Mortgage Professional Australia 18.05

MPAMAGAZINE.COM.AU ISSUE 18.05

CRACKING COMMERCIAL Break new ground for your business in commercial lending

GEORGE KARAM The commercial broking king embarks on a new challenge to shape the industry’s future

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STEPHEN MOORE Investing in brokers’ professional development leads to positive growth

OTHER LIFE A former professional football player turned broker on coaching the next generation

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MAY 2018

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 04 Statistics

An overview of the strength and diversity of the commercial lending market

SPECIAL REPORT

COMMERCIAL LENDING GUIDE

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Everything you need to know about the thriving commercial finance sector, including where to start, how to improve, and what your next steps should be in diversifying your business

24 FEATURES

SME FINANCE

Suncorp, NAB and AFG are partnering with brokers in innovative ways to help them bring their SME clients a broader range of products and options

THE BIG INTERVIEW

George Karam embarks on a new challenge to shape the future of the commercial broking industry for the better

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Three brokers on what they wish they’d known before launching into commercial finance

07 Opinion

Spotcap’s Lachlan Heussler on the fascinating evolution of fintechs

08 News analysis

SMEs’ troubles accessing finance could prove to be an economic vulnerability

FEATURES 46 Vendor focus

30 FEATURES

PEOPLE

06 Head to head

ASSET FINANCE

Connective Asset Finance on finding your edge in the lucrative asset and equipment finance market

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Choice CEO Stephen Moore on elevating brokers through education, training and support

50 Regional broking

How brokers are bringing financial vitality to regional communities

PEOPLE 52 Brokerage insight

Taking mybrokeronline to new heights through innovation

54 Career path

David Gandolfo has experienced both sides of the broking–lending divide

56 Other life

A former professional football player on building community

FEATURES

DEBTOR FINANCE

Look beyond the usual players and you’ll find plenty of flexible cash flow solutions for SMEs

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

Opportunities for the taking

W

hile researching and writing this special commercial lending issue, I learned a lot about the challenges that SMEs face in accessing finance, the opportunities that abound for brokers in this space, and the many complex products and offerings that exist.

On a few occasions, I had to admit to my interview subjects that I didn’t understand, and ask if they could explain things again. While I’m still not an expert in commercial lending (for that, flip to page 10), I do have a better understanding and great empathy for what a residential broker goes through when writing their first commercial loan.

It does seem daunting and intimidating. Just looking at the numbers is overwhelming: the total volume of commercial loans in Australia is around $658bn.

But what I found was only patience and willingness from lenders, fintechs, aggregators and commercial brokers to break complex subjects down into simpler terms – and explain things again. You just have to ask.

Know when to refer work on to others; know when to seek assistance and ask for help; know when to admit what you don’t know Lenders obviously want brokers to write commercial loans, and they’ve got plenty of support and training programs in place to accommodate every skill level, so it’s a smooth transition. They also spoke highly of the collaborative element that is an important part of the process of seeing through complicated commercial deals.

While branching out into commercial lending is a good idea for many reasons – to better meet the needs of your existing customer base and diversify your revenue stream – you have to decide if it’s the right move for you and if it complements your long-term business goals.

According to one experienced commercial broker, it is worth choosing a few areas of commercial finance to specialise in rather than trying to do a little bit of everything. Know when to refer work on to others; know when to seek assistance and ask for help; know when to admit what you don’t know.

This has been a great learning experience for me, and there’s still plenty more to explore in this thriving sector. For those with experience in commercial lending and those just starting out, we hope this issue helps you do what you already do best: serve your clients.

Otiena Ellwand, editor, MPA

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www.mpamagazine.com.au MAY 2018 EDITORIAL Editor Otiena Ellwand Journalists Abel Riototar Nicola Middlemiss Contributor Lachlan Heussler Production Editor Roslyn Meredith

ART & PRODUCTION Designers Cess Rodriguez Martin Cosme Traffic Coordinator Freya Demegilio

SALES & MARKETING National Sales Manager Claire Tan Account Manager Simon Kerslake Marketing and Communications Manager APAC Michelle Lam Marketing Executive Alethea Dean Danica Mendoza

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

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UPFRONT

STATISTICS

Big numbers in commercial

70.9%

90%

of SMEs had cash flow problems in 2017

SME and commercial lending are two avenues offering solutions for brokers looking to diversify FOR BROKERS wanting to expand their product portfolio and client base, now is an excellent time to consider entering the SME and commercial lending arena.

With more than 2.2 million small businesses and 70,700 franchise units in Australia, as revealed by the ACCC in its Small Business 2017 Snapshot report, one can easily project that the number of business owners needing the assistance

9 out of 10

67%

SMEs say cash flow impacts on revenue

of SMEs are micro-sized businesses with up to four staff

38.4%

37.2%

of a broker will continue to grow.

Brokers also have an established organisation to rely on for support. By becoming a member of the Commercial & Asset Finance Brokers Association of Australia (CAFBA), the first national peak professional body representing commercial finance brokers, brokers will receive continuous education and assistance to help them take advantage of these opportunities.

$100bn

is the value of the asset finance market in Australia

52%

Government Suppliers Customers paying red tape reducing payment time late

CAUSES

of businesses used brokers to source equipment finance Source: ASIC, CAFBA, East & Partners

MOTOR VEHICLE COMMITMENTS ON THE RISE

BROKER ASSOCIATION GROWING IN STRENGTH

Car loans in 2017 made up 4.2% of total new finance commitments, a boost from 2.7% in 2007. Although motor vehicles make up 22% of new personal finance commitments, they represent only 3% of overall commercial finance commitments.

CAFBA has enjoyed steady membership growth since it launched in 2008.

In 2015, the association said its members, who at the time mainly specialised in equipment and vehicle financing, turned over in excess of $8bn.

4.2% 0.4%

Other personal

6.9% Housing

Motor vehicles Other lease

30.0% Share of finance commitments for motor vehicles, 2017

50+

200+

550+ Business writers

Member firms

Major equipment financiers

58.6% Other commercial Source: Royal commission

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OVERCOMING THE CASH FLOW CHALLENGE The Scottish Pacific SME Growth Index found that 90% of SMEs had cash flow problems in 2017, which stems from a variety of causes. As a result, 67% of respondents said they opted to use personal finances, such as lines of credit through their credit cards, to ease cash flow. To reduce debtor days, other SMEs employ various strategies to better manage their working capital.

24.8%

66.6%

65.1%

Strategies to deal with cash flow issues

50.8%

21.1% 16%

13.7% 8.6%

12.2%

9.1%

4.7% Couldn’t Difficulty meeting tax take on payments new work

Wrote off bad debts

Use Cash flow Offer early Make ATO Credit checks personal forecasting payment arrangements on new customers finances discounts

Take out/ Spend more increase time chasing invoices overdrafts

Reduce overall sales

IMPACT Source: Scottish Pacific SME Growth Index, March 2018

BROKERS WINNING TRUST

THE STATE OF SMES IN AUSTRALIA

The expertise of brokers in equipment financing continues to be relied on by various types of businesses, according to East & Partners’ Asset & Equipment Finance report for 2018.

The latest SME Growth Index from Scottish Pacific, which surveyed 1,200-plus SMEs, shows cash flow is still a major concern for this group. As SMEs grapple with this, they’re increasingly turning to the non-bank sector for solutions and considering alternative funding choices, such as debtor finance, merchant cash advances and peer-to-peer lending

Broker-sourced proportion of total equipment financing

100 80

42.1%

90.1% 92.6%

Better

2017 = Total: 67.3% 2018 = Total: 70.0%

67.4% 70.4%

60 40

4.5% Significantly

38.6% 42.4%

worse

25.1% 26.6%

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SME cash flow status, compared to 12 months ago

26.8% Significantly better

6.6%

Worse

0

Microbusiness

SME

Corporate

Institutional

Source: East & Partners’ Asset & Equipment Finance report, 2018

19.9%

Same

Source: Scottish Pacific SME Growth Index, March 2018

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UPFRONT

HEAD TO HEAD

What advice can you give new commercial brokers?

From the value of education to asking the right questions, these seasoned brokers’ tips help light the path for industry newbies

Aaron LY

John Macalyk

Finance broker Citadel Capital Solutions “There’s a lot more involved [in commercial broking] compared to residential mortgage broking, and the market is a lot smaller.

The process is far more strenuous. It requires a lot more time and effort to convert, from the initial phone conversation to funding; not to mention all the ratios needed when working on a complex commercial deal.

“A degree in economics or accounting would come in handy to help you better understand such things as liquidity, management efficiency, capital structure, profitability and more.

“That said, SME customers are unique and stickier, compared with your home loan customers. If you set them up correctly from the beginning, future transactions will be a lot easier.”

Managing director AAA Mortgages

“Leaving AGC (Westpac) to go on my own was daunting to say the least. To this day, my wife still says we lived on baked beans for the first six months.

“When I started as a commercial broker, I thought interest rate was a client’s main concern, so I would do all I could to satisfy that wish – sometimes successfully, sometimes not.

“From that experience, I started asking clients more questions: How soon do they need the settlement? Would they pay a higher interest rate for a no-fuss result?

“What a revelation! My conversion rate went from 50% to over 80%. You see, the terms and speed of any approval are just as important as the rate.”

Ray Weir

Mortgage broker Finance Solutions (WA) “Brokers starting out in commercial need to understand the amount of additional work that’s required to gather data for a commercial loan, and the additional expertise they must have in other areas.

“What is lacking at the moment is a dedicated commercial lending course.

There’s the diploma course, but that really just covers complex broking skills; it doesn’t teach a lot about commercial loan products and the different types of commercial properties a broker might be called on to finance.

“The best advice I can give someone now is to do your commercial accreditation with at least half-a-dozen commercial lenders so you can pick up something different from each one.”

BOOSTING BROKERS’ EDUCATION The Commercial & Asset Finance Brokers Association (CAFBA) has launched a new course to attract and train new recruits on the basics of commercial and equipment finance.

The course, Certificate IV in Financial Services: Commercial and Equipment Finance, was launched in April and is part of CAFBA’s overall strategy to further professionalise commercial finance broking, develop its education program, and attract more diverse entrants into the profession. “The demand for educational programs specific to the needs of commercial – not consumer – finance brokers is high. New programs will create multiple educational routes into and career pathways through the profession,” CAFBA says.

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UPFRONT

OPINION

GOT AN OPINION THAT COUNTS? Email otiena.ellwand@keymedia.com

From disruptors to collaborators Lachlan Heussler, managing director of Spotcap Australia and New Zealand, discusses the three waves of fintech and how this maturing market is offering more than disruption THE FINTECH industry in Australia is booming, growing to a point where we can now analyse its evolution in ‘waves’.

The first wave was disruption, the second is collaboration, and the third wave – although disputed – suggests that fintechs are maturing to look more like the traditional institutions they once challenged. Right now, I think we’re in the second wave but on the cusp of the third.

First wave: Disruption There isn’t one agreed definition of fintech’s waves, but for me, the first was characterised by the period after the GFC. This is when start-ups eager to approach finance more innovatively began to flourish.

With their open-plan offices and ping-pong tables, fintechs began to take bank services and make them slicker, cheaper and more customerfriendly. They capitalised on technological advancements to reform customer expectations around speed and agility, effectively setting a standard that traditional players struggled to match.

