shop in Albury or a plumber in Collingwood, or even a multigenerational family-owned business boasting dozens of employees, the fact is that money is the lifeblood of these businesses, and without continuity of cash, things go pear-shaped – fast,” Koutsoumidis says.

As we have seen, however, that continuity of cash has been harder to come by. Things are also harder for SMEs because of the way banking has changed. Koutsoumidis says that in the past the business owner could discuss their issues with a branch manager who knew the business and the finances.

These business owners are now dealing with algorithms, automated systems and heavy criteria instead of humans. SME lenders – even fintechs – are filling that gap to provide a personal experience. Equity-One also tries to bring that human element to working with the broker channel by engaging with brokers and talking through scenarios.

“The good-news takeaway from all this is that SME lending is back, and looks like it is going to stay,” Koutsoumidis says.

A new addition to the commercial lending

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COMMERCIAL LENDING GUIDE scene is Pepper Money, which expanded into the space as traditional lenders pulled back.

“In recent years we have seen exciting growth in lenders in the SME space; customers now have more access to capital than ever before to help them grow and thrive,” says head of commercial Malcolm Withers.

“But whilst we see growth in new lenders

handling applications due to the recent regulatory reviews.”

Withers often considers the question, “When did commercial lending become so complex?” This was front of mind as Pepper developed its new offering. The lender aims to be flexible and nimble and provide simple policies. In the first five days of

“[There is] a significant opportunity for a broker to evolve and develop their business to be more than just a mortgage broker” Malcolm Withers, Pepper Money delivering solutions, we are also seeing traditional bank lenders become more restrictive in their approach to credit and slower in

launching its commercial arm, Pepper had brokers respond with more than 1,000 accreditations completed.

It has been driving awareness of its new products and policies through email campaigns and webinars. Having also launched its commercial broker portal, it will be encouraging brokers to take part in a series of commercial broker forums.

Withers says brokers can service their customers who are struggling due to “the growing gap between what a customer wants and what banks are able to provide”.

On one hand, the SME customer wants a dedicated business banker who understands their business. On the other, the banks are grappling with how to deliver this in a rapidly growing SME market.

“This presents a significant opportunity for a broker to evolve and develop their business to be more than just a mortgage broker for their self-employed clients,” Withers says.

BREAKDOWN OF AUSTRALIAN SMALL BUSINESS SECTOR

Hospitality 3.9%

Wholesale trade Administration 3.5% services 3.8%

NT TAS 0.6% ACT 1.7% 1.2%

Education and training 1.3% Construction 17%

Healthcare services 5.8%

Retail trade 5.8%

Australian small business sector industry split (based on no. of employees) as at 30 June 2017*

Transport 6.8%

WA 10.2% SA 6.6%

Agriculture and mining 8.4% Manufacturing 3.6%

QLD 19.6%

Professional services 12.3%

Other services 7.1% Financial services 9.3%

Real estate services 11.4%

71% service-based small businesses

NSW 33.7%

Australian small business sector geographic split (based on no. of employees) as at 30 June 2017* VIC 26.4%

Small businesses defined as having fewer than 20 employees, including non-employing businesses; ABS 8165 (Counts of Australian Businesses including Entries and Exits). June 2017 (released in February 2018)

*

Source: ABS

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ASSET AND EQUIPMENT FINANCE The gateway to commercial

TRIGGERS FOR NEW BUSINESS FUNDING % of total survey respondents

8.0%

53.2%

Slow customer payoffs

New plant and equipment investment

3.3%

3.0%

HIring new staff

Supplier discount

From jet skis and new cars to medical equipment or a fleet of forklifts, this could be the perfect start to exploring commercial lending

IF A mortgage borrower has already trusted a broker with the biggest purchase of their life – their home – then it makes sense that they would trust that same broker with their second-biggest purchase.

That’s the message from those in the space, but it seems that brokers are already waking up to this fact. According to a 2017 report by the Commercial and Asset Finance Brokers Association of Australia, 67% of commercial equipment finance is sourced through brokers.

It also makes sense for brokers to help with this type of purchase because, typically, most homebuyers will also buy a new car within 12 months of moving into their home.

Not only has the broker built that trust and relationship but they also already have all the financial information.

Cars are deemed the ‘gateway’ to equip­ ment finance from mortgage broking, but equipment is not just about cars. Once you’re

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through that gate, you could also be helping your customer to buy their new jet ski or helicopter.

Less lavish but perhaps more crucial to many businesses, asset and equipment finance can also include machinery, IT equipment and medical equipment.

With research by East & Partners showing that one in five businesses found it harder in 2018 to get access to funding, the opportunity for brokers to help is clear. The same research also showed that 53% of small and mediumsized businesses were looking for funding to invest in new plant and equipment.

Brent Starrenburg, head of Connective Asset Finance, says changing lender policies and risk appetite over the past 12 months have made it harder for businesses.

The aggregator has therefore found brokers looking for alternative lenders to make sure they can service their customers, “rather than trying to put a square peg into a round hole”.

9.9%

6.0%

Review of existing credit lines

Change in exchange rates

58.3%

24.9%

New opportunity to expand business

Growth in customer demand

1.9%

46.6%

Government initiatives

Loss of a major customer

26.6% New competitor entry Source: East & Partners

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COMMERCIAL LENDING GUIDE NUMBER OF MORTGAGE BROKERS ALSO WRITING COMMERCIAL LOANS

4,000 3,500

3,668

3,000

2,932

2,500

2,647 2,374

2000 1,500

1,673

1,641

Apr 15–Sept 15

Oct 15–Mar 16

1,000 500 0

Apr 16-Sept 16

Oct 16–Mar 17

Apr 17-Sept 17

Oct 17–Mar 18

Source: MFAA Industry Intelligence Service

Connective has been educating brokers to move into the asset space for more than five years now, but over the last year it has seen a particular increase in the number of mortgage brokers diversifying.

Not only that but it is also seeing more brokers wanting to join an aggregator in order to work with them in asset finance.

“With the mortgage broker side, this was probably spurred on by the royal commission, where they were concerned about loss of income,” Starrenburg says.

The ban on flex commission last year in the motor industry has also “opened up competition” for brokers, he says. In the past, the interest rate on a car loan was set by the dealer, and the higher the interest rate, the higher their commission.

ASIC banned this, and interest rates are now determined by the customer’s financial position and credit score. With less time spent on negotiating interest rates and more transparent, standardised pricing, brokers can spend time finding the right deal for the customer.

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While a car dealer might have just one or two lenders to offer a consumer, brokers will have a panel of lenders they can turn to.

“I think the opportunity is definitely there; they have just got to work out how to grab it,” Starrenburg says.

raise the profile of asset and equipment finance brokers and help businesses connect with them. Starrenburg agrees there is a lack of awareness and says it is incumbent on the broker network to make it clear to their customers what they can offer.

For him, it’s about being a finance broker.

At Connective workshops he asks for those in the room who think of themselves as ‘mortgage brokers’ to raise their hands, and many of them do.

He says there is also nothing stopping asset brokers from moving in the opposite direction and offering mortgage products – in fact Connective has seen more of that happening in recent times.

“The problem is that if I’m a mortgage broker and I’m telling a client that I’m a mortgage broker, I’m pigeon-holing myself.

In their mind, that’s all I do. But if I tell them I’m a finance broker, I’m changing their perception of what I do,” he says.

With the idea that mortgage brokers might refer their customers to commercial brokers for their business needs and then find that those brokers can help with all areas of their finance, Connective went the extra step.

The aggregator teamed up with business lender Valiant last year. Starrenburg says

“If I’m a mortgage broker and I’m telling a client that I’m a mortgage broker, I’m pigeon-holing myself. In their mind, that’s all I do” Brent Starrenburg, Connective To help brokers with moving across, Connective has provided educational programs and workshops, being mindful of the particular nuances the asset finance space might have, like company structures.

Businesses are increasingly turning to brokers for their finance needs, but there is still a way to go in making sure businesses know they can use brokers. The MFAA recently launched its online campaign to

there are asset finance brokers who do not want to do commercial property, but the partnership allows these brokers to pass their customer on to someone else without the fear of losing them.

“The broker will have the comfort of knowing the client is going to get looked after, and they’ll be kept in the loop with what’s happening and still get a commission split,” Starrenburg says.

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COMMERCIAL LENDING GUIDE HOW DIFFICULT IS IT FOR SMES TO ACCESS FUNDING?

50% 40% 30%

30%

20% Relatively hard

10%

Relatively easy

0%

Net balance*

9%

-10% -20%

-21%

-30% -40%

18 De c

17 De c

16 De c

15 De c

14 De c

13

-50% De c

*Net balance is defined as the difference between the percentage with a positive outcome and the percentage with a negative outcome

Source: Sensis Business Index, December 2018

While the consensus is that across the board the major banks have pulled back in commercial lending, the options are still there, and for those brokers using the majors they provide education and tools for an easy transition.

ANZ has offerings for vehicle and equipment finance. This includes cars, trucks, motorbikes and buses, forklifts, dental chairs and ultrasound machines.

Angelo Manos, head of commercial broker at ANZ, says the major bank sees core business assets like trucks and trailers or agricultural machinery making up the majority of business it writes.

“We are also seeing an increase in specialist equipment used for medical and manufacturing purposes,” he says.

Manos says the slowing market conditions have provided brokers with the opportunity to diversify into asset finance. He also agrees that the trust brokers have already built with their clients when searching for a home loan is invaluable.

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“Brokers are building relationships and establishing trust with their clients mostly for the purpose of assisting them with a home loan,” he says. “If clients know that their broker can also assist with their vehicle and

ANZ is focusing on education and training to give brokers a seamless experience, Manos says. It is working on producing webinars for ANZ-accredited brokers and looking at ways to partner with aggregators to upskill brokers.

“If clients know that their broker can also assist with their vehicle and equipment finance needs, it’s likely they will return to their broker for this” Angelo Manos, ANZ equipment finance needs, it’s likely they will return to their broker for this because they value that relationship and the guidance provided in the past.”

Equipment finance is a great introduction to commercial lending and is a “natural progression for residential brokers”, Manos says, but it is important to have clear and consistent messaging so that the broker is top of their customer’s mind when they think about asset finance.

Additionally, the major has committed to a three-month campaign to highlight the ways in which vehicle and equipment finance can help business owners get access to the equipment their businesses need without pressure on their cash flow.

“Asset finance can help brokers diversify their product offering, create an opportunity to contact their customers more often to talk about their needs, and ultimately continue to grow,” he says.

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DEBTOR FINANCE Awaken to an alternative market Helping businesses with their cash flow at a time when it is harder to get finance just takes one simple question from a broker

IN A recent survey, 70% of brokers who work with small businesses said cash flow had become more of a problem in the past 12 months, and 98% said it was harder for those businesses to access cash flow.

There are two reasons a business might need cash flow. The first is in order to run its day-to-day business, including hiring staff and restocking products. The second is if the business wants to grow and needs increased cash flow to expand.

Often the business may have won a new contract that requires investment, or the banks may have stopped providing funding, or there may be an ATO debt that means it doesn’t quality for a business loan.

One of the biggest problems for some businesses, however, is that there are often waiting periods of 30, 60 or maybe even 90 days for invoices to be paid. This is where debtor finance comes in. Funders will pay the outstanding invoice to the business so they can carry on moving forward.

Linden Toll, the CEO of one such funder,

Apricity, says the easiest way to look at it is that the business is just bringing forward the money it is already owed. Any type of business could need help with its cash flow. If it’s not receiving cash on delivery, there is likely to be a wait time for invoice payments.

The way Apricity assists with this is by lending money to the business, then working directly with the debtor to arrange repayment.

For instance, if a restaurant is carrying out large catering orders, it might leave an invoice with its customer that may need to be paid within 60 days. Apricity will fund the restaurant with the money it is waiting for, and the restaurant’s customers will then repay Apricity directly.

Toll says that, traditionally, people have gone to the banks for all their different finance needs. But two things have happened over the past 12 to 18 months. “One is they have had a rough time in the royal commission. But secondly, they’re slowing down on the various types of finance based against what is a sliding market in terms of property.”

MOST COMMON CAUSES OF CASH FLOW STRESS

Chasing unpaid invoices

Growing too fast

Long-dated invoices from big suppliers

Poor business choices

Bad debts

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE Because of this sliding market, banks are not as willing to lend to businesses against certain assets. Luckily, the non-bank space is becoming more sophisticated. There are growing opportunities to find solutions that support the best interests of clients, Toll says.

“People are awakening to an alternative market, which can provide flexible and different options to what the banks can,” he says.

Looking ahead, Toll does not see the banks’ appetite turning around any time soon, but he believes that in another 12 months they may start to look at SME lending again. In the meantime, the opportunities in the non-bank sector are a “win-win” for businesses, he says, particularly with the breadth and quality of offers coming from the space.

Apricity has certainly seen clients turning to debtor finance because the banks are not willing to provide the funding they need. But this does not mean debtor finance is a guaranteed fallback.

When a business customer comes to funders like Apricity, it must meet the right criteria. Apricity does not take security, other than the invoices themselves, so the decision is based mainly on the creditworthiness of the business’s end customer.

Then there is an independent assessment of the customer to work out if that particular facility is the right one for their business.

Once the funding is complete, Toll says

TYPES OF DEBTOR FINANCE Selective invoice finance: Customers can choose which invoices to fund, and when and what percentage (within prescribed limits). With Apricity’s facility, the amount funded may be up to 95% of the invoice being assigned.

Factoring: The provider often takes on the role of managing the debtor ledger and chasing payments. The provider will often want to manage the entire ledger, meaning you cannot choose which invoices you fund. The advance is generally 70–80% of the value of the lender-approved accounts receivable.

Invoice discounting: Invoice discounting is the practice of using a company’s unpaid accounts receivable as collateral for a loan. This is typically 80% of all accounts receivable less than 90 days old. The company can alter the amount of debt outstanding as soon as the amount of accounts receivable changes.

Peer-to-peer (P2P): With invoice funding via P2P, the business seeking funding can access investors directly via a technology platform. You state the terms you need and the investor sets the interest rate.

customers. Going out and finding those businesses that need debtor finance without using brokers is like trying to find “a needle in a haystack”.

Brokers, who are already dealing with clients for other areas of finance, can identify that need for help with their cash flow much more easily. They also have the important job of educating their business clients around the debtor finance contracts. There

“People are awakening to an alternative market, which can provide flexible and different options to what the banks can” Linden Toll, Apricity their goal is to help the business grow.

“This means we work closely with our customers to help ensure transactions are undertaken quickly and seamlessly, every payment is processed accurately, and we are responsive to their needs.”

So where do brokers come in? Toll says brokers are a “tremendous referral source” as they are able to identify and refer the right

34

are different fee structures, various add-ons and clauses around how to get out of the contract.

Apricity’s business model was set up in the belief that the market was missing a fair and transparent funder; instead it saw that clients were locked into inflexible contracts with complex and opaque fees and high financial disincentives.

Now, as we find with many non-banks and fintechs, Apricity’s size means it can be flexible, responsive and more open about its terms.

Over the past 12 months, not only have businesses found it harder to access the finance they need but brokers have had to consider what happens if commission is removed. Because of a combination of these factors, Toll says Apricity has seen growing demand in the number of enquiries from brokers.

“All types of finance are cyclical,” he says.

“To have add-ons such as this and to be aware of other types of finance allows [brokers] to broaden and diversify their income streams, but also to become trusted advisers to their clients.”

For brokers moving into debtor finance for the first time, it’s all about asking the right questions and having the conversations with customers. It could be as simple as asking a business customer what their biggest pain points are. Toll says a lot of businesses tell them cash flow is an issue. “It’s a point that gets arrived at quite quickly.”

The next question to ask is around who the business’s end customers are and what

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE trade terms they have imposed – whether they are on 30-day terms, 60-day terms or, with some of the larger businesses, 90-day terms. Asking about this will demonstrate how big their need is for help the cash flow process, Toll explains.

“To have add-ons such as this and to be aware of other types of finance allows [brokers] to broaden and diversify their income streams” Linden Toll, Apricity Brokers looking for that extra income stream can benefit from an upfront commission on debtor finance deals. There is also an ongoing commission based on the facility limit used each month.

While education for the industry has improved, there is more that can be done for mortgage brokers looking at debtor finance.

Toll says brokers need to do their homework before offering solutions to a client. With a number of debtor finance options to help businesses with their cash flow, and those often confusing contract terms, brokers are encouraged to reach out to Apricity’s business development team to look at the business situation.

“My view is that brokers can and should depend on the providers to help them with that education,” Toll says. “We see ourselves not just as a provider of a facility but as people who have the ability to help them understand complex situations as well.”

Apricity has a business development team to help walk brokers through scenarios, and Toll says it is keen to help educate them.

“We’re very much about enhancing and bringing forward an industry that can make huge differences to business,” he says.

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LATE BILL PAYMENTS: HOW AUSTRALIA COMPARES

Japan

6.5 days early

Germany

0.5 days early

USA

7.1 days late

Belgium

4.1 days early

Denmark

Netherlands 3 days early

UK

1.2 days late

5.85 days late

Canada

South Africa

12 days late

16.5 days late

Australia

26.4 days late Source: The State of Late Payment 2016, www.marketinvoice.com

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UNSECURED BUSINESS LOANS A flexible alternative With the property downturn SMEs are less willing than ever to offer up property as security, but they still need funding from somewhere, and unsecured business loans provide a great option

IT’S NO secret that small businesses in Australia are doing it particularly tough at the moment. A recent report by OnDeck showed that one in four SMEs had been knocked back for bank finance.