While ‘disrupting financial services’ was a nice soundbite, a lot of first-wave fintechs didn’t manage to disrupt as much as was initially anticipated. But while they might not have overthrown financial services, first-wave fintechs did do something important – they emphasised the importance of technology.

The future of finance isn’t just technology.

If it was, fintechs would have successfully displaced the banks by now. The future of finance is increased customer-centricity that can be achieved through effective use of technology. This is the founding success of

fintechs and is still the area in which traditional players are trying to improve.

Second wave: Collaboration Not all fintechs survived the first wave. Some companies fell by the wayside due to lack of investment and/or failure to penetrate financial regulation. The surviving fintechs are the ones that collaborated, capitalising on what the veterans of the financial services industry have to offer: large client bases, customer trust, and high-scale operations.

The second wave is where we are now. This wave was precipitated by the pressure on big

and we’re using collaboration to overcome our own shortcomings. We have introduced lending as a service we provide to traditional financial firms. Within the next three years, we aim to grow our company by eight times what it is now.

We believe that the proposition of lending as a service will instigate this growth, making up at least half of our loan volume. Collaboration will drive our company’s future success and our industry’s. This is a common understanding in the industry: the World Fintech Report 2018 said 75.5% of fintech firms had reported that their primary business objective was pursuing collaborations with traditional financial firms.

Third wave: Maturity It is predicted that the third wave will see fintechs being fully absorbed by or turning into hybrids with incumbents. It has also been argued that fintechs will become more and more like traditional financial institutions, going beyond simply collaborating and partnering.

We may be starting to see this now as fintechs begin to adopt traditional funding practices such as applying for banking licences.

This is the way that fintechs are heading: they are acting more like traditional finance

Fintech is evolving through collaboration and partnerships to create a richer, more competitive financial ecosystem financial institutions to innovate. Fintechs like Coinbase raised big funding rounds and became regulated companies. By integrating into the financial ecosystem, these start-ups have shown they mean business.

In response, banks made public pledges to innovate. Some have set up innovation programs to incubate and invest in fintechs.

Others, like Westpac, have established internal innovation and are investing and partnering with fintechs to stay abreast of the competition.

One thing is for sure: the second wave is the era of banks and fintechs working together and learning from one another.

On a personal level, Spotcap values the competitive advantage of the traditional players,

institutions with a spin. They are challenging the banks and changing the very model of finance to offer more customised user experiences and products.

We should exercise caution when using the ‘disruptive’ label. Fintechs, such as Spotcap, are evolving through collaboration and partnerships to create a richer, more competitive financial ecosystem.

Lachlan Heussler has worked in financial services for the last 15 years, both in Sydney and New York. For the last five years, he has been at the intersection of finance and technology, helping to bring several smaller start-up businesses to market.

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UPFRONT

NEWS ANALYSIS

SMEs’ weak spot With home ownership levels dropping among millennials, young SME entrepreneurs are facing an uphill battle when it comes to accessing affordable capital without putting property on the line ANY BUSINESS owner – brokers included – who has tried to get more than $100,000 at a decent rate to refit or grow their business knows that it’s close to impossible without putting up their home as collateral.

This leaves the economy vulnerable to a growing problem: those in their entrepreneurial prime cannot afford to buy houses in Australia, which could negatively affect their chances of qualifying for a business loan.

Home ownership among 25- to 34-yearolds has dropped by a third in the last 25 years, and yet 80% of small business lending on term loans provided by the major banks in 2017 was secured.

“Increasingly in Australia there are a lot of people who don’t have significant equity in their homes; they’re still renting but they still have great businesses,” Australian Small

worthiness of the business and its cash flow, the ‘engine room of the economy’ – as the booming SME market that employs 45% of the workforce is often described – will inevitably suffer.

There’s a division between the business owners who come from means versus those who do not.

“If you have wealthy parents who can lend you the money to go into business, then you’ve got a shot,” Carnell says.

“Smart young entrepreneurs who don’t have wealthy parents will have lots more trouble starting up businesses than those that do, and I think that’s a problem.”

The emphasis on property security can create a dangerous dilemma. It’s not unheard of for SME owners to put the homes of their pensioner parents up as security, Carnell says. If that business fails,

“The engine room [of the economy] isn’t going to be firing very well if it can’t access affordable energy” Kate Carnell, Australian Small Business and Family Enterprise Ombudsman Business and Family Enterprise Ombudsman Kate Carnell tells MPA. So if young entrepreneurs can’t get the capital they need to invest in their businesses because lenders are more focused on real property security than the holistic credit-

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it’s the family’s home and relationships on the line.

This is something that greatly concerns Carnell, whose office is conducting an inquiry to investigate initiatives here and abroad that might address the funding gap.

“All sides of politics are very happy to talk about the SME sector being the engine room of our economy, and it is … [but] the engine room isn’t going to be firing very well if it can’t access affordable energy or petrol for the engine. You can’t have a business without access to affordable capital.”

What SMEs are up against The Productivity Commission’s draft report into competition in the financial system looked at the issues affecting finance options for SMEs and found that while nearly 90% of SMEs who applied for finance in 2015/16 were successful – a bounce-back since post-GFC lows – new businesses in particular struggle.

The challenges include having to pay more for finance and use real estate as security, as well as having to rely on the large banks that

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LENDING PRODUCTS USED BY SMALL BUSINESSES Credit cards

Overdraft Other long-term loan Property mortgage Line of credit Commercial bills Short-term loan

2013 2016

Trade finance 0%

10%

20%

30%

40%

50%

60%

Source: ABA, Productivity Commission

dominate in this area of lending and deal with the often-one-sided contracts placed on SME loans. There’s also the fact that smaller banks have less appetite for SME lending, which is riskier and less profitable than

on character, capacity and collateral, the commission’s report shows.

Some lenders “highlighted that the provision of housing collateral was an indicator of the borrower’s character; it provided the small

“The amount of growth opportunities that SMEs miss due to lack of finance is enormous” Lachlan Heussler, Spotcap residential property, the PC report says.

From a lender’s perspective, however, assessing whether a new business can service a loan is difficult when there’s no history or financial information; therefore they typically assess the borrower based

business borrower with strong incentives to repay, with the borrower clearly having ‘skin in the game’,” the report says.

Without a house to put on the line, however, business owners have few options. Unsecured finance – usually credit cards – tend to fill the

gap, but the interest rates charged can be staggering. The RBA found that, at June 2017, the interest rate gap between residentially secured small business term loans and low-rate credit cards was over 6%, and over 13% for standard-rate credit cards.

Fintech lenders and savvy brokers have started to fill some of that gap for SMEs, but there’s still a lack of awareness generally that brokers do more than just residential mortgages, says Lachlan Heussler, managing director of online small business lender Spotcap Australia and New Zealand.

“The amount of growth opportunities that SMEs miss due to lack of finance is enormous.

A huge problem for small businesses is an even bigger opportunity for smart residential mortgage brokers to diversify their offering by embracing alternative commercial lending and not risk falling behind.”

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PEOPLE

BIG INTERVIEW

GEORGE KARAM: INDUSTRY INFLUENCER Known for the multimillion-dollar deals he settles, this top commercial broker has embarked on the new challenge of shaping the decisions and directions of commercial broking in his new role on CAFBA’s board of directors MOST BROKERS are probably familiar with George Karam’s name and face. The industry stalwart has been crowned MPA’s Top Commercial Broker twice (2015 and 2016), in addition to winning dozens of other awards.

He’s one of a handful of commercial brokers settling hundreds of millions of dollars in deals every year – and he’s still humble.

While Karam remains the active director of BF Money, his firm based in Parramatta, he has also embarked on a new challenge, joining the board of directors of the Commercial & Asset Finance Brokers Association (CAFBA), where he’ll be helping to shape the decisions and direction of the industry.

Being involved in CAFBA is about having the “ability to have a voice for something that affects such a huge part of my life”, Karam tells MPA. What appealed to him about the organisation was its acknowledgement that it needed to shift from solely representing equipment finance brokers to including all commercial brokers – a change he thought was much needed.

“I share the organisation’s values and beliefs.

I was aware that they were working on a strategic plan to widen their scope, so when

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they finally did it and published that work … it really appealed to me and said things that I really believe in.”

While residential brokers have long had representation in the MFAA and the FBAA,

Lending to a business is not the same as lending to a consumer. It involves different circumstances and compliance requirements and relies on brokers to have the right skill sets and education to get the job done, Karam says.

“The future for commercial broking is very optimistic. ... The class of clients that see value in what we do and seek out our services is better than I’ve ever seen” commercial brokers have traditionally been adrift without a reliable and constant voice to advocate on their behalf in policy debates.

As more residential brokers transitioned into writing commercial deals, CAFBA realised it needed to take a leadership role and become more broadly reflective of and relevant to its membership base and the industry at large, Karam says.

“Having been in the game for about 19 years now, it is a breath of fresh air because we’ve got very little airtime with our unique [commercial] set of issues and concerns in the past.”

Commercial finance broking is complex.

Made up of three main disciplines – general business banking, equipment and asset finance, and commercial property finance – each has its own culture, remuneration agreements and protocols, Karam says.

The most established is equipment finance, which is the “quintessential extension” of the supply chain for the lender, and sales and commission processes are generally understood by bank lending officers and brokers. The property finance space, on the other hand, in which Karam predominantly plays, is at the

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PROFILE Name: George Karam Title: Director Company: BF Money Years in the industry: 19 Career highlight: It isn’t the size of the deal that makes this one memorable but the complexity – and the fact that, with so many people trying to have a go, Karam was the one who got it across the line. For about two years he worked on the particulars of this deal for a large mixed-use area in Sydney’s Mascot suburb.

It included a 220-room hotel, a commercial tower and a 850-bay car park. As a result, he and the client became family friends. And another highlight? “My emotional high was when I first made the MPA Top 10 commercial brokers.”

Career lowlight: ““In 2008 to 2009 when people were not able to get access to funding and I wasn’t able to help, that really took an emotional strain. I had people in my office coming to me needing help, and I wasn’t able to do anything. People were breaking down in my office.

Those types of things, they never really leave you.”

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PEOPLE

BIG INTERVIEW

other end of the spectrum, with each lender dealing with brokers differently.

“Each is trying to manufacture its own rules for engagement, how they engage and what they expect of the broker; how many brokers they want to accredit, how much property finance they want, and how they want to engage with the third party channel.”

Karam recalls when lenders didn’t even have a distinct third party channel for commercial loans. Today, remuneration for property finance is paid and negotiated deal by deal. Yet a broker can still write and maintain commercial accreditation by going to residential lending refresher courses and residential PD days to obtain CPD points.

“I think residential brokers do an amazing job, and there’s no reason why they can’t write commercial deals and have commercial accreditations. What I would like to see is a requirement for ongoing education and investment in gaining knowledge if you want to maintain your commercial accreditation, which doesn’t really happen at the moment.”

A key objective of CAFBA’s strategic plan for 2017–20 is to reform broker education to make it specific to commercial finance.

It plans to develop entry-level, tertiary and postgraduate qualifications and use these to

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recruit new and more diverse entrants to the profession.

In April, it took the first step.

It launched the Certificate IV in Financial Services: Commercial and Equipment Finance to teach new entrants the basics of commercial and equipment finance, which is the first curriculum dedicated to this pursuit.

“Whilst there were bits and pieces around, there was not a definitive, recognised industry curriculum, so CAFBA set about developing one,” the association said in a news release.