Of those that did manage to get funding, 29% were negatively affected by the amount of time taken to organise that funding.

But SMEs are extremely important to the Australian economy. There are 2.24 million businesses in Australia, and 97% of them are small businesses employing fewer than 20 people. Small businesses make up 35% of Australia’s GDP. Businesses have not stopped needing funding to ensure their growth, but the banks have adjusted their appetite in the area.

Furthermore, the property downturn has also meant that businesses are less willing to offer up property as security.

Scottish Pacific’s March SME Growth Index showed that 44% of SMEs believe the current property market conditions have made it harder to access business funding.

More than 91% said they would pay a higher rate if it meant they did not have to provide real estate as security.

The Productivity Commission released its draft report into competition in the Australian financial system last year. It found that a third to a half of the loan value of Australian SMEs was reliant on property as security.

Thirty-five per cent of the value of small business lending by the major banks is secured by real estate, and for non-majors this figure is almost 47%.

While small business owners might not know the options available to them, brokers can help them find alternative lenders that

SMES STRUGGLING TO GET FINANCE

1 in 4

SMEs have been knocked back for bank finance

1 in 3

SMEs that were rejected by a bank turned to family/friends or a credit card for funding

29%

of SMEs that secured bank finance saw their business negatively impacted by the time taken to organise funding.

1 in 4

SMEs plan to apply for finance in the future Source: OnDeck AltFi research

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE can provide solutions to meet their needs.

Unsecured business loans do not require any assets as security; instead the lender bases its decision on whether the business has the capacity to borrow against its cash flow performance. Lenders will typically ask these clients for a personal guarantee, which the lender has the right to pursue if the business fails to meet its loan repayment obligations.

Unsecured financiers like OnDeck will look at wide and varied data points, including the company’s time in business and business revenue, as well as reviewing recent bank statements. This information, in addition to Credit Bureau data, allows lenders to make an informed and responsible credit decision regarding the borrower’s ability to repay the loan.

Businesses generally need business loans to support growth and expansion without encumbering business or personal assets, says Michael Burke, head of sales at OnDeck.

The fintech lender offers unsecured business loans of up to $250,000 with six- to 24-month terms.

In its AltFi research across 430 SME owners in Australia, OnDeck showed the impact on these businesses of their struggle to get finance through a mainstream bank.

Fifty-seven per cent of businesses which had applied for finance from a bank found that their normal business activities were slowed or halted.

Many others had to delay buying new equipment for their growth, or had to put off debt payments. Twelve per cent even had to delay hiring new staff.

“As SME customers and brokers increasingly look for optionality beyond banks, we expect lenders like ourselves to become increasingly mainstream” Michael Burke, OnDeck

But Burke says there has been a growing awareness of online lenders, particularly among those businesses that have struggled to get funding from the mainstream banks.

OnDeck’s research has shown that 22% of SME owners would consider using an online lender in the future, compared to only 11% in previous research.

Of those businesses that had already been rejected by a mainstream bank, the number grew to 42% saying they were willing to use an online lender.

Worryingly, 27% of SME owners also said they would consider dipping into their own personal funds.

While the mainstream banks have pulled back, the online business lending sector has continued to adapt and grow. Burke says OnDeck has seen its customers’ need for greater choice and product diversity in the sector, and as a result it has been able to expand into new areas of finance.

Noting that around a third of its customers were using their loans to purchase equipment, OnDeck recently launched an equipment loans product to provide longer

terms than were available through the unsecured facility.

“Unsecured lenders like us are increasingly seeing this customer need and are broadening their product portfolio as a result,” Burke says.

OnDeck already works very closely with brokers, and Burke anticipates that the commercial space will continue to see more mortgage brokers diversifying. He says small business loans like unsecured lending are a “logical and relatively straightforward first step”.

As it doesn’t look like the banks will be widening their credit appetite any time soon, online and alternative lenders are coming more and more to the forefront. Burke believes the awareness of the availability of unsecured lending and the benefits that alternative financiers can offer compared to traditional lenders will continue to grow.

“As SME customers and brokers increasingly look for optionality beyond banks, we expect lenders like ourselves to become increasingly mainstream,” he says.

Brokers can also benefit from recent

FRUSTRATIONS WITH CURRENT FUNDING METHODS

80%

frustrated by conditions of loan

78%

73%

48%

frustrated by having frustrated said their loan tenor to provide property by lack of flexibility was too short as security

47%

found funder hard to deal with

23%

did not feel secure with the lender

16%

felt funding did not meet their needs Source: East & Partners

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE

SMES LESS WILLING TO USE PROPERTY AS SECURITY

Would you be prepared to pay a higher rate to obtain finance if it meant that you didn’t have to provide real estate security?

Possibly/not sure

1.6% 0.9% 6.2%

Unlikely Definitely not Yes, definitely

65.1%

26.3%

Would you pay a higher rate?

Yes, probably

Source: East & Partners

“This is about brokers being able to better service SME clients, both in terms of providing more timely access to capital and also offering choice and flexibility” Michael Burke, OnDeck

changes in the space that have enabled greater transparency. OnDeck was one of several online lenders to sign a Code of Lending Practice and introduce the loan comparison tool SMART Box. “At OnDeck, transparency has always been in our DNA,” Burke says. “So our position as a lead advocate and signatory for the adoption of the online lending industry’s

40

Code of Lending Practice in Australia last year was an obvious choice.”

The SMART Box comparison tool is a one-page document designed to make it easier for brokers to explain different pricing terms to their customers, and to help them compare the total cost of the business loan.

Armed with this tool and lenders that are

willing to guide brokers through the transition to business lending, brokers are in a prime position to help their business customers. And they have plenty of customers already in their database that are ready to be reached out to. Typically, around 25–30% of a mortgage broker’s customer base is made up of small business owners.

“Brokers shouldn’t underestimate the opportunity presented by the SME market,” Burke says.

“Ultimately this is about brokers being able to better service SME clients, both in terms of providing more timely access to capital and also offering choice and flexibility where they don’t want to be encumbered with security on their personal or business assets.”

Using lenders like OnDeck will also allow brokers to further solidify their position as trusted advisers to SME clients, Burke says, because of their ability to be nimble and grasp growth opportunities presented to them.

Unlike a major bank, these lenders can make informed credit decisions quickly, so when a broker calls up to talk through a scenario, they can accommodate.

“Our processes are streamlined through some of the best technology platforms there are, and that’s good news all round,” Burke says. “It means brokers can be confident in their promise to clients that the process will be easy and fast.”

Fast decisions – particularly in an area of lending where the lender is not taking security – can worry some brokers in terms of the risks. But Burke says speed is never at the expense of its responsible lending obligations: OnDeck’s processes are backed up by reliable and extensive credit data.

“Nor is it at the expense of customer contact,” he adds.

“Our business is still very much about providing customer service – having a point of contact, picking up the phone and building broker relationships is at the core of our proposition.”

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FEATURES

COMMERCIAL LENDING GUIDE

COMMERCIAL LENDING PRODUCT GUIDE Please note these details are for guidance only. We’ve done our best to ensure they’re correct at the time of writing, but you should always talk to the lender first.

Get started in commercial today as the lenders in this Special Report present their full range of commercial lending products ANZ Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

ANZ Business Loan

Variable or fixed

Variable – base rate plus a margin

Variable

No maximum

Any security

IO or P&I, as well as fixed interest rate period

Greater of $600 or 0.75% (variable)

$187.50 per quarter for loan amounts above $50,000

No

ANZ Tailored Commercial Facility

Variable or fixed

Fixed – quoted total rate

Variable

No maximum

Any security

Variable or fixed, or contact your ANZ broker manager for tailored solutions

0.75% (variable)

On enquiry

Yes

Commercial Bills Products

Variable or fixed

Bank bill swap bid rate + funding index + a margin

Variable

No maximum

Any security

IO or P&I

0.75% (variable)

On enquiry

Yes

Product name

EQUITY-ONE Product name

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Fixed

From 7.95%

75%

$7,000,000

Residential

Interest only

1.10%

From 0.25% pa

Nil

Fixed

From 7.95%

70%

$7,000,000

Commercial, retail and industrial

Interest only

1.10%

From 0.25% pa

Nil

Fixed

From 9.95%

On application

$7,000,000

Land bank

Interest only

1.10%

From 0.25% pa

Nil

Fixed

From 15.95%

75%

$500,000

Residential, commercial, retail and industrial

Interest only

2.20%

From 1.1% pa

Nil

Service fee

Deferred establishment fee

Equity-One – Residential Security 1st Mortgage Equity-One – Commercial Security 1st Mortgage Equity-One – Residential Development Land 1st Mortgage Equity-One 2nd Mortgage

DETAILS FOR BROKERS All products: Funding for any commercial purpose – option to break term at any time without any interest break costs

PROSPA Product name

Interest type

Interest rate

Fixed

Small Business Loan under $100k Small Business Loan over $100k

Fixed

Rates from 9.9% pa simple interest rate Rates from 9.9% pa simple interest rate

Line of Credit

Fixed

Rates from 14.95% APR

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Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment Loan type establishment fee

n.a.

$150k

Not required to access funds

P&I

3% of loan amount

Nil

Nil

n.a.

$300k

P&I

3% of loan amount

Nil

Nil

n.a.

$25k

Not required to access funds, PPSR >$100k Not required to access funds, PPSR >$100k

P&I

$195 one-off line activation fee

$25 pm

Nil

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LIBERTY Product name

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

LeaseStream

IO and P&I

Starting from 5.55%

up to 75%

$4m

Any security

IO and P&I

Yes

$30 pm

Nil

Commercial SMSF

IO and P&I

Starting from 5.71%

up to 75%

$4m

Any security

IO and P&I

Yes

$30 pm

Nil

Enterprise Low-Doc

IO and P&I

Starting from 6.05%

up to 65%

$4m

Any security

IO and P&I

Yes

$30 pm

Nil

ING Product name

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Commercial Variable Rate Loan

Variable

4.79%–5.59% pa (based on loan amount)

Up to 75%

$3m

Commercial, mixed zone and residential (conditions apply)

P&I or IO

From $1,000 up to 0.20% of loan amount

Nil

One month's interest on the original loan amount – if loan is repaid in full within five years of the settlement date or prior to the maturity date of the loan

Commercial Fixed Rate Loan

Fixed

4.22% pa–4.51% pa (based on fixed rate term)

Up to 75%

$3m

Commercial, mixed zone and residential (conditions apply)

P&I or IO

From $1,000 up to 0.20% of loan amount

Nil

One month's interest on the original loan amount – if loan is repaid in full within five years of the settlement date or prior to the maturity date of the loan

THINKTANK Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Full Doc

Variable or fixed

From 5.80%

75%

$3m

Commercial/residential

IO or P&I

0.35%

Nil

Varies

Mid Doc

Variable or fixed

From 6.30%

75%

$2m to 75% $3m to 70%

Commercial/residential

IO or P&I

0.35%

Nil

Varies

Quick Doc

Variable or fixed

From 6.80%

65%

$2m

Commercial/residential

IO or P&I

0.35%

Nil

Varies

SMSF Commercial

Variable or fixed

From 5.95%

75%

$3m

Commercial

IO or P&I

0.35%

Nil

Varies

Product name

DETAILS FOR BROKERS All products: Set and forget up to 30 years; no annual reviews, revaluations or ongoing fees. GST loans, higher LVRs and alternative security types also available on request. Please contact your Thinktank relationship manager.

ONDECK Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Unsecured Loan

Fixed

n.a.

$250,000

Genuinely unsecured

Weekly or daily

2.5%

$0

$0

Equipment Loan

Fixed

Risk-based pricing Risk-based pricing

n.a.

$100,000

No restrictions

Monthly or weekly

$0

$0

$0

Product name

DETAILS FOR BROKERS Unsecured Loan: Loans from $10,000 to $250,000; 6- to 24-month terms; genuinely unsecured – no hidden security clauses; funding as fast as one business day Equipment Loan: 24- to 48-month terms; no limitations on asset make, model or age; Equipment Loan can be aggregated with OnDeck’s Unsecured Loan for a total client exposure of $250,000

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FEATURES

COMMERCIAL LENDING GUIDE

LA TROBE FINANCIAL Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Commercial Lite-Doc

Variable

From 5.99% pa

70%

$10m

Retail, office and light industrial

IO or P&I

1.25% of loan amount

$15 pm

Nil

Commercial Lease-Doc

Variable

From 5.99% pa

70%

$10m

Retail, office and light industrial

IO or P&I

1.25% of loan amount

$15 pm

Nil

Commercial SMSF

Variable

From 5.99% pa

70%

$10m

Retail, office and light industrial

IO or P&I

1.25% of loan amount

$15 pm

Nil

Commercial Non-resident

Variable

6.99% pa

70%

$10m

Retail, office and light industrial

IO or P&I

1.25% of loan amount

$15 pm

Nil

Rural

Variable

9.15% pa

55%

$10m

Rural property

IO or P&I

1.25% of loan amount

$15 pm

Nil

Fixed

From 8.99% pa

70%

$10m

Residential or commercial construction

IO

1.50% of loan amount

$15 pm

Nil

Product name

Development Finance

DETAILS FOR BROKERS Commercial Lite-Doc: Funding for any worthwhile purpose (including cash-out, ATO debts) secured by commercial property on a lite-doc basis for the self-employed Commercial Lease-Doc: Funding for any worthwhile purpose (including cash-out, ATO debts) secured by a fully leased commercial property where servicing is demonstrated via interest cover from rental income Commercial SMSF: Funding for the purchase or refinance of commercial property via the applicant’s self-managed super fund Commercial Non-resident: Funding for the purchase or refinance of commercial property for residents living and working overseas Rural: Funding for a variety of purposes secured by rural property Development Finance: A construction product with no (or limited) presales for small- to medium-scale developments

MOULA Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Moula Term Loan

Fixed

19.5%–48.2% pa

n.a.

$500,000

Unsecured

P&I

$0

$0

$0

Moula Pro Loan

Fixed

15.64–19.55% pa

n.a.

$500,000

Unsecured

P&I

$0

$0

$0

Product name

DETAILS FOR BROKERS Moula Term Loan: Minimum of six months in business; average monthly sales of $5,000; fair to better credit history Moula Pro Loan: Minimum of three years in business; stable and diversified sale and consistently profitable; fair to better credit score of 600+

PEPPER Product name

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Variable

Starting from 5.46% Starting from 5.96% Starting from 6.46% Starting from 7.16%

75%

$3m

70%

$3m

75%

$3m

70%

$3m

Residential or commercial property (or a mix of both) Residential or commercial property (or a mix of both) Residential or commercial property (or a mix of both) Residential or commercial property (or a mix of both)

Commercial Prime Full Doc Commercial Prime Alt Doc Commercial Near Prime Full Doc Commercial Near Prime Alt Doc

Variable Variable Variable

Repayment type IO (up to 5 years) or P&1 IO (up to 5 years) or P&1 IO (up to 5 years) or P&1 IO (up to 5 years) or P&1

Loan establishment fee

Service fee

0.50% of the loan amount 0.75% of the loan amount 1.25% of the loan amount 1.50% of the loan amount

$25 per month per account split $25 per month per account split $25 per month per account split $25 per month per account split

Deferred establishment fee n.a. n.a. n.a. n.a.

APRICITY Product name Apricity Invoice Finance

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Interest type Fixed

Interest rate Maximum LVR On application

n.a.

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

No maximum

Invoice only

Revolving

Yes – payable only

No

No

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SPECIAL REPORT

TOP 10 COMMERCIAL BROKERS

2019

TOP 10 COMMERCIAL BROKERS At a time when credit conditions are tough and the property market has slowed, these commercial brokers are still finding great solutions for their clients

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SPONSORED BY

THE LAST 12 months have not been kind to the mortgage broking industry. With property prices falling, credit tightening and a series of horror stories coming out of the banking royal commission, residential lending figures have taken a hit.

Commercial brokers are experiencing similar scenarios but not as harsh. The bigger banks are shifting their credit policies, and their lending appetite has changed, which also means brokers are facing longer turnaround times. While some have found no real difference in the commercial lending space, others are taking a proactive approach to combat the slowing market.

This year’s Top 10 Commercial Brokers report not only celebrates those brokers who are continuing to grow under these difficult circumstances, but takes a deeper look at how they do so.

A number of our top commercial brokers are searching for alternatives to the big four to assist their clients, and others are even expanding to certain types of commercial finance that they know the banks are looking for.

The report also shows the vast difference between commercial brokers in terms of number and value of loans settled. While one broker settled 15 loans, he was thousands of dollars above another who settled 36. Our number one broker settled 23 loans, coming way above the broker who settled an impressive 127 deals.

These figures demonstrate the huge numbers some of our brokers settled in single deals. This year’s list includes commercial brokers dealing with huge infrastructure projects like shipping ports and hotel complexes, as well as shopping centres and development projects.