Its long-term goal is to introduce an industry-wide qualification similar to the Certified Lease & Finance Professional (CLFP) designation for commercial equipment finance professionals in the US, which ensures competency through testing and continuing education. CAFBA has now partnered with the foundation behind the CLFP to adapt the course for the Australian market.

CAFBA’S STRATEGIC INITIATIVES 2017–20

To professionalise commercial finance broking

To develop CAFBA’s education program

To expand CAFBA to represent all commercial finance brokers

The residential effect While the home loan market has been the main focus of the royal commission, there are lessons to be learned from those discussions for the commercial broking sector too.

To attract more diverse entrants into the profession

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Karam sees those lessons as “the need for self-regulation, the need to professionalise and the need to have consensus for what we stand up for as an industry, because undoubtedly there will be flow-on effects. We’re already starting to feel that … from the scrutiny, the compliance and the way that loans are written and what you can do and what you can’t do.”

As changes in the residential broking market influence the commercial lending space, Karam believes CAFBA could take a leading role in setting the bar for education.

“The future for commercial broking is

very optimistic. The things that we’re getting involved in, the types of transactions that we’re seeing, the class of

“What I would like to see is a requirement for ongoing education and investment in gaining knowledge if you want to maintain your commercial accreditation” clients that see value in what we do and seek out our services is better than I’ve ever seen, and I think that trend is only going to continue.”

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SPECIAL REPORT

MAIN HEADINGLENDING GUIDE COMMERCIAL

BREAK NEW GROUND FOR YOUR BUSINESS In this Special Report, we delve into what you need to know about the thriving commercial property sector, including what changes are taking place, where to start, how to grow your customer base, and what your next steps should be in diversifying your business for long-term sustainability WHEN IT comes to commercial finance, the numbers speak for themselves. The total volume of commercial loans in Australia is some $658bn. Commercial loans range from under $100,000 all the way up to $300m.

Last year’s MPA Top 10 Commercial Brokers were averaging loan volumes of $169m, with the top broker, George Giovas, settling $520m in 2016/17.

The asset and equipment finance market is estimated to be valued at about $100bn in receivables. Businesses are turning to brokers about half the time when they’re sourcing equipment finance solutions, so there’s still plenty of room for further growth in this sector.

Then there are the potential customers in the SME space: more than two million small businesses that at some point during their

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life cycle will likely be looking for credit, whether that’s to fit out new premises, buy an upgraded espresso machine, or invest in a truck.

From the stripped-down facts, it’s easy to see the opportunities that abound for brokers, who are increasingly being told that they need to do more than just residential mortgages to safeguard and future-proof their businesses.

The commercial market does not come without its challenges, however. First of all, it’s always difficult to launch into and learn something new. Is it worth the time and effort? Do you want to choose one area to specialise in or try it all? Our feature on commercial property finance (page 16) looks at how the royal commission may influence the commercial market, and our

SME lending feature (page 24) delves into some of the reforms that are taking place in that sector.

Despite the changes taking place in this market, the lenders, aggregators and fintechs featured in this report are adamant about wanting to support and train brokers through their diversification journeys so they can provide a broader range of solutions to meet the increasingly diverse and complex needs of their clients. And brokers already know how crucial it is to keep clients in the business – or risk them going elsewhere.

With those lender resources and partnerships in place, experienced residential brokers should have no trouble upskilling into a new field of commercial finance, breaking new ground and uncovering the vast opportunities that exist for their businesses.

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE

COMMERCIAL PROPERTY BECOME A BIGGER ASSET TO YOUR CLIENTS With the royal commission hitting the majors and the residential market hard, now is the time to learn something new and take advantage of the opportunities in the thriving commercial property space. Non-banks and non-majors are ready to collaborate

WITH THE home loan sector undergoing intense examination, there’s no better time than the present to seriously consider the benefits of diversification into commercial property finance.

While the banking industry and the home loan market as a whole have been through significant changes in the last 12 months, the changes in the commercial lending space haven’t been as pronounced, says Liberty’s group sales manager, John Mohnacheff.

In fact, the outlook for commercial finance is “overwhelmingly positive”, he says, prompting more residential brokers to experience those “aha! moments” as they test the water and write their first commercial deals.

This is, after all, where the big numbers are. The total volume of commercial loans in Australia is some $658bn. Brokers can start with smaller commercial loans in the

16

$5–10m range and work up to specialist loans above $25–$50m. At the other end of the spectrum are jumbo commercial loans from $50m all the way up to $300m.

And yet it’s generally accepted that brokers account for less than 20% of all commercial lending, as opposed to residential, which now sits at around 54%.

Since economic conditions generally dictate the value of commercial property, one only needs to look at the Reserve Bank’s economic outlook from February 2018 to see positive signs of what’s to come.

According to the RBA’s forecast, GDP growth is expected to strengthen; public infrastructure spending continues unabated, suggesting positive spillovers for growth in machinery and equipment investment; and there will be some strength in non-residential construction. Employment growth is expected to remain steady, while

LENDER’S TAKE What makes a top commercial broker?

“They have a good understanding of credit and usually structure and condition their application appropriately before it gets to the bank – this makes the approval process much quicker. They also have a good understanding of the banks’ commercial appetites and readily use ‘discussion papers’ to gauge a bank’s appetite for a proposal before lodging a formal application.”

Q

What do you specialise in?

“We specialise in commercial property lending, with a preference for commercial investment property and owner-occupied business premises.

We generally offer higher LVRs than the major banks for amounts below $3m, although larger loans can still be serviced by our commercial property team, who also look at construction for amounts over $5m. We have no ongoing fees and our upfront costs are competitive.”

Q

John Kolyvas, ING

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COMMERCIAL LENDING GUIDE unemployment will gradually decline.

While construction activity has been moderating for some time, Peter Vala, Thinktank Commercial Property Finance’s head of sales and distribution, says standard commercial lending remains solid for typical purposes such as purchases, refinancing and equity release.

“Some regions are flat to a little soft, yet the main metro areas, particularly on the east coast, are looking to present good and consistent financing opportunities while interest rates and unemployment stay low and government spending on infrastructure and services remains high,” Vala says.

Steve Lawrence, La Trobe Financial’s vice president and head of credit, says that while some financiers seem to be pulling back and controlling their books more tightly, La Trobe has seen growth in the owner-occupier SME market.

“We expect the commercial market to remain strong in the current low interest rate environment, with yields generally higher than that of residential investment,” he says.

Thinktank has seen SMSF lending continue to represent 20% of enquiries and volume, while SMEs and self-employed applicants show very strong interest in buying property for their businesses rather than renting.

The royal commission effect The royal commission might not have direct consequences for commercial lending, but it will still alter the environment in which all lenders operate.

According to Vala, there’s already been a “perceptible shift in the way the market is functioning, with the larger lenders tending to apply more focus to loan and client selection, as well as heavier scrutiny in the underwriting process”.

This is generally adding more to the approval process for applications. As the majors’ turnaround times lag behind, specialist lenders have been able to operate with superior speed and efficiency, Vala says.

But he says the larger themes that have come out of the royal commission, such as an increased focus on responsible lending, ethical behaviour and compliance, need to be taken on board by all lenders. “[These themes will] progressively spread across the entire financial services industry to capture all of consumer, small business, commercial, unsecured and equipment finance in different ways, but in broadly equal measure. The brokers and lenders who are proactive and embrace this shift will contend with change the best and continue to do very well in their respective businesses.”

All market participants are required to take corporate governance from ASIC and

LENDER’S TAKE What makes a top commercial broker?

“A top commercial broker is one who understands the specific needs of the borrower both in the immediate and over the longer term, which is often solutions-based. Top commercial brokers know where to find the best commercial product that will meet the borrower’s needs and requirements, and can look outside mainstream traditional loan providers to do this.”

Q

What do you specialise in?

“We cater for a variety of commercial property finance needs, including the purchase, refinance or construction of either owner-occupied or investment property. We can also lend to individuals, companies, trusts and SMSFs, residents and non-residents, and can do so on a full-doc, Lite Doc® and lease-doc basis.

Our sweet spot is the $5–10m loan range, with some smaller appetite up to $25m.”

Q

Steve Lawrence, La Trobe Financial

COMMERCIAL PROPERTY PROSPECTS NATIONWIDE Thinktank regularly publishes reviews of the commercial property sector, highlighting the conditions in different markets. Its latest report from April 2018 found mostly stable or improving conditions in almost all regions.

Sydney

Melbourne

Adelaide

Brisbane (SEQ)

Perth

Residential

Good

Good

Fair

Fair

Weak

Commercial

Strong

Strong

Weak

Weak

Weak

Retail

Fair

Fair

Weak

Fair

Fair

Industrial

Good

Good

Weak

Fair

Weak

What’s to come:

Improving

Stable

Softening Source: Thinktank, April 2018

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE APRA into account in forming their risk management and lending policies.

“But what the Hayne royal commission is devastatingly showing us is adherence to these polices and the regulatory standards is not uniformly actioned,” Lawrence says.

La Trobe Financial has not changed the way it approaches its loan business given this regulatory focus, he says. And it will continue to assist those who are underserved by traditional lenders.

“We treat the assessment of both residential and commercial loans in a very similar vein, whether they are National Credit Code-regulated residential loans or ‘non-coded’ commercial loans. Our loan assessment process is uniformly applied.”

Lawrence says the fact that La Trobe

more ways than one,” Mohnacheff says.

John Kolyvas, ING’s national sales manager, commercial, also says the scrutiny has had no direct impact on the non-major bank. And, like Liberty, it has seen a lift in the number of residential brokers wanting to be trained in commercial lending – though this is likely to be more indicative of brokers looking to better service their existing clients, 30–40% of whom are said to be self-employed customers, than a reflection of the increased scrutiny of home loans.

“ING remains committed to commercial lending, and there have been no changes to our approach. Our commercial team continues to grow, and we remain prudent in our credit appetite,” Kolyvas says.

“We expect the commercial market to remain strong in the current low interest rate environment, with yields generally higher than that of residential investment” Steve Lawrence, La Trobe Financial Financial’s commercial offerings, whether for investment purposes or construction, have remained almost unchanged for a decade or more highlights the stability of the non-bank lender’s products and credit policies.

From a broking point of view, Liberty’s Mohnacheff is resolute that the ongoing scrutiny of the residential sector won’t, nor should it, affect how brokers work in the commercial lending sector.

“We are confident that brokers writing residential loans will continue to meet the compliance requirements of commercial lending,” he says.

He doesn’t expect the current scrutiny of the finance industry to stymie the continued trend of brokers diversifying and offering commercial lending solutions to customers.

“Doing so is good for the customer, and in today’s world, being competitive in business demands customers are serviced in

20

LENDER’S TAKE What makes a top commercial broker?

“Simple – self-belief and a genuine interest in helping customers get finance. ”

Q

What do you specialise in?

“Liberty’s SMSF SuperCredit product offers LVRs up to 75% and loan terms up to 30 years for any owneroccupier and investor loans. We are always looking to engage with new and existing commercial brokers, and to do this effectively we have built a large and experienced national sales team. We also offer additional support to brokers, such as giving them direct access to our underwriters so they understand how we came to a decision.”

Q

John Mohnacheff, Liberty

A boost in opportunities for smaller lenders All of this is welcome news for smaller lenders, who have become increasingly viable competitors to the majors in the commercial property space. As the major banks rein in their lending appetites and focus on responding to the ongoing investigations and recommendations, the non-banks and second-tier banks will gladly fill the void.

Driving competition and providing more consumer choice has always been the role of non-banks, and that won’t change, Mohnacheff says.

“Liberty remains focused on supporting all brokers with the help and guidance they need to embrace commercial products.

That means brokers can assist more customers and diversify their revenue streams,” he says.

As market conditions prove ripe for

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE smaller lenders, they’re now focusing on attracting brokers and their clients through improved training and support.

Liberty takes a very hands-on approach with its business partners, Mohnacheff says.

As a result, brokers are using Liberty BDM and direct underwriter support to get their first commercial deals under their belts.

“From there it’s just onwards and upwards,” he says.

Kolyvas says ING is expanding its sales team and is looking at building closer relationships with commercial specialist brokers and residential brokers who undertake the occasional commercial application.

“We take a different approach to each channel by offering residential brokers more advice and support when structuring their commercial applications,” he says.

its relationship managers and assistant managers.

“We are a much bigger business now, with monthly loan volumes in the same bracket as many ADIs, and we want to make sure we don’t become ‘bank-like’. Technology enhancements will help, but for us it has always been about the personal relationship and value-add side,” Vala says.

Thinktank’s ongoing education and mentoring series has also helped brokers build their businesses by capturing more opportunities, while simultaneously making them more connected and valuable to their client network.

Lawrence says La Trobe emphasises the accessibility of its commercial loan products, which are constructed in an easy-to-use and familiar format so first-time users can write

“For experienced residential brokers, moving into commercial lending is not as difficult as you think. There are plenty of training courses out there” John Kolyvas, ING ING also runs a one-day training workshop that teaches brokers about commercial lending, called Commercial State of Mind; it is now in its third year. Two thousand brokers have completed the program to date. Kolyvas says brokers should get in touch with their ING representative if they want to attend the next workshop.

“For experienced residential brokers, moving into commercial lending is not as difficult as you think. There are plenty of training courses out there – I’d start by attending as many as you can,” Kolyvas says.

Vala adds that it helps that there is a general perception that the non-banks are easier to do business with. “The greatest level of activity and innovation is also happening in this space as well,” he says.

A key focus for Thinktank in 2018 and beyond is on service that supports turnaround times. This means making the credit team just as important a part of the service as

22

them confidently and competently. Its relationship managers engage brokers from the first point of contact, and then brokers are supported throughout the process with direct access to senior commercial credit analysts. The lender has a team of 86 underwriters who are well equipped to help new entrants.

“Our turnaround times are far superior to most, and we provide a personalised relationship service model to treat each application on its merits; we are not a ‘tick the box’ lender,” Lawrence says.

“We have enjoyed great success with our broker engagement strategy and plan to continue along the same path in 2018, increasing our footprint further each year.”

The non-banks and the non-majors are always ready to help guide and support brokers through commercial finance in any way they can. Now’s the time to start collaborating.

LENDER’S TAKE What makes a top commercial broker?

“The very good and effective commercial brokers have a number of traits in common. They all tend to be very client focused and maintain discipline around regular contact with clients to understand what their current and future business and finance needs are. These brokers always appear to have very good relationships with their aggregators and a range of commercial lenders, and have a core group of referral sources. They are effective in bringing deals together on their own or with the assistance of the lender.”

Q

What do you specialise in?

“Thinktank is well known for its set-and-forget commercial loan products, with no annual reviews, ongoing fees or mandatory property revaluations; loan terms of up to 30 years and upper-end LVRs to 75%.

Our approach to workshopping deals with brokers assists transactions to progress faster and with greater certainty of result.”

Q

Peter Vala, Thinktank

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Wednesday 6th June • The Westin Sydney

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE

SME LENDING THE ONLY WAY IS UP FROM HERE Brokers might only be writing 10% of loans to small businesses, but that is changing as lenders and aggregators look for new ways of partnering with brokers to bring more choices to their clients

THE HOME loan market may be the one garnering much of the public’s attention at the moment, but in the meantime SME lending has not been exempt from reforms and changes either.

The Australian Small Business and Family Enterprise Ombudsman inquiry into small business loans released in February 2017 detailed the “almost complete asymmetry of power in the relationship between banks and small business borrowers” and provided 15 recommendations for how banks and the government could amend this.

In addition to that, the new Banking Code of Practice delves specifically into improving communication and transparency in the terms and conditions of small business loans. If approved, it will be the first time ASIC has approved a code related to the financial services industry.

The legally binding document will require

24

lenders to simplify loan contracts, ensure they’re written in plain English, and provide longer notice periods for changes to loan conditions.

SMEs will also benefit from the establishment of the Australian Financial

These changes are anticipated to shake up how banks lend and connect with small business customers, cutting red tape, lifting standards, and making access to loans easier for the more than two million small businesses out there.

“NAB will be the first major to go head to head with [fintechs] on providing these smaller business loans … to address that concern around access to finance” Chris Thomas, NAB Complaints Authority, which will commence operations later this year, as well as interest rates that remain at generational lows, says Robynne Frost, Suncorp’s national small business and commercial manager.

As it stands right now, more than 80% of commercial finance filters through the major banks and only 10% of small business loans are originated by brokers, says Keiran Evans, AFG’s general manager of commercial.

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“We are firmly of the opinion that small business in Australia is underserviced and requires assistance. The lifeblood of SMEs is access to cash flow and access to capital, and AFG is bringing about a much larger panel of lenders across the entire product spectrum and risk appetite,” he says.

That’s why the aggregator launched AFG Business last October, an intuitive platform designed to help brokers conduct a thorough needs-based conversation about their clients’ business requirements. The platform currently hosts 12 lenders who provide the full spectrum of commercial products. It will soon expand to include an asset finance module and a further nine lenders, Evans says. So far, a third of AFG’s 3,000 brokers are trained and accredited to use the platform.

“Brokers have fantastic skill sets in conducting needs-based conversations and

in their knowledge of lender pricing, products and policy, so we would like to see the percentage of customers accessing brokers for commercial finance grow dramatically,” Evans says.

“We believe that providing that choice and increasing the competition between lenders plays a positive role in the Australian economy.”

Despite some of the changes on the way, the SME market is flourishing, something Chris Thomas, general manager commercial broker at NAB, has seen in the major bank’s monthly surveys of its clientele, which look at business confidence and business conditions.

“Right now, for both those measures, our customers are telling us they’re feeling more confident and business conditions are better than at any other time in recent history,” Thomas says. “Business owners have a spring in their step.”

While there may be some areas of uncertainty for SMEs in regard to regulatory changes and slightly firmer wage pressures, Frost also says she is confident that the market outlook remains positive as business conditions track above average.

“We expect the Australian economy to gain momentum. SMEs should benefit as the downturn in mining investment ends, nonmining investment picks up, and positive spillovers from infrastructure projects come through,” she says.

MAJOR BANKS’ DOMINANCE OF SMALL BUSINESS LENDING PRODUCTS 0%

10% 20% 30% 40% 50% 60% 70% 80% 90%

2003

2008

2014

2017

Small business

Large business

Housing

Note: Small business products are loans under $2m.

Source: Competition in the Australian Financial System, draft report

Taking a page out of the fintech playbook As unsecured online business lenders come into their own, the mainstream banks are looking at how they can innovate and apply the same level of speed and agility offered by those online lenders.

In May, NAB will unveil its QuickBiz $100,000 unsecured business loan to the broker channel, making it the first unsecured business loan of that amount available through a big four bank. An equivalent product for equipment finance will be released shortly after.

“We believe the launch of QuickBiz in

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COMMERCIAL LENDING GUIDE solutions for its regional brokers.

This year the bank implemented its Power of Partnership model, an aggregatoraligned service model that offers better and more consistent support to brokers.

Through the dedicated support of a home loan BDM, SME BDM and phone-based BDM in each state, the teams are granted a holistic view and understanding of how the broker, aggregator and lender work together.

What AFG Business is taking from the fintechs is better use of digital and machine

“The key to Suncorp’s overall proposition is education, and we are delivering and investing significantly in some exciting initiatives to assist our brokers to be as successful and confident as possible”

INTEREST RATES CHARGED TO SMALL BUSINESSES Facility size 0%

20%

40%

60%

80%

2003

May is a game changer. We’ll be the first major to go head to head with the fintech community on providing these smaller business loans … to address that concern around access to finance prohibiting businesses from participating in the economy,” Thomas says.

With access to capital being a key concern for new SMEs, Thomas says it was important for the bank to come up with a responsive solution that didn’t require property security as backing. The loan is approved on the

Under $100k

Robynne Frost, Suncorp strength of the business’s trading and cash flow. The main qualifying criteria are that the applicant needs to be in business for more than 12 months and have a minimum turnover of $100,000 per annum.

For a non-major bank like Suncorp, which sees a significant portion of its home lending and SME business coming from brokers, committing and investing in the third party channel is a priority.

“The key to Suncorp’s overall proposition is education, and we are delivering and investing significantly in some exciting initiatives to assist our brokers to be as successful and confident as possible. Diversification is a key theme as we continue to offer dedicated SME BDM specialists as part of our unique offering,” Frost says.

Suncorp currently offers two state-based courses in all CBD locations: Business Essentials, a tailored program designed to demystify the SME market; and Bridging the Gap, designed to give brokers the confidence and the tools to deal effectively with selfemployed small business customers. The non-major is also exploring online training

26

learning capabilities to facilitate a single origination process that leads to multiple lender choices. AFG is also moving towards full API integration with lenders, which means far quicker customer responses through the business platform, Evans says.

“We’re in uncharted waters; we’re the first aggregator to open up commercial finance to our full broker membership base,” he says.

“We’re leading the digital origination of commercial finance in Australia.”

$100k–$500k

Transitioning into SME finance With brokers now writing nearly 55% of all residential mortgages, and with about 30% of brokers’ customers being small business owners, Thomas believes there’s increasing awareness among the public of the broad skills and services brokers offer. It’s just a matter of time before brokers increase their 10% market share of SME lending.

As awareness improves, brokers should focus on deeply understanding the nuances of their customers’ companies. Thomas suggests “walking in the shoes of your business

$500k–$2m

Interest rate: <6%

6-10%

>10% Sources: APRA, RBA

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COMMERCIAL LENDING GUIDE THE CHALLENGES OF ACCESS TO FINANCE FOR SMES In April, the RBA, ABA and Council of Small Business Australia came together to discuss how to address the challenges SMEs face in accessing finance, including the difficulties around:

Access to lending for start-ups

customer” to engage them and understand what they’re trying to do with their business.

“Look at what they’re trying to achieve and the broader strategy, and then move into solution mode,” he says. This often involves coming up with a structure that combines different products and services.

Frost agrees that success in SME finance

and what’s required to bring a business transaction together.

Frost suggests that brokers reach out and engage with their SME BDMs in order to surround themselves with knowledgeable and reliable lender partners.

It’s also a good idea for brokers to segment their customers to ensure they’re

“It’s difficult for brokers to satisfy [all of] a customer’s requirements ... when they’re not accredited or trained to provide commercial finance. AFG’s brokers are”

The heavy reliance on secured lending and the role of housing collateral

The loan application process and administrative burden

Keiran Evans, AFG stems from having the right conversations with business customers, just as brokers are used to having with their regular home loan clients.