One notable takeaway from the report is that many of the commercial broking businesses in our top 10 are also offering a residential arm. As one broker said, his commercial clients all have home loans too.

Surveys like this one would not be possible if it weren’t for the support of brokers, aggregators and our sponsors.

We’d like to thank all the brokers who took the time to fill out our survey, regardless of whether you made the top 10, and those featured in this magazine for taking the time to talk about their businesses.

A MESSAGE FROM OUR SPONSOR On behalf of La Trobe Financial we would like to officially congratulate you on being a 2019 MPA Top 10 Commercial Broker – the industry’s most recognised and highly sought-after honour for commercial brokers in Australia. This prestigious list seeks to recognise the highest-performing brokers and highlights the contributions you have made to our industry and within your own communities.

As one of the industry’s top performers, you have set a benchmark of excellence that can be celebrated and respected, and ultimately provide a culture and set of practices that we can all aspire towards.

We see tremendous opportunity ahead for brokers to increase industry market share for commercial lending in the wake of the tightening of credit appetite in the proprietary channel, leading to many underserved borrowers.

At La Trobe Financial, our purpose since 1952 has been to provide financial solutions to underserved markets, and we are therefore, now more than ever, honoured to support this important sector of our industry.

Congratulations once again on your significant achievement, and we wish you continued success with your cause to make a difference.

Steve Lawrence Vice president and head of major clients, La Trobe Financial

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SPECIAL REPORT

TOP 10 COMMERCIAL BROKERS

10

CAMERON PERRY The director of Perry Finance has had to crack down on organisation in his business as he prepares for the “new normal” in lending

FROM HIS Melbourne office in the commonly

Total value of commercial loan settlements

$79,057,200

Number of commercial loans settled

36

Average commercial loan size

$2,196,033

Years as a commercial broker

14

Aggregator

Connective 48

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dubbed ‘Paris’ end of town, Cameron Perry offers a broad range of commercial finance options. The vast majority of deals are in development finance, but he also provides commercial real estate, equipment and asset finance and debtor finance.

Not content with just commercial, Perry Finance also offers residential mortgages. “We do home loans; most of our clients have home loans as well and have equity in their property,” the father of two says.

The focus on property development has been there from the start of Perry’s broking career, when he and his brother began the business as an add-on to their father’s property business back in 2004. The finance arm split off when the licensing changes came in during the GFC, and it grew from there.

Fast-forward to today and Perry says the last 12 to 18 months have seen another credit crunch scenario, and it’s becoming more and more difficult to meet the banks’ criteria. “It’s become increasingly difficult for them to service loans once the client has two or three investment properties, just down to the changes that lenders have introduced,” he says.

After the GFC, Perry branched out into more private funding, which has helped him a lot in the past year. Very few of his property development loans were written through banks, which means he also needs to educate clients on what the alternatives are.

“It’s a challenge because of the difference in pricing and the different ways that private lenders operate,” Perry says.

Although he admits that he does not do a lot of them, he still uses the major banks in areas like small business loans, but he finds that he is turning more often to second-tier lenders for commercial investments.

To accommodate the changes to the lending environment, Perry’s business has had to focus on becoming more organised in its processes, which he says has not been a bad thing.

Looking ahead over the next 12 months, Perry

“Banks will probably stay fairly similar ... but I think there’s going to be quite a lot of activity in the non-bank sector” thinks the tough lending market as it stands is “a new normal”. He also expects this will increase the level of competition among lenders, which he hopes will bring about a larger benefit for his clients.

“I think some of these other players coming into the market are currently quite expensive, but with the competition I think there’s going to be more reasonable price alternatives, so it’s quite an exciting space,” he says.

“Banks will probably stay fairly similar, that’s my feeling, but I think there’s going to be quite a lot of activity in the non-bank sector.”

SPONSORED BY

GREG SAMUEL A diversified offering has helped this commercial broker organise and grow his business, Samuel Finance

9

BASED OUT of South Australia, Greg Samuel began his journey as a commercial broker seven years ago after seeing a gap in the market. Coming from 10 years in commercial and corporate banking, as well as in merchant banking overseas, he saw the need for good brokers who could prepare deals and present them in a fashion that banks could process easily.

Since then, the business has grown to four people, including a residential broker. The majority of Samuel’s commercial deals over the past year have been in development finance; however, he has also settled a number of significant farm finance transactions as well as deals in SME finance, equipment and asset finance and commercial real estate.

Samuel comes from a fourth-generation farming family and has an interest in his family’s poultry farming business, which has given him a strong understanding of farm and agribusiness lending.

He says offering such a comprehensive suite of services is good for managing his business; asset finance deals are a “quick win”, home loans a bit longer, and commercial longer again.

“Offering the full suite is good for managing the cash flow of the business,” Samuel says. “I tend to gauge the business performance on the home loan activity – that’s our bread and butter – and then the commercial stuff is the cream on the cake.”

By diversifying he can help his customers in more than the one area they may have originally come to him for. For example, he says: “I have a client that came to us for a $400,000 farming loan. They wanted to buy an extra farming property. It seems like a lot of work for not very much, but when you do a bit more digging there’s probably about $600,000 or $700,000 worth of investment loans you can look at. While they initially came to me for that loan, we’re going to put together a proposal to restructure all their finances, and we should be able to get a really good result for them.”

While the residential space has been noticeably affected by the property market and tightening credit,

Total value of commercial loan settlements

$92,633,000

Number of commercial loans settled

15

“Presales have increased and LVRs have decreased, so that’s started to bring into play some of the second-tier development lenders” Samuel hasn’t had too many issues with commercial.

The biggest problem is when a residential loan is tied in with commercial lending, which for some lenders means greater scrutiny of the commercial transaction.

He has noticed a slight rise in clients turning to second-tier lenders in the past year, but he will always go to a major first for better pricing and terms.

He adds that “presales have increased and LVRs have decreased, so that’s started to bring into play some of the second-tier development lenders”.

Looking ahead, Samuel says he is “buoyed and optimistic” about his future business growth.

Average commercial loan size

$6,175,533

Years as a commercial broker

7

Aggregator

FAST

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7/05/2019 9:16:09 AM

SPONSORED BY

SPECIAL REPORT

TOP 10 COMMERCIAL BROKERS

8

LARRY ZHOU As credit conditions toughen and scrutiny increases, the MD of Link Capital Finance is seeing new opportunities coming his way

IT WAS while he was working in the banking industry

Total value of commercial loan settlements

$94,809,006

Number of commercial loans settled

76

Average commercial loan size

$1,247,486

Years as a commercial broker

5

Aggregator

AFG

50

that Larry Zhou began to understand what customers really wanted from a bank but weren't getting: options, unbiased advice and longevity of relationship. These values became the base for Link Capital Finance nearly five years ago.

Based in Fairfield, Victoria, Zhou – who is married and a father, as well as an active tennis player – started out as a graduate banker in 2007 but broke away to set up his own business with the support of “a great family and close circle of friends”.

His broking business is modelled for property developers and high-net-worth commercial property investors. The vast majority of his loans settled last year were for development finance – in fact Zhou settled the highest proportion of development loans in our top 10 list. The rest were primarily commercial real estate deals, with a small percentage of equipment and asset finance deals thrown in for good luck.

Zhou says he never fit into the culture at the bank and had no passion for it, but now as a commercial broker there is never a dull moment. “I wanted to be in the business of helping other businesses grow,” he says.

“I love working with entrepreneurs and admire the way they see the world; there’s a story behind every business and every project.”

But over the past year Zhou has noticed a change in banks' lending appetites. The majors are showing a strong preference for reserving lending capital for their existing and well-established customers.

However, he adds that even the banks seem a little confused about their own appetites. “We hear a lot of ‘we’re open for new business’, but in reality new clients seeking funding face massive headwinds and scrutiny,” he says. This added scrutiny has meant that Zhou is spending more time drafting submissions and providing more in-depth analysis.

With the bigger banks tightening, Zhou and his team are seeing more opportunities being passed to alternative lenders. He says a lot of external capital seems to be coming into the Australian market,

“I love working with entrepreneurs and admire the way they see the world; there’s a story behind every business and every project” providing much-needed funding options.

This is where the commercial broker can add value.

Zhou says he is seeing a lot of restructuring within the banks, and “more than ever” he is hearing from customers that high turnover of bank staff is affecting their businesses. More and more commercial clients are now open to speaking to commercial brokers, keen to understand what is available for them in the market.

“The key opportunity now is to establish solid relationships in times of uncertainty; there are examples of clients who we’ve been speaking to for years before we complete a transaction,” Zhou says.