“SMEs are busy, time-poor people. A successful commercial broker understands this and aims to make things simple and easy for their customers,” she says.

That also means it’s critical for brokers to develop their financial analysis skills so they understand cash flow management

28

staying in tune with their SME customers’ needs, she says.

From Evans’ perspective, the most important thing for brokers to do is provide customers with choice, because if they don’t know what options exist, they won’t be able to expand their businesses.

“It’s difficult for brokers to satisfy a customer’s requirements in their entirety when they’re not accredited or trained to provide commercial finance. AFG’s brokers are.”

The ability to compare products across lenders and to switch lenders “Small businesses are very important for the economy. They generate significant employment growth, drive innovation and boost competition in markets. Access to external finance is an important issue for many small businesses, particularly when they are looking to expand,” the RBA said in a statement.

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE

ASSET AND EQUIPMENT FINANCE TIP OF THE ICEBERG Helping brokers find their edge in the $100bn asset and equipment finance market starts with education and a tweak of perspective

CONNECTIVE ASSET FINANCE WORKSHOPS Who’s invited?

Any finance broker looking to diversify into the asset finance space What’s it all about?

The workshops cover how to identify asset finance opportunities; why integrating asset finance is beneficial to your business, both in the short and long term; how to present asset finance to a client; how car dealers operate and what to look out for when competing in the asset finance space Where are these taking place?

Mostly in the capital cities.

There is the occasional regional workshop too

JET SKIS, cars, boats and heavy machinery are now not-uncommon purchases to secure through a broker. But while brokers’ share of the equipment and asset finance market is increasing, not all customers are aware of the lifestyle extras and business essentials they offer.

Connective is on a mission to change that, first by changing brokers’ perceptions of themselves, and second by making brokers’ transition into asset and equipment finance as seamless as possible.

It’s worth paying attention: the asset finance market in Australia is worth about $100bn in receivables, and about $40bn in new equipment loans are written each year, according to the Commercial & Asset Finance Brokers Association of Australia.

Businesses are starting to turn to brokers more frequently to secure this kind of finance, East & Partners shows in its 2018 asset and

30

equipment finance report. The use of brokers by the total business market to source equipment finance solutions went up to 52.6% from 48.3% last year.

These numbers don’t surprise Brent Starrenburg, head of Connective Asset Finance.

“We’ve seen significant growth in the asset finance space, to the point where we’ve seen it grow roughly about 30% year-on-year for the past four years from [Connective brokers], and it continues to grow momentum; it’s quite strong,” he says.

While Connective started focusing on this area five years ago, last year was particularly significant. The company formally became a dedicated asset finance aggregator after partnering with Adelaide-based Positive Lending Group to launch BOLT, a singular asset finance quoting and lodgement platform.

The platform allows brokers to isolate and

When?

Throughout 2018. They kicked off on 22 February What are brokers saying?

So far, 20 workshops have been conducted nationally.

Connective surveyed attendees and 100% of respondents said they found the content valuable How can brokers find out more?

Email Connective Asset Finance at caf@connective.com.au

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COMMERCIAL LENDING GUIDE compare lenders based on what they offer and who they cater to. This lets brokers consider how to best structure a deal so it fits within those lenders’ loan and policy parameters.

“The broker can then push the application through our processing team, and they can ensure that the deal is consistent with lender expectations,” Starrenburg says.

If the broker is new to the industry or to the asset space, it can be tricky to understand the ins and outs of a deal, he says. But this guides them through the process and makes everything black and white.

“This means that, when the deal goes through, both the broker and the client have a positive experience because the client is getting the best possible service and the

equipment style changes,” Starrenburg says.

This also goes hand in hand with additional referrals for brokers. “People who buy cars buy houses, and people who buy houses buy cars; it’s going to continue on that path, and cars are just the tip of the iceberg.”

Brokers can learn how to write those loans or brush up on their knowledge at one of Connective’s 90 workshops across Australia this year.

Starrenburg and his asset finance BDMs will talk to brokers about how to identify asset finance opportunities; why integrating asset finance is beneficial to their businesses both in the short and long term; how to present asset finance to a client; how car dealers operate, and what to look out for when competing in the asset finance space.

EQUIPMENT FINANCE SOURCED THROUGH BROKERS 2017

2018

Microbusiness

90.1%

92.6%

SME

67.4%

70.4%

Corporate

38.6%

42.4%

Institutional

25.1%

26.6% Sources: East & Partners

“It comes down to the whole education piece.

It’s about opening your eyes to diversification, not pigeonholing yourself as a mortgage broker; think of yourself as a finance broker” Brent Starrenburg, Connective Asset Finance broker is getting a good experience because they’re having their hand held … and it’s going through to a processing team,” he says.

The gateway to asset finance After a house, the second-biggest purchase that most consumers will make is their car.

According to the ABS, new finance commitments for vehicles totalled around $2.8bn in the month of December. For all of 2017, they totalled around $35.7bn – or about 4.2% of total new finance commitments for the year.

The easiest entry point into asset and equipment finance for brokers is via the car market. And there’s plenty of opportunity there. A significant number of consumers still go directly to the car dealership or their bank.

“We use cars as an entry level and build brokers up from cars into equipment and other aspects of doing asset finance. The fundamentals are the same; it’s just the actual

32

It was at some of those workshops that Starrenburg realised that brokers’ view of themselves might in fact be what was holding them back. When asked if they considered themselves mortgage brokers, about half of the people in the workshop raised their hands, he says.

“It comes down to the whole education piece. It’s about opening your eyes to diversification, not pigeonholing yourself as a mortgage broker; think of yourself as a finance broker,” Starrenburg says.

“It’s about helping brokers understand that there is more to the broking industry than just mortgages; it’s the whole gamut of products that’s available to them.”

Using BOLT makes that transition from ‘just mortgages’ to ‘all finance’ a lot easier, he adds.

“We have a dedicated team, a processing arm and a platform that integrates into our CRM; it really can’t get much easier.”

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DEBTOR FINANCE ACCELERATING CASH FLOW Specialist lenders are attracting increased interest from brokers and SMEs who are looking beyond the majors for flexible cash flow funding to grow their businesses

WHAT CAUSED SMES’ CASH FLOW PROBLEMS IN 2017?

70.9% Government red tape

38.4%

Suppliers reducing payment time

37.2% Customers paying late

ABOUT A year ago, Greg Malone, director of G&H Financial in Sydney, was working with a well-known recruitment company that was looking to expand. The firm had reached its limit on the facility it held with a major bank and had exhausted its working capital.

Malone turned to Scottish Pacific Business Finance, a specialist provider of working capital solutions for SMEs, to see what the non-bank lender could offer.

Not only was Scottish Pacific able to increase the limit but it also made more working capital available to the client at a better price.

“Going up against the bank and then beating them on the pricing and managing to give the customer the additional working capital was just a dream. It was a great result,” Malone tells MPA. G&H Financial found a solution for the client and got to retain them, opening up many other opportunities to finance

the company’s future facilities.

According to Scottish Pacific’s 2018 SME Growth Index, the gap between banks and alternative lenders is closing, with more than one in five SMEs planning to use alternatives to fund future growth. Of the SMEs that used alternative working capital in 2017, 77% used debtor finance.

Wayne Smith, Scottish Pacific’s head of debtor finance, says that while the funder has seen a “pleasing uplift in broker referrals” and enquiries, it’s keen to further develop these relationships, especially as the estimated pool of Australian SMEs that are suited to debtor finance is more than 60,000.

One of the difficulties with debtor finance, however, is that brokers don’t always understand how it works, Malone says. “It doesn’t require a specialist, but you do need to have a commercial position on it … you need to understand that businesses

24.8%

Difficulty meeting tax payments

21.1%

Inability to take on new work

4.7%

Having to write off bad debts

Sources: Scottish Pacific 2018 SME Growth Index

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE need it regardless of how you feel about the product,” he says.

Smith explains that debtor finance is a line of credit linked to and secured by outstanding accounts receivable. There are variations in how the service is delivered, ranging from confidential invoice discounting for larger and more sophisticated businesses with dedicated finance departments, to full management of accounts receivables.

This allows smaller clients to focus on growing their businesses rather than chasing outstanding invoices.

It works at any stage of a business’s life cycle, whether they’re a start-up with no trading history or are considering a merger, acquisition or succession plan.

“It’s quite straightforward for brokers to introduce debtor finance products to their clients. We work with the broker, explain the process and answer their questions, and the broker can be as involved or as hands-

opinion one of the best forms of accessing cash flow that a business can use,” says Angus Sedgwick, CEO of tim.

With cash flow funding, tim. will advance funds within 24 hours of approval against the money owed to a broker’s client on their invoices. It typically advances 80% on day one. Once those invoices are paid out, tim. will advance the remaining 20%.

It takes a fee out of the back end, but there’s no repayment plan like there would be with an online unsecured lender.

It’s all about converting the client’s accounts receivables into cash now so they can use it in their business immediately.

“By accelerating their cash flow they have cash in the bank to negotiate better terms for themselves when they buy materials,” Sedgwick says.

Conrad Wilson, partner at Fnx Finance in Queensland, is one broker who used tim. to accommodate a fast-growing business client

“Offering debtor finance can help deepen a broker’s relationship with existing clients and help to attract new clients”

HOW ARE SMES FUNDING GROWTH?

38–24%

drop in bank borrowing intention

21.7%

of SMEs choose alternative lending

90.8%

of SME owners draw on own funds to grow

Wayne Smith, Scottish Pacific off in the process as they like,” Smith says.

The Invoice Market (tim.) is another lender that’s operating outside of the traditional funding model to provide more flexibility and options to brokers’ small business clients.

The company specialises in business cash flow funding to Australian businesses and has three product lines: invoice finance, trade finance and supply chain funding. Since launching four years ago, tim. has provided $320m in funding on 18,500 invoices.

“I see 2018 as being a continuation of the growth of the alternative funders in this space. Certainly debtor funding and invoice funding for Australian businesses is in my

34

that needed prompt cash flow delivery.

He says he’s encountered more and more SMEs coming to him with troubles accessing finance as a result of the spotlight on the majors by the royal commission and other inquiries.

“The banks’ appetites for funding are becoming increasingly reliant on wellarticulated and presented credit papers with a full ratio analysis, comprehensive risk analysis and detailed management representation, for any chance of a successful outcome. And even then they must fit within a small appetite window to be accessible,” he says.

Alternative lenders are therefore becoming increasingly important. “Debtor finance provides an alternative solution that can grow

47.6%

are considering but not yet using alternative lending

5x

more growth SMEs than non-growth are using alternative lending Sources: Scottish Pacific 2018 SME Growth Index

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE with the client, and also assists in creating a strong corporate governance structure for managing debtor collections,” Wilson says.

Not only are non-bank lenders continuing to expand their debtor finance proposition for SMEs, but brokers are also starting to notice the need, and a growing number of them are adding it to their suite of solutions or are becoming debtor finance specialists.

Aggregators are also responding by promoting debtor finance on their online origination platforms.

“Given [brokers’] crucial role in the SME sector, it’s very encouraging to see this

provide more holistic support to their clients and create deeper, longer lasting relationships,” Smith says.

Debtor finance is for clients who need working capital to fund their growth or to keep their business cash flow functioning smoothly. It’s tailored for businesses that sell to other businesses or to government bodies on standard trade credit terms.

Debtor finance works well for a range of industries but is particularly popular in the transport and logistics, labour hire, recruitment, wholesaling, manufacturing, printing and import/export sectors.

“Debtor funding for Australian businesses is in my opinion one of the best forms of accessing cash flow that a business can use”

MOST POPULAR ALTERNATIVE FUNDING FOR SMES

77% Debtor finance

23% Merchant cash advances

Angus Sedgwick, The Invoice Market greater acceptance of debtor finance in the broker community, which we believe will lead to more take-up of the product,” Smith says.

The right fit for debtor finance According to Small Business Ombudsman Kate Carnell, 80% of small business owners have loans secured against their homes, using their homes as ‘piggy banks’ to sustain cash flow and pay wages.

“This is quite shocking, given that for many of these SMEs a debtor finance facility would remove this limitation by using trade receivables as security rather than putting the family home at risk,” Smith says.

Despite this huge incentive and improved awareness of non-traditional finance offerings, many thousands of SMEs are still not looking beyond the banks at other credible options.

This is where brokers come in.

“Those who look beyond ‘how things have always been done’, and grasp the advantages debtor finance and other alternative funding options can offer, are able to

36

Sedwick says that in order to determine if this is right for their clients, brokers need to start by conducting a thorough fact-find.

That means sitting down and asking: What are your circumstances? What is your cash flow looking like? What is the value of your accounts receivables? “That’s one of their biggest assets,” he adds.

Scottish Pacific advises brokers to look at a combination of business sectors and situations to find suitable clients. Ask whether your existing clients have unusual or rapid levels of growth, or seasonal issues to deal with. Ask if they’re trying to expand, if they have any new contracts coming up, if their bank overdraft has hit its limit and is stifling growth, or if they need help meeting wage commitments.

“With debtor finance, clients can improve their working capital position by accessing up to 80% of the value of invoices raised, usually within 24 hours, and the balance (less fees) when the invoice is paid,” Smith says.

10% Peer-to-peer lending

9% Crowdfunding

5% Other online lending Sources: Scottish Pacific 2018 SME Growth Index

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with generous referral fees, tim helps you while you help your clients get tomorrowâ&#x20AC;&#x2122;s cash flow today

The Invoice Market (or tim.) is the simple, stress-free, and fairest way for business owners, like many of your clients, to get their cash flowing faster by unlocking the value of their unpaid invoices. And by becoming a referral partner, tim. can also help grow your business with the payment of very attractive partner fees, while you help your clients grow theirs. While we help your clients access their cashflow in a fast, fee-free, and fair fashion.

Discover the many other benefits of tim. by visiting our website or calling us today.

theinvoicemarket.com.au/referral-partners

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1300 694 686

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE

UNSECURED BUSINESS LOANS

THE AVERAGE SPOTCAP CUSTOMER

Registered business in Australia

A BOOMING ALTERNATIVE As the big banks continue to tighten their lending policies, many small businesses are struggling to access credit. Now a growing number of brokers are turning to unsecured business loans as a viable alternative for their clients

IT’S UNDENIABLE that small businesses are vital to the Australian way of life, accounting for more than 99% of all enterprises, employing around 5.5 million people and contributing an estimated $380bn to the economy.

However, despite their integral role, small businesses are being disproportionately impacted by the increased scrutiny Australia’s financial sector has seen of late.

As traditional lenders tighten their policies in response to scandalous findings by the royal commission, small businesses are being squeezed out, unable to access the finance they need to thrive.

In fact, a recent report by online small business lender OnDeck found that 55% of small business owners have been rejected for the finance they requested.

Unsurprisingly, the funding gap is having a major impact on small firms: 37%

38

of respondents to the OnDeck survey said the delivery of services or products had been affected by an inability to secure credit, while 32% had been forced to make layoffs or had been prevented from hiring new staff.

As a result, an increasing number of small business owners are now receptive to alternative lending options, and when it comes to future borrowing plans, 33% of those planning to seek additional finance for their business said they would consider an online fintech lender.

For Danielle Szetho, CEO of Fintech Australia, the increased interest comes as no surprise.

“Through the use of technology platforms to provide easy-to-use and fast application and decision-making processes, and the ever-increasing access to rich, real-time business financial data, fintech business

Minimum annual turnover of $200,000

Operational for at least 18 months

Profitable business or moving towards profitability

Has an Australian online bank account Sources: Scottish Pacific 2018 SME Growth Index

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE lenders are able to offer cost-effective loan products and service smaller, short-term loan requests, which cannot be easily offered by the banks,” she wrote in a recent report on the sector.

With more business owners turning away from traditional banks, it seems the market for online and unsecured business loans is booming – in fact, according to OnDeck’s Small Business Owners Survey, it could exceed $2bn in annual originations by 2020.

“Having grown at a compound annual

However, the same report into fintech lending found that while the industry offers a viable alternative to big banks – and is making meaningful steps towards greater transparency and self-regulation – it can still be difficult terrain to navigate for small business owners. “[A] lack of transparency has made it difficult for a small business to compare products offered by different fintechs, or products offered by fintechs and banks,” wrote Carnell.

“To make informed decisions on the

“A huge problem for small businesses is an even bigger opportunity for smart residential mortgage brokers”

REAL STORY A Sydney bakery had experienced 200% revenue growth in the past financial year. To manage the growth, the business needed $50,000 extra working capital to sustain consistent cash flow levels.

The company’s financial broker referred the business owner to Spotcap. After assessing the business’s situation, Spotcap identified the enormous growth in its levels of profitability and revenue, ultimately saw a larger serviceability and offered the business a credit line of $75,000.

Lachlan Heussler, Spotcap growth rate of 151% since 2013, we expect to see continued strong growth in the coming years,” said OnDeck global CEO Noah Breslow.

Breslow also pointed to the US as an example of how the industry has the potential to flourish. Despite over 6,000 banks offering small business lending options in America, online lending to small businesses has soared.

“When you compare that to Australia with a more concentrated banking system, there is even more opportunity for online lenders to provide innovative lending solutions to SMEs,” he said.

Small business advocates have also recognised the important role played by fintech lenders. Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman, praised the burgeoning sector in a recent report.

“I commend the fintech industry for its leadership in the financial services industry in addressing the needs of small business borrowers,” she wrote. “It presents a genuine alternative finance solution for small businesses where traditional banks are limited in their capacity to serve the sector.”

40

best product to meet their needs, small business borrowers must be able to compare total costs, understand the obligations to exit early and the penalties if payments are missed, and trust that disputes will be dealt with quickly and fairly, avoiding costly legal processes.”

Clearly, a huge potential market has opened up for brokers who can identify reliable alternative borrowing options and help commercial clients understand the intricacies of unsecured lending.

In fact, the head of one major online small business lender says he’s already noticed an increase in the number of mortgage brokers branching out into business lending.

“This is becoming an increasingly attractive option for residential brokers looking to diversify as market conditions make it more difficult for them to undertake business as usual,” says Lachlan Heussler, managing director of Spotcap Australia and New Zealand.

According to Heussler, the number of growth opportunities that SMEs miss due to lack of finance is enormous – but he says brokers could make the most of a

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE UNSECURED BUSINESS LENDING: THE KEY TAKEAWAYS Big opportunities Despite being the lifeblood of our economy, Australia’s two million small businesses are starved of working capital.

Choose alternative lenders Expand your suite of services without sacrificing quality control or taking time away from your core business function, all the while retaining customers.

difficult situation if they were able to bridge the gap.

“A huge problem for small businesses is an even bigger opportunity for smart residential mortgage brokers to diversify their offering by embracing alternative

meet the demands of small business owners to a greater degree than the big banks, Heussler says online lenders are no less reliable and many big names have banded together to create a code of conduct across the sector.

“We help brokers get ahead of the curve by allowing them to lodge applications for business loans of up to $400,000 in only minutes, with responses in 24 hours” Lachlan Heussler, Spotcap commercial lending and not risk falling behind,” Heussler says.

“One of Spotcap’s main goals is to educate brokers and help them diversify their businesses by using our product,” he continues.

“We help brokers get ahead of the curve by allowing them to lodge applications for business loans of up to $400,000 in only minutes, with responses in 24 hours.”

While the fintech industry is able to

42

“Transparency and responsible lending is the key to ensuring the ongoing success of our high-growth industry, and we fully back policies that help business owners make informed decisions about financial products,” he tells MPA. “Spotcap exists to help Australian business grow and thrive, so increased disclosure will help brokers make informed decisions about total costs and what services are right for their clients.”

Quick results The beauty of alternative lending is that brokers don’t need to deep-dive into small business lending as companies like Spotcap make it easy.

Digital first Tech-based alternative lenders offer easy-to-use applications and rapid loan underwriting to provide a more tailored customer experience. They also employ data-driven algorithms to more accurately screen prospective borrowers’ creditworthiness and loan serviceability.

Everyone is different Get to know your client’s business model and values, and get to know each lender’s unique offering and product – the model, the fees, the commission, the terms and conditions – to determine which lender is the best fit.

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COMMERCIAL LENDING PRODUCT GUIDE Get started in commercial today as the lenders in this Special Report present their full range of commercial lending products

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.

ING Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Commercial Variable Rate Loan

Variable

4.69%–5.29% pa (based on loan amount)

Up to 75%

$3m

Commercial and mixed zone

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

4.62%–5.32% pa (based on fixed rate term)

Up to 75%

$3m

Commercial and mixed zone

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

Product name

Loan establishment Service fee fee

Deferred establishment fee

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

6.99% p.a.

70%

$5m

Retail, office and light industrial

P&I or IO

1.25% of loan amount

$15 p/m

Nil

Commercial Lease-Doc

Variable

6.99% p.a.

70%

$5m

Retail, office and light industrial

P&I or IO

1.25% of loan amount

$15 p/m

Nil

Commercial SMSF

Variable

6.99% p.a.

70%

$5m

Retail, office and light industrial

P&I or IO

1.25% of loan amount

$15 p/m

Nil

Commercial Non-resident

Variable

6.99% p.a.

70%

$5m

Retail, office and light industrial

P&I or IO

1.25% of loan amount

$15 p/m

Nil

Rural

Variable

9.15% p.a.

55%

$5m

Rural property

P&I or IO

1.25% of loan amount

$15 p/m

Nil

Fixed

8.99% p.a.

70%

$5m

Residential or commercial construction

IO

1.50% of loan amount

$15 p/m

Nil

Product name

Development Finance

DETAILS FOR BROKERS Commercial Lite-Doc: Funding for any worthwhile purpose (incl 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 (incl 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.

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE

NAB Product name

Interest type

Interest rate Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Variable or fixed

Variable – base rate plus a margin

Variable

$1m

Residential & commercial

IO & PI

$0–$249,999: 0.75% (min $600) $250,000–$999,999: 0.40%

$30 per month

n.a.

QuickBiz Loan

Fixed

12.95% p.a.

n.a.

$1m

Unsecured

PI

Nil

Nil

n.a.

QuickBiz Overdraft

Fixed

14.25% p.a.

n.a.

$50,000

Unsecured

IO

Nil

1.75% p.a. charged monthly

n.a.

Business Option Loan

SCOTTISH PACIFIC Product name

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Debtor Finance

Variable

On application

n.a.

No maximum

Receivables

Revolving

Yes

Yes

Yes

Selective Invoice Finance

Variable

On application

n.a.

No maximum

Receivables

Revolving

Yes

Yes

Yes

Import Finance

Variable

On application

n.a.