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SPECIAL REPORT

TOP 10 COMMERCIAL BROKERS

7

Total value of commercial loan settlements

$101,500,000

Number of commercial loans settled

23

Average commercial loan size

$4,413,043

Years as a commercial broker

11

Aggregator

AFG

52

DANIEL ZADNIK A strong year in commercial lending has offset difficulties in the residential space for the director of Hawthorn Finance

WORKING OUT of Hawthorn, Victoria, Daniel Zadnik, managing director of Hawthorn Finance, offers a wide range of commercial finance: working capital, property finance, development funding, agricultural lending and asset finance.

A broker for the past 11 years, Zadnik spent nearly 20 years in corporate and business banking at ANZ before that. He says this experience helped get him to where he is today. At ANZ he was also introduced to McLean Delmo, which led to the opportunity to become a shareholder in Hawthorn Finance.

Subsequently, McLean Delmo joined the Bentley’s national accounting group, which enabled the business to establish Bentley’s Finance.

The dual brand has continued to grow over the past decade and now employs eight people. Zadnik says this growth is built on clients' trust; they are able to have frank discussions with Hawthorn that they could not have with the banks.

Bentley’s Finance is opening a new rural office this month in Emerald, Central Queensland.

“People in these communities tend to embrace the local, more so than someone coming out of the city,” Zadnik says. “They want someone that’s going to know their town and their business; they don’t want someone rocking up from the city in a suit telling them how to do things.”

While Hawthorn has seen growth, Zadnik has still faced challenges in the last year in the home loan space. But strong commercial lending and asset finance have offset the business's lower residential volumes, he says.

Unlike some brokers, Zadnik continues to use the major banks because they are more cost-effective, with lower costs of funds than second-tier lenders and alternative providers. “That said, we have certainly developed some good working relationships with some alternative lenders who we use when the metrics don’t tick all the boxes for the mainstream banks.”

Now that the royal commission report has been released, Zadnik expects its impact to continue for

“For good brokers this will create opportunities to work closely with both new and existing clients who will need guidance” the foreseeable future, with lending and economic conditions remaining subdued for the next 12 to 18 months. But he does think they will eventually improve.

“Once the dust settles after the election and the banks deal with the royal commission recommendations, they will then need to refocus their attention on growing their businesses again,” he says.

While lending remains down, however, Zadnik believes it's a good time for brokers.

“For good brokers this will create opportunities to work closely with both new and existing clients who will need guidance,” he says, adding that without diversifying his business to help his clients Hawthorn Finance would not be where it is today.

www.mpamagazine.com.au

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7/05/2019 9:16:49 AM

SPONSORED BY

TOM WALTHAM In spite of tighter lending parameters and longer turnaround times, Waltham insists there has never been a better time to be a broker

ANOTHER SA representative on this year’s list, Tom Waltham operates Capital United out of the Adelaide CBD. The debt advisory and broking firm specialises in debt finance across a range of transaction types and sectors.

The father of three began his career as an accountant, followed by a range of other roles, before becoming a BDM in NAB's corporate banking team in Adelaide. He spent nearly five years at the major bank and ended up in a senior relationship manager role in business banking. “I thoroughly enjoyed my time at NAB and learnt a lot about banking and finance,” he says. “It was my time at NAB that opened my eyes to the opportunity in the third party space.”

Waltham’s interest in setting up a broking business was “piqued” in 2007 when he learned that third party residential transactions settled at that time with the major banks accounted for around 40% of all residential loans, while commercial only accounted for about 10% via third party. “Wind the clock forward to current day, and commercial volumes introduced to the major banks now account for circa 40% via third party, and residential volumes are circa 59% via third party, and growing,” he says.

Waltham says there is no doubt lending parameters have tightened and turnaround times have increased over the past 12 to 18 months as a result of the royal commission, but he still believes there has been no better time to be a broker.

“Having strong relationships across a number of lenders, as well as an in-depth knowledge of which lenders are funding certain transaction types, should allow brokers to value-add and meet their clients’ needs by obtaining optimal loan terms,” he explains.

Even in earlier years, Waltham knew how important it was to create and maintain relationships with multiple lenders. It was a “main focus” of his to do that, and his relationships extended across major banks, credit unions, second-tier lenders and private funders.

In 2018 the group settled deals across 10 lenders.

Going a step further, when the major banks began

6

Total value of commercial loan settlements

$108,474,000

Number of commercial loans settled

35

“Having strong relationships across a number of lenders … should allow brokers to value-add and meet clients’ needs in obtaining optimal loan terms” to restrict property lending after macroprudential reforms were introduced post-GFC, Waltham co-founded non-bank lender Keystone Capital in 2013. It specialises in first mortgage property transactions and has seen significant growth in borrower and investor demand across Australia.

Waltham expects that while the second-tier and non-banks sector will continue to grow, the majors will look “aggressively” to retain existing clients that meet their lending parameters, and offer competitive terms to new clients that tick the right boxes.

Average commercial loan size

$3,099,257

Years as a commercial broker

12

Aggregator

FAST

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7/05/2019 9:16:57 AM

SPECIAL REPORT

TOP 10 COMMERCIAL BROKERS

WHAT AN ELITE COMMERCIAL BROKER LOOKS LIKE IN 2019 The data behind this year’s Top 10 Commercial Brokers provides some interesting insight into how the commercial space is adapting and what these brokers are doing to keep their businesses on track A SLOWER YEAR The tougher conditions over the past 12 to 18 months are evident in the figures of our top commercial brokers. But the numbers this year are competing against 2017 figures, which saw a top loan total of more than $500m, making it a hard year to beat.

Aaverage total loan volume per broker Down 15% to

COMMERCIAL LENDING AND TECHNOLOGY With the rise of fintechs and online application systems, technology is supposed to be making it faster and easier to not only apply for loans but collect all the information a broker needs, upload and sign documents, track progress and keep customers updated. However, there were differing opinions as to whether technology had made an impact on commercial lending. Two brokers thought it had made an impact in certain areas, but not at all in others.

Has technology had an impact in the commercial lending space?

Yes

No

5/10

3/10

A bit of both

“In the commercial property and development space, the answer would be no. In the sub-$1m investment property loan space, NAB has started with ApplyOnline applications; however, it has a long way to go before it's efficient. ... In asset finance there has been an impact. In the smaller, short-term funding space like OnDeck, Spotcap, etc., there has definitely been an impact” – Jason Arnold

2/10

$144,366,046 WHAT ADVICE CAN YOU GIVE TO BROKERS LOOKING TO GROW AND EXPAND THEIR BUSINESSES? Average number of loans per broker Down from 71 to

43

Loan volume required to enter top 10

$79m

Combined number of years as commercial brokers

105

54

“No matter what you do, always put your customer first, whether that be in customer service or delivering the absolute best outcome for your client. Your best clients will reward you with loyalty and a long-term relationship if they can trust that you have their best interests at heart. This is not only a good business strategy but a personally rewarding one. ... Also, make sure you place a value on your time and effort. Don't be shy to charge Mandate Fees, and be confident to present yourself as a professional...”

– Greg Samuel

“I can tell them what not to do – don't try to be everything to everyone. Find an industry or business specialty, do the hard yards, learn everything there is to know about your specialty, your potential clients, challenges and opportunities. Develop your lending knowledge in that area constantly. Establish networks and use them to build a proven track record of lending success stories. When you are starting out, you want to do it all, but my experience is that quality will lead to quantity. You can always expand your offering over time, but that's easier when you've got real runs on the board.”

– Daniel Green

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SPONSORED BY

WHAT THEY’RE OFFERING We asked our top 10 brokers what services they were offering and which areas made up most of their business.

This year our commercial brokers were mostly involved in commercial real estate or development finance. The ‘Other’ category mainly represents one of our brokers with 97% of their business in specialised lending.

Development finance

Unsecured business lending Debtor finance 0.8% SME finance 0.8%

42.9%

3.6%

Services offered by the average Top 10 broker

Commercial real estate

3.7%

Equipment/ asset finance

12.4%

Other

35.8%

ot “Build a business around integrity and honesty as a first priority.

Always let the client be aware of the worst scenario; however, strive for the best scenario. Place yourself in your customers' shoes; think about the situation from their point of view. Then your clients will help your business grow just like you helped them.”

–Junhao Sun

“What we are looking to do in our business is to improve our CRM database management, improve existing systems and processes, and work more online and automated with our customers. A valuable way to learn and grow our business has been to regularly speak to our aggregator (our partners FAST have been invaluable), and catch up with peers in other broking businesses to share ‘best practice’ procedures.I also feel that while specialised broking has its place, an advantageous business model is to provide a diversified service offering to clients.”

– Tom Waltham

“It’s like having a diversified share portfolio. You need to have different revenue streams to generate income, because it’s rare that all streams are performing strongly at the one time. This year’s case in point: we have had strong commercial but soft residential. It’s very rare you get strong commercial, strong residential and strong equipment, but it’s better than only having one stream where if the market slows your business slows.”