No maximum

Receivables

Revolving

Yes

Yes

Yes

Export Factoring

Variable

On application

n.a.

No maximum

Receivables

Revolving

Yes

Yes

Yes

DETAILS FOR BROKERS Debtor Finance: This solution supports businesses experiencing growth or that have cash flow or seasonal funding requirements.

Selective Invoice Finance: A short- or longer-term solution providing funding against one or more invoices for cash flow or growth funding purposes.

Import Finance: This combined purchase order and invoice finance solution provides end-to-end funding for importers in purchasing, landing and onselling stock.

Export Factoring: This solution advances funding against invoices to overseas buyers.

SPOTCAP Product name Spotcap

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Fixed

From 0.5% p.m.

p.a.

$400,000

None. Unsecured loan; n.a.

Weekly, fortnightly, monthly

0%

0%

0%

Interest type

Interest rate

SUNCORP Product name Business Essentials Term Loan

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

80% residential Variable or fixed Variable or fixed 70% commercial

$999,999

Residential or commercial property

IO or P&I

Yes

$15 per month

Yes

Maximum LVR

Small Business Line of Credit

Variable

Variable

80% residential 70% commercial

$999,999

Residential or commercial property

IO

Yes

$80 per quarter

n.a.

Small Business Overdraft

Variable

Variable

80% residential 70% commercial

$999,999

Residential or commercial property

IO

Yes

$100 per quarter

n.a.

44

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THE INVOICE MARKET Product name Flexible Invoice Finance – Accelerator Advance Debtor Finance – Flexible Full Facility – Series Range Supply Chain & PO Finance – Accelerator Import Finance – Accelerator Plus

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Discount fee

On application

n.a.

No maximum

Receivables

Nil repayments

Nil

Nil

Nil

Variable/ discount fee

On application

n.a.

No maximum

Receivables

Nil repayments

Nil

Nil

Nil

Variable

On application

n.a.

No maximum

Receivables

Paid by future sales

Nil

Nil

Nil

Variable

On application

n.a.

No maximum

Receivables

Paid by future sales

Nil

Nil

Nil

DETAILS FOR BROKERS

Contact: 1 300 694 686 | info@theinvoicemarket.com.au

Business cash flow funding solutions for the entire supply and sales chain for businesses trading on credit terms with other Australian businesses.

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

0.50%

Nil

Varies

Mid Doc

Variable or fixed

From 6.30%

70%

$2m

Commercial/residential

IO or P&I

0.50%

Nil

Varies

Quick Doc

Variable or fixed

From 6.80%

65%

$2m

Commercial/residential

IO or P&I

0.50%

Nil

Varies

SMSF Commercial

Variable or fixed

From 5.95%

75%

$3m

Commercial

IO or P&I

0.50%

Nil

Varies

Product name

DETAILS FOR BROKERS

Contact: deal@thinktank.net.au

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.

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

I.O. and P& I

Starting from 5.30%

upto 75%

$4m

Any security

IO and P&I

Yes

30 per month

Commercial SMSF

I.O. and P& I

Starting from 5.30%

upto 75%

$4m

Any security

IO and P&I

Yes

30 per month

Enterprise Low-doc

I.O. and P& I

Starting from 5.80%

upto 65%

$4m

Any security

IO and P&I

Yes

30 per month

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Fixed

On application

n.a.

$250,000

n.a.

6-24 months

Yes

No

No

ONDECK Product name OnDeck

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45

FEATURES

VENDOR FOCUS

STEPHEN MOORE: RAISING THE BAR Choice Aggregation Services’ CEO Stephen Moore explains how the aggregator is elevating brokers through its education initiatives and peer-to-peer support, and why it’s championing increased professionalism across the board

MPA: What does increasing professionalism in the industry mean to you?

Stephen Moore: Professionalism is about putting the customer first. It’s about raising the bar and improving quality in everything we do – both in how we run our businesses and, most importantly, how we interact with customers and the community. Brokers already act with professionalism today; however, expectations of our industry are continuing to increase.

MFAA data shows broker market share is now close to 54% of all home loans – the highest the industry has ever seen. This is not only a reflection of the great experience brokers provide but an affirmation of the industry’s growing role in the lives of many Australians. It is a natural evolution that expectations increase, because we all expect leaders to act as leaders. For us to continue to increase market share we need to raise the bar to meet customers’ needs and expectations.

MPA: Why has this become so important recently?

SM: As the industry continues to grow, we need to ensure we are set up in the right way to deliver good outcomes for customers.

Recent industry reviews have affirmed the critical role brokers play. They have also

46

confirmed that the status quo is not an option, and changes to improve customer outcomes are needed. We must continuously strive to lift the bar, and this is a combined responsibility of brokers, lenders and aggregators.

Indeed, it has been very positive to see the industry’s collective desire and ability to work together to navigate change and develop

solutions. We should never forget we are in the people business, which means continuing to provide fantastic customer experiences is paramount.

MPA: How does Choice plan to increase professionalism through education, training and support?

WHAT DOES CHOICE HAVE PLANNED FOR BROKERS THIS YEAR? “A strong theme for this year is ‘quality’. We are committed to helping brokers continue to succeed, with a focus on high-quality business processes, service and documentation to support excellent customer interactions,” says Moore.

Making further investment in our business platform Investing in Podium to help brokers with more efficient use of client data, including client communication and marketing Emphasis on efficiency Helping brokers with management reporting and workflow Education Tailoring learning formats to suit different brokers’ needs, from group events and individual support to webinars and YouTube formats Peer-to-peer learning Providing opportunities for brokers to learn from each other, including some of the very best brokers in the industry

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professionalism? What can other brokers take away from these stories?

SM: We are seeing a lot of great examples

SM: Education, training and support have always been hallmarks of Choice’s offering and will remain a key focus moving forward.

Choice believes the most successful aggregators offer more than basic training and

focus on professional development events and opportunities that enable our brokers to develop new skills and strategic business planning expertise, as well as to keep abreast of industry changes and trends.

“Education, training and support have always been hallmarks of Choice’s offering and will remain a key focus” Stephen Moore, Choice product access. We act as a genuine business partner to brokers. Our partnership managers are specialist business coaches who will continue to drive collaboration and shared learning across our network.

For us, increasing professionalism will focus on several facets. It means a continued

We will also work with brokers to continue to raise the bar in terms of developing and implementing quality processes in their businesses and managing risk and compliance.

MPA: Do you have any examples of brokers who are raising industry

of increasing professionalism throughout the Choice network. An increasing focus on education and upskilling is a key trend. For example, principals are demanding that not only their loan writers but also their administration staff are up to date with the current compliance and lending environment. They recognise that it’s everyone’s responsibility to make sure the business is compliant and that customers have a great customer experience.

We have also observed an increase in the number of members taking up business coaching for both themselves and their staff to make sure their entire team delivers the same high standards of customer service. This also ensures everyone is on the same page when it comes to the direction of the business.

One of our established businesses has an in-house mentoring program for all new brokers, covering things such as product knowledge, technology and engagement with referral partners. The team share best practice across the group and facilitate a buddy system between newer and experienced brokers so that great customer outcomes are consistently delivered.

Other things we are seeing include an increase in the use of digital technology to drive efficiencies as well as engage with clients.

Our members are also looking for lenders that offer a more streamlined process that will allow them and their customers to do as much online as possible.

MPA: Why is it important that brokers become business operators, and what does this mean?

SM: Being a broker requires a specific skill set.

However, when it comes to operating your own business, you need to be prepared to build and expand on these skills to remain competitive.

Becoming a successful business operator

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FEATURES

VENDOR FOCUS

CHOICE

BY THE NUMBERS

$65bn

total loan book

$17.5bn

settlements in 2017 – up 8% since 2016

1,600

brokers in the network – up by 400 since 2016

1 in 4

brokers in the network writing commercial loans

NPS +40

broker satisfaction (high)

84%

staff engagement score

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requires finding the time to step away from the day-to-day to develop these skills and then create and implement strategic plans and processes. Successful business owners work ‘on the business’ as well as ‘in the business’. It is critical to spend time to set a business up for long-term success.

Being a business operator also involves growing and managing a team, marketing, developing business efficiencies and managing compliance requirements – ensuring their busi-

customer experience. It will be critical for most businesses to embrace digital means of interacting with clients. Management of client data will also become a core competency. With brokers having access to more client data than any other channel, it really puts them in the box seat into the future.

As the industry continues to grow, I believe broking will continue to attract new entrants, including professionals seeking a career change from other industries. Improved

“We believe the future is bright for those who are willing to embrace change and adapt” Stephen Moore, Choice ness, as it grows, has the right processes in place.

This can be a lot for a broker to manage, and that is where the role of a quality aggregator becomes so important.

MPA: How do you envision the industry in the next five years? How would you like to see it evolve?

SM: The Australian mortgage broking industry has evolved significantly over the past 20 years, becoming stronger and more professional than ever before. In the coming years, we expect the pace of change to accelerate, but we believe the future is bright for those who are willing to embrace change and adapt.

In the next five years we expect to see brokers’ market share continue to grow. Commercial lending also presents significant opportunities for brokers, so we expect it will be a key growth area too. Another area of potential growth will be through the integration of complementary practices across other industries, for example financial planning, accounting and consulting.

Technology will also change the way the industry operates, and we expect to see the blending of different channels – face-to-face, phone and digital – to deliver the best possible

professionalism and education requirements will also mean the industry will attract younger graduates. New blood and diversity of backgrounds will bring fresh ideas and vigour to the industry, which I believe will further contribute to supporting a broader range of customer needs.

MPA: With all the scrutiny focused on the broking sector, what should brokers do to ensure their businesses remain sustainable and continue to grow?

SM: Brokers need to continue to push for quality – in processes, documentation and customer experiences. To ensure business sustainability and growth, brokers need to engage in in-depth conversations with their clients to obtain a full picture of their needs, ensure these conversations are well documented, and deliver the best possible service and outcomes on an ongoing basis.

Developing and actively managing a business plan with a consistent focus on professional development should also be top of brokers’ agendas, and partnering with the right aggregator has also never been more important.

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FEATURES

REGIONAL BROKING

Bringing financial vitality to regional communities John Rolfe, head of Elders Home Loans, provides a regional perspective on broking and why it is integral to small businesses and homeowners in the far-flung corners of Australia

WHILE AUSTRALIA’S capital cities have seen steady population growth thanks to an influx in immigration, most regional cities and towns have not experienced the same migration boom. At the same time, the economic prosperity of some of these areas has declined as they shift away from mining and manufacturing.

As a result, some regional communities have struggled. Banks have reduced their regional footprints by closing branches to relocate experienced staff to busier centres, leaving local businesses sometimes starved of finance opportunities. In 2017, the big four banks closed at least 38 branches across rural Australia, news.com.au reported in November.

All of these factors make brokers in rural communities more important than ever as the primary source of information and finance solutions for small businesses and homeowners, says John Rolfe, head of Elders Home Loans, which specialises in providing finance to rural and regional Australia.

“Banks are still closing branches, but

50

people need financial assistance, so brokers have a great opportunity to fill that void,” Rolfe says.

With large distances to cover and diverse sectors to understand, a regional broker needs to be a jack of all trades in commercial and residential dealings. They may be called upon to help a local cafe owner buy a new

packed into a regional broker’s schedule, on top of teaching financial literacy at a local school and being sought out by the treasurer of the town’s sporting club.

Being an active community member is an important part of being a successful regional broker, as the job relies on customer loyalty and word-of-mouth referrals. The business-

“Banks are still closing branches, but people need financial assistance, so brokers have a great opportunity to fill that void” John Rolfe, Elders Home Loans coffee machine, secure a loan for a medical practitioner’s new office, or assist a client in purchasing a holiday home, hobby farm or investment policy. Some towns are also heavily reliant on certain industries, so brokers need to have industry-specific knowledge to best serve some clients, Rolfe says.

It wouldn’t be uncommon to see all of this

partner relationships and networks a broker can build with accountants, financial planners, insurance brokers and other referrers are critical to their work, Rolfe says.

Wagga Wagga-based Mainland Finance broker Brad Bland has been with Elders Home Loans for three years and is one such ‘jack of all trades’. Mainland Finance

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A GROWING OPPORTUNITY FOR REGIONAL BROKERS

provides services to the agriculture sector, including equipment and commercial finance. He also works on leisure property transactions, which can incorporate 100acre hobby farms.

Bland has been working in regional Australia for 24 years, but says it’s not a move that would suit everyone. While capital city brokers are likely settling $800,000 home loans, the average home loan in a place like Wagga Wagga is under $300,000. The appeal of working regionally is not about the money but about that sense of community and worklife balance one can achieve, Bland says.

But there are also challenges in being a regional broker. Brokers often deal with clients who are asset-rich but cash-poor.

Weather patterns can wreak havoc on growing conditions and cash flow, so every season brokers and businesses are dealing with different obstacles. Brokers also need to have a strong understanding of regional issues and the industries their clients serve – as well as a valid driver’s licence. The distances they have to travel to reach clients

One of the growing trends in regional areas is lifestyle properties. “Many people looking for a sea or tree change are seeking out properties with some land.

This has led to a new market for these types of properties,” Rolfe says.

But from a lender perspective they can be tricky. Unlike a standard residential property, they may require more intensive upkeep, fencing, clearing and fire prevention. In addition, Rolfe says, they can be hard to sell in the event of a default, so mainstream lenders tend to be very restrictive when it comes to LVR and land sizes.

That said, some specialist lenders do have more generous policies, such as Hume Bank, with which Elders Home Loans has direct accreditation. “They will lend on larger loan sizes as they have the experience and expertise to finance these properties.”

and get to training days can be a downside.

Bland’s not one to harp on the challenges, however. As a salt-of-the-earth Australian, he says: “You just deal with what you’ve got and get on with it.” It also helps being with a franchise like Elders, he says, because it’s a brand that’s widely recognised and respected by regional Australians, having been in the market since 1839.

Rolfe acknowledges that to help regional brokers thrive one must provide continuous support, training and assistance, especially when most BDMs, lenders and aggregators are city-based. Rolfe tries to see his team a

couple of times a year. Elders Home Loans also aggregates under Connective, so its brokers can take advantage of the support provided by Connective’s BDMs and compliance teams.

“The Elders network is a great source of assistance from a support perspective, but training and compliance is a challenge,” Rolfe says. “We utilise a number of training platforms and online tools to best manage it, but the good old telephone is always there, and I take calls from all over Australia seven days a week to assist.”

Just like his brokers, Rolfe is on the ground building connections and community.

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PEOPLE

BROKERAGE INSIGHT

A blend of technology and timely service Viktor Desovski, director of mybrokeronline, has taken his firm to new heights through innovation, while remaining rooted in principles that keep people’s trust and respect IT ALL began when Viktor Desovski became a dad. After the birth of his son Phoenix in 2013, he put his commercial real estate career on hold and decided to start a business that would allow him to set his working hours around his child’s needs.

“Mortgage broking offered the flexibility and the challenge I was looking for, while providing an opportunity to transfer my inherent knowledge and professional skills in real estate,” Desovski tells MPA. His investment knowledge quickly elevated his status as a trusted adviser. This has allowed his enterprise, mybrokeronline, to thrive purely through word of mouth, up to this day.

But Desovski is not one to rest on his laurels while his clients do the talking. Next year, he will employ a digital marketing channel to generate even more leads.

The brokerage specialises in commercial real estate lending for investment purposes across office, retail and industrial asset classes. It caters to the needs of high-networth individuals, property syndicators, SMSFs, professional services solicitors, accountants, and professionals in the medico sector such as general practitioners, veterinarians and dentists.

Mybrokeronline also specialises in the end borrower for off-the-plan residential

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project settlements and house and land packages for large residential subdivisions.

Working with time and technology Dividing each day between building a business and being a dad has been quite a challenge for Desovski.

To best manage his time, he sets expectations up front. This means telling clients, who he usually meets after hours or on weekends, that he’s a full-time dad during the day and has limited time to respond. His forthrightness wins the respect and trust of clients.

“Time is an elusive asset. The biggest lesson here is that it’s not just about my ability to be efficient. It’s also about getting customers on board with the process and system we adopt,” Desovski said.

He uses various digital tools, including Google Docs and Calendly; more complex systems such as Salesforce for his CRM; and PyCharm and WebStorm for his IDE. He also employs two support staff. These strategies give his business a competitive edge by efficiently managing and organising his time and productivity. Desovski believes that as

GOING DIGITAL Mybrokeronline traverses two parallel paths to achieving its technology goals:

First path: Building a solution using artificial intelligence to improve recommendations or offers of unbiased home loan advice.

Mybrokeronline uses IBM Watson to build a natural conversation interface – a chatbot that provides an engaging customer experience, including advice on completing a home loan application.

Second path: Building augmented reality (AR) around financial education and using gamification to help children develop core financial literacy skills.

Mybrokeronline is in talks with two groups that will build AR games based on concepts and materials developed for Global Money Week, which ran in March this year.

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FAST FACTS Company: mybrokeronline (mybrokeronline.com.au) Owner: Viktor Desovski Locations: Sydney CBD; Wollongong and Newcastle, NSW Year founded: 2013 Services offered: Residential off-the-plan, commercial real estate investment finance, lending to medico sector Number of employees: 3 Major awards: MFAA Global Money Week Ambassador 2016, 2017, 2018 Finalist 2018 Regional Finance Broker Award – MFAA NSW/ACT (pending results on 17 May 2018) Winner 2017 Regional Finance Broker Award – MFAA NSW/ACT Finalist 2016 Regional Finance Broker Award – MFAA NSW/ACT

technology advances, brokers’ value proposition becomes even more important to the customer.

Mybrokeronline’s biggest achievement to date was being exclusively appointed to an offthe-plan project that settled 49 deals with an average of $400,000 per loan from May to September 2017.

From a community standpoint, Desovski considers his involvement with the MFAA Global Money Week initiative as a different sort of achievement that was equally rewarding.

On the path to digitisation Desovski hopes to offer an end-to-end mortgage solution in the future. His goal is to build technology-dependent products that remove friction in managing compliance, identity

verification, and collection of supporting documents. By applying digital e-signatures, he aims to see customers experience convenience during their home loan journeys.

Desovski also believes that education is as important as building an efficient digital arsenal. His company gives back to the community by delivering presentations in schools on financial capacity, discipline and independence. Desovski has been an MFAA Global Money Week ambassador since 2016.

His work and dedication were recognised by the MFAA last year when he won the 2017 NSW/ACT Regional Finance Broker award.

Start with a mentor According to Desovski, applying the principles

of not borrowing too much, bootstrapping, and practising financial discipline remain basics for brokers starting out. But he believes the most important move nascent brokers can make is to find a mentor who will genuinely invest in developing their mentee’s skills. Along with that is focusing on one customer segment or niche market that they want to specialise in. It’s a way for them to build authority and their relationships with lenders and BDMs. Despite strongly adopting digital technology in business, Desovski prefers the more traditional method when it comes to client interaction. “As counter-intuitive as this sounds, technology is just a tool,” he says. “The broker is the solution. So focus on offering face-to-face time by being available to your clients.”

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PEOPLE

CAREER PATH

EXPERIENCE PAYS OFF With a career on both sides of the fence, CAFBA president and Quantum Business Finance director David Gandolfo knows broking and commercial lending inside out

David Gandolfo started his career at CAGA Finance as a junior credit officer, working across various departments to receive training in accounting, collections and lending. His exposure to equipment financing set him on the path to commercial lending.

1982 LEARNS THE ROPES

1991

RETURNS TO LENDING Gandolfo moved to Sydney and took a state management role at finance company Household Commercial. Even though he had been broking for six years, he felt there was only so much he could learn without senior lending experience.

By managing a fairly large portfolio and staff in two states, his time at Household Commercial bolstered his experience in running a business.

“I wanted to learn more, get broader experience in larger companies. I knew in a senior role I would be exposed to bigger opportunities and more complex issues – and, of course, get to manage my own staff.”

1995

TAKES BROKING PATH ONCE AGAIN Gandolfo helped grow the plant and equipment finance business of Melbourne Finance Broking as a broker and an executive director.

2008

1985

BEGINS BROKING CAREER Taking on a junior broker role at Interlease, Gandolfo was tasked with building client relationships. He went out to check clients’ plant, machinery and equipment requirements and provide them with finance solutions.

1993

LEARNS ASSET FINANCE To gain experience in asset financing for big corporations, Gandolfo moved to Crown Forklifts in Melbourne, where he ran their fleet management division, which leased fleets of forklifts to major warehousing and distribution customers.

CO-FOUNDS CAFBA Gandolfo and Terry Moody – of Moody Kiddell and Partners – merged the Victoria and NSW asset finance professional bodies and co-founded the Commercial & Asset Finance Brokers Association of Australia (CAFBA). This self-regulating industry body advocates for commercial and asset finance brokers and their clients via high-level engagement with regulators and legislators.

“Our guiding goal is to be the best-resourced and most highly regarded asset finance broking firm in Australia” 54

2009

LAUNCHES QUANTUM BUSINESS FINANCE Quantum came into existence through the collaboration of four directors, including Gandolfo. The broking firm prides itself on having high-quality staff and clients who it’s established a long-term relationship with. Despite its extensive offerings, Quantum continues to look for opportunities to grow its aggregation business and form viable partnerships.

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PEOPLE

OTHER LIFE

TELL US WHAT YOU GET UP TO Email otiena.ellwand@keymedia.com

6–11

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Ages of kids De Jesus coaches in the MyCoach Football program

Current number of kids enrolled in the program

6+

Years De Jesus has been coaching football teams

A SPORTING SPIRIT Sanford Finance director Ivo De Jesus uses his experience as a former professional football player to bring his community together WHEN SANFORD Finance director Ivo De Jesus saw how youth football was becoming a user-pay system, he and two friends launched MyCoach Football to make elite football coaching available at the grassroots level – free of charge.

De Jesus attributes his skill in coaching to his passion for the game and his previous professional playing experience, both in the National Soccer League and overseas.

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“The program is about giving back to the community and providing high-level coaching based on merit, not cost,” De Jesus said. Participants train twice a week and compete on weekends.

MyCoach Football has only been in full swing for two months, but it has already received an overwhelming response from parents and the community. Its coaches are looking to attract more players next season.

De Jesus applies lessons he learns from coaching to his business, and vice versa. In both roles, he aims to educate and be a positive influence. “The most important thing for me is building a positive culture.”

Balancing it all is far from easy, but he remains driven by a popular saying: ‘If you find ways without any obstacles, they probably lead nowhere’.

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