– Daniel Zadnik

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SPECIAL REPORT

TOP 10 COMMERCIAL BROKERS

5

Total value of commercial loan settlements

$150,979,471

Number of commercial loans settled

24

Average commercial loan size

$6,290,811

Years as a commercial broker

18

Aggregator

FAST

56

JASON ARNOLD Years of experience and relationship-building with lenders has enabled the MD of Quattro Finance to go from strength to strength

A GREAT example of growth through diversification is the managing director of Quattro Finance, Jason Arnold. Up one place compared to 2017 and three places from 2016, he has increased his average loan size considerably to claim a higher total value.

Arnold runs his business out of Melbourne, and the the majority of his lending is focused on development finance, commercial property finance and structured finance transactions. But realising the need to offer a more comprehensive suite of funding options, Quattro has incorporated home loans over the past two years, which have seen year-on-year growth. Not stopping there, the business is planning to add asset finance and small business lending within the next 12 to 18 months.

After 18 years in the industry, Arnold has built up great relationships with non-bank and private lenders, which have ensured minimal impact on his clients while the market has slowed. He says the major change for him over the past year has been “the decreased appetite and tightening of lending policies in the banking sector, particularly in the commercial and development finance space”.

Arnold's business has had to adapt to significant policy change in the home loan space. But he says, “I’m fortunate that, coming from a commercial background and a strong understanding of complex corporate and finance structures, we have been able to adjust and educate our client base to ensure minimal impact on our home loans business.”

The major banks still play a vital part in Arnold's business, and he prides himself on offering a mix of banks, non-banks and private funders. “We therefore have not had to shift too far away from those relationships,” he says. “Providing a variety of options to clients and reviewing each in detail assists us in our aim to deliver a great client outcome.”

Arnold cannot see major banks widening their credit appetite in the near future, but he believes they are right for some transactions. When they aren't, he urges caution with respect to some of the newer non-

“Providing a variety of options to clients and reviewing each in detail assists us in our aim to deliver a great client outcome” bank and private lending options. “You do need to be careful to ensure they are a trustworthy source that ideally is fully funded and importantly can deliver.”

Having ensured his business is diversified and adaptable, Arnold says other brokers need to look to do the same but with the right level of training and support from aggregator and lending partners.

“Without the appropriate level of training, support and experience, the risk of a poor client outcome increases, and this needs to be avoided,” he says. “As it stands, I believe the barrier to entry for the broking industry needs to be higher.”

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SPONSORED BY

BEN WARDLEY A career in banking set Wardley up for a life in broking, but now he increasingly deals with alternative lenders in the search for finance

A CAREER in banking at two of the big four banks steered Ben Wardley, director of The Brokerage, towards commercial broking back in 2005. Having dealt mostly with commercial real estate, it was his relationships with property developers and investors in those bank roles that encouraged him to focus mainly on construction.

The Brokerage services the east coast primarily, with Wardley based in Sydney and another office in Brisbane. Even if the finance is not specific to construction, it's related, whether it's used to help purchase a site or involves releasing equity from other assets. The Brokerage also has big investor clients, such as shopping centres.

Wardley's experience at the banks has helped him understand exactly what brokers need to present when applying for a loan. He says he would have struggled without that knowledge.

Despite this, he has not been immune to the struggles of the past 12 months. He says it feels like a “long marathon” to get deals approved and settled with the increasing scrutiny. In fact, he has had to pick his battles and change the types of transactions the business takes on.

“We have done a lot of apartments and highdensity unit blocks, and it’s been quite obvious for the last few years that banks are turning off the taps for that,” he says. “We've done a lot more in the commercial construction space and a lot more shopping centres and warehouses.”

Wardley has turned more and more to non-bank and private lenders as a result of the tightening credit, which he says is a good thing because their processes are faster and they have flatter approval structures.

“That’s been a focus for the last 12 months for us to make sure we’re getting out there and looking under the rocks and making sure we’re aware of who’s doing the funding in this space,” Wardley says. As part of this, he has to make sure his clients are kept up to date on market conditions and informed that they may need to pay higher fees to alternative lenders.

4

Total value of commercial loan settlements

$160,597,930

Number of commercial loans settled

45

“We will welcome those new lenders because it makes our job a bit easier; there’s plenty of competition in that space” Looking ahead, Wardley wants to continue the push towards commercial transactions and help clients buy sites as they wait for conditions to improve. To assist with that, the team set up a residential mortgage business to handle the residential deals.

In terms of the wider lending market, Wardley believes it will be “more of the same”, but he does think the non-banks will overtake the banks when it comes to customer choice. “We always hear of new lenders entering that space,” he says. “We will welcome those new lenders because it makes our job a bit easier; there’s plenty of competition.”

Average commercial loan size

$2,369,842

Years as a commercial broker

14

Aggregator

FAST

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SPECIAL REPORT

TOP 10 COMMERCIAL BROKERS

3

JUNHAO SUN Using his experience to his advantage has allowed the MD of AUSUN Finance to continue growing his business in difficult lending conditions

NOW PREPARING to move to an even bigger office

Total value of commercial loan settlements

$197,341,482

Number of commercial loans settled

24

Average commercial loan size

$8,222,561

Years as a commercial broker

4

Aggregator

FAST

58

in Melbourne, Junhao Sun has made huge strides in growing his business in the four years since he became a commercial broker. The father of two originally came to Australia as an overseas student and kicked off his finance career in 2008 at Westpac as a personal banker.

He moved through a number of roles, including residential lending manager, but in 2014 left the bank to think about opening his own broking business.

“In the bank I didn’t have too much room to grow, and I had ambitions to be managing myself,” he says.

At the start of 2015, he began AUSUN Finance as the solo loan writer. Fast-forward to today and he has 11 licensee holders and a team of 20 staff.

Sun deals primarily in commercial property, such as shopping centres and office buildings. His experience at the bank and of moving to Australia has given him an edge. Around 90% of his clients are Asian, and the rest are generally made up of referrals from those clients.

“It’s helped me. Using my cultural background has lent me an advantage to gain the trust from Asian clients,” he says. “If I was to place myself in their shoes, they’re coming to this country, they don’t know too much, and also language could be one of their barriers. Things are different in Australia and China, and I can highlight all the differences in a language easy for them.”

While Sun says he has noticed the market slowing down, it has affected the residential lending space more than the commercial side. He expected a larger impact on his business, but it is still growing, just not at the pace it had been previously.

One thing he has faced, however, is the need to change the lenders AUSUN uses. He says he was well prepared for that shift.

“We used to be dealing a lot with the major four,” he explains. “Since the lending policies and criteria have changed, we've adapted ourselves to going back to the second-tier and third-tier lenders.”

“Since the lending policies and criteria have changed, we adapted ourselves to going back to the second-tier and third-tier lenders” Sun expects very few changes in the future, and even that lending will get tighter. But he has a plan in place to ensure his business runs smoothly. Ever since AUSUN’s first year in business – with just one or two brokers on board – he has been running weekly information sessions that keep brokers updated on policies and allow them to workshop deals with each other and share their experiences of particular lenders, saving other brokers time and their clients time.

“It’s very important,” he says. “The lending policies and the environment could be changing on a regular basis; we have to make sure we are always upfront.”

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SPONSORED BY

DANIEL GREEN Specialising in pub and hotel finance, Green knows the importance of staying across a wide range of lenders to find the best deals

OPERATING OUT of Queensland, the director of Green Finance Group is another returning Top 10 Commercial Broker. Up from seventh place in last year's list, Green has seen a substantial increase in his average loan size. The reason behind his success?

Consistency, he says.

“I’d like to think I can help everyone who walks through the door, straight away, but we often find the timing just isn’t right. New business ideas or plans for expansion need time to form.”

While Daniel Green’s lending experience crosses most industries – including childcare finance and commercial property and development finance – his personal specialty is pub and hotel finance.

After working in banks for well over a decade, Green established Green Finance Group in 2010, operating solo. Since then he has expanded to a team of nine specialist finance brokers, a financial planner and three support staff.

The changes in the market have not gone unnoticed

by Green. Increased regulatory frameworks, mostly due to the royal commission, have resulted in extra documentation required and longer turnaround times.

Green says changing lender appetites and policy are “par for the course” and it’s his job to be across that no matter what, but the hardest part has not been the extra work for the banks. “If anything I’ve had to work harder to educate my clients around timing and preparation and the fact that just because their existing bank worked in the past doesn’t mean they’ll be receptive now,” he explains.

Green has a panel of over 30 lenders, both banks and non-banks, to provide better options for his clents.

While other brokers have found bigger banks tightening up, in some areas he has seen the opposite. “Some of the bigger banks have recently revived policy to reduce loan fees for small businesses, and additional credit availability is starting to filter through,” he says.

Looking forward, Green expects lending to widen up again. “It’s swings and roundabouts,” he says. In his own business he sees a big opportunity to grow through

2

Total value of commercial loan settlements

$223,493,246

Number of commercial loans settled

127

“Some of the bigger banks have recently revived policy to reduce loan fees for small businesses, and additional credit availability is starting to filter through” the strategic development of referral partnerships, particularly in the commercial property sector.

Referrals currently account for 70% of his business, either through existing clients or business associates like solicitors, accountants and real estate agents.

The client relationship for Green is important, and he believes in extending the broker value “beyond a simple transaction”.

“The customer has always been at the centre of my business philosophy,” he says. “Without them my business wouldn’t exist”.

Average commercial loan size

$1,759,789

Years as a commercial broker

9

Aggregator

Loan Market www.mpamagazine.com.au

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SPECIAL REPORT

TOP 10 COMMERCIAL BROKERS

TOP 10 COMMERCIAL BROKERS

Total value of commercial loan settlements

$234,775,128

Number of commercial loans settled

23

Average commercial loan size

$10,207,614

Years as a commercial broker

11

Aggregator

Choice 60

KEVIN WHEATLEY Australia’s top commercial broker has combined logistics with finance to support some big clients around the world, using a mix of lenders, from the majors to private lenders and annuity funds THIS YEAR’S top commercial broker is a welldeserving winner, having made his way up the list over the years and jumped from third place last year.

Kevin Wheatley, director of Sydney-based Bayside Residential and Commercial Mortgages, is writing some big figures.

Originally a logistician working on projects like shipping port facilities, Wheatley found there was a high component of procurement in the industry and saw it as a natural step towards offering a finance service. And “the rest is history”, he says.

Still providing logistics support globally, Wheatley writes deals for hotel and residential construction and commercial funding, putting financial structures together and raising capital to ensure the structures are funded and completed. He lived in Vietnam for four years as he put together financial structures for three major waste recycling stations, raising $200m out of Singapore.

The move into finance is one of the best decisions he’s ever made, he says. “I have never looked back, and I've managed to maintain the same work effervescence today as I did when I made the conscious decision to move across.”

Working with high-end clients has not meant Wheatley has escaped the challenges of the past 18 months. He's seen a difficult finance environment.

“Anyone that says it’s been easy really isn’t writing a lot of business,” he says. “We’re working twice as hard as we have ever done, but that’s to be expected.”

But Wheatley says this is where a broker’s knowledge and background can earn the respect of clients who come to them for support. “When you’re

in this environment and institutions have tightened monetary policy, this is where you have really got to apply yourself and look at where alternative funding streams can come from.”

To do this, Wheatley has about 80 lenders on his panel made up of mainstream banks, non-banks, foreign investment banks, annuity funds and private funders. Over the past six months, around 80% of his funds have come from private funding or non-banks.

Wheatley has not made the active decision to avoid major banks; in fact he says in the current environment brokers need to strengthen their relationships with the banks and work within their policies and guidelines.

“We can’t go beating up the banks because of the policy and regulation changes,” he says. “If you can put a deal together with the mainstream bank, great. But if they don’t have an appetite for the business we’re trying to introduce them to, then we have no option but to go to second-tier funders.”

Wheatley has also had huge success with offshore business in Southeast Asia and the Middle East. He uses offshore funders and annuity funds that have an appetite for big infrastructure programs like toll road centres, shopping centres and port facilities.

In terms of the Australian market, Wheatley is confident about its future and expects much more stability after the election dust settles. “Whether you’re a member of the MFAA or FBAA,” he adds, “this is a time when we have to take a united front to ensure the future of the third party channel. The industry needs to get in and support the changes. Maintain solidarity ...

The industry doesn’t ask for it, it demands it.”

“When you’re in this environment and institutions have tightened monetary policy … you have really got to apply yourself and look at where alternative funding streams can come from”

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SPONSORED BY

Kevin Wheatley (centre) is presented with his trophy by La Trobe Financial VP and chief lending officer Cory Bannister (left) and VP and head of major clients Steve Lawrence (right)

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PEOPLE

CAREER PATH

SETTING A BENCHMARK The desire to provide business owners with the best support has made Scottish Pacific CEO Peter Langham an innovator in the lending industry Peter Langham trained in the UK as an accountant in public practice, preparing accounts and audits for small businesses.

Over the years he worked within 1992 TRAINS IN the debtor finance industry in BUILDS ACCOUNTING credit and international trade and sales, progressing in STRONG RELATIONSHIPS 1988 to head of sales at Kellock, a bank-owned debtor finance company. “I developed a healthy respect for business owners who Langham moved from put it all on the line and never stopped working. I wanted to be able to really the UK to Perth to join help them and not just tell them something based on historical numbers.”

Scottish Pacific as its state manager, a sales and relationship role with administrative work carried out in Sydney. At that time, Scottish Pacific had no introducer base and managed 1997 only a handful of clients. Being away from the eastern states was a good thing BROADENS PRODUCT for Langham because Scottish Pacific Perth could market and sell in a way it KNOWLEDGE felt would work, instead of following someone else’s formula. “By getting to know many accountants and finance brokers in WA, educating them on funding As the regional head of debtor finance products and building strong relationships with clients, we grew the client base and at AGC, Langham further developed the developed a full operating centre in the Perth CBD.” company’s invoice finance business.

“Here I learned more about a wider range of lending products.”

1998

1980

2005

ACQUIRES SCOTTISH PACIFIC The management and remaining stakeholders of BDF stayed on after the business was acquired by a consortium of Sydney businesses. In 2007, BDF then purchased Scottish Pacific from St. George Bank.

Following the acquisition of three debtor finance businesses, Scottish Pacific became a public company on the ASX in 2016. Today, Scottish Pacific Business Finance, having been acquired by Affinity Partners in December 2018, is a private company with some 300 staff that lends over $1.3bn and handles $17bn in sales annually. “We have learned to change our structure, and our leadership team adapts as the business grows and changes.”

“Through this journey, what we have been able to achieve is to keep clients and business owners at the heart of what we do.

We have added solutions to meet the needs of Australian and New Zealand businesses” 62

CREATES A BENCHMARK

Feeling that Perth businesses weren’t getting the best support, Langham launched Benchmark Debtor Finance (BDF). Initially aimed at helping WA businesses, BDF expanded and set up offices in Perth, Sydney, Melbourne, Brisbane and Adelaide over seven years. The business refinanced five times and carried out several capital raisings.

“I had to develop the business plan, forecasts, investment papers, policy and procedures and legal documents, along with finding investors and funding lines.

This was a period when I learned how hard it is to be a business owner and how lonely. My already high regard for business owners grew tenfold.”

2019 and beyond

SEEKS INNOVATIVE SOLUTIONS Given the long and successful history of Scottish Pacific Business Finance, Langham and his team have a broad understanding of SMEs and business owners.

Their knowledge guides them as they search for new and innovative ways to help business owners grow more successful. “The large and successful network of broker introducers we have built up over 30 years is an integral part of this success.

Many of these brokers have become friends to me and to many of our staff.”

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PEOPLE

OTHER LIFE

TELL US WHAT YOU GET UP TO Email rebecca.pike@keymedia.com

6

Age of Amy Small when she attended her first musical

“I love having my friends a nd fa mily recite to me their favou rite songs or lines from the play. That’s how you know it was good”

1

Number of plays Small performs each year

1 to 3

Number of times Small rehearses each week

CENTRE STAGE Professional Lending Solutions regional director Amy Small has played many key roles, including a starring performance as Mimi in Miss Saigon EVER SINCE Amy Small saw her first stage musical, theatre arts has been part of her life.

“It’s a wonderful rush to get up on stage and have an audience cheer or gasp at what you’re doing,” says Small, Professional Lending Solutions regional director and 2019 MPA Young Guns finalist. “I have always loved singing and dancing. It’s a great way to support the community arts and to stay fit.”

While she was a member of the Taree Arts Council and Port Macquarie Players drama groups, Small played key roles such as Johanna in Sweeney Todd and Mimi in Miss Saigon. She then took time off from the performing arts when she moved from Taree to Newcastle in 2017 to build her business.

Returning to the stage just recently, Small joined the Theatre on Brunker and is set to play various ensemble roles, including the district attorney in a Legally Blonde musical.

“I do love the quirky musicals, such as Sweeney Todd and Monty Python, something with musical technicality or a great twist,” she says.

With a growing business, Small walks a thin line between doing theatre and taking care of her business and family. She says “dedication and communication with a very understanding husband” are what allow her to continue her lifelong passion.

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