MPA Commercial Supplement 2017

SPECIAL REPORT

With expert advice from MPA’s Top 10 Commercial Brokers

MPAMAGAZINE.COM.AU

COMMERCIAL LENDING GUIDE Commercial property | Self-employed clients Asset and equipment finance | Debtor finance Unsecured business lending

COMMERCIAL LENDING GUIDE

CONTENTS PART 1

COMMERCIAL PROPERTY FINANCE 06 With property prices on the rise, commercial property is getting the attention of lenders, providing an excellent opportunity for brokers.

Featuring expert commentary from La Trobe Financial, ING Direct, Thinktank and ANZ

CONNECT WITH US Got a story or suggestion, or just want to find out some more information? twitter.com/MPA_Australia www.facebook.com/ MortgageProfessionalAU

ALSO IN THIS SUPPLEMENT 02 Editor’s letter

An introduction to this supplement

04 Key statistics

An overview of the most insightful commercial lending and business reports from the last year

16 Top tips from the Top 10

SME FINANCE

Australia’s Top 10 Commercial Brokers offer tips for brokers new to the channel

12 Self-employed individuals and SME

30 Product guides

PART 2

businesses may already be in your client base, and they need your help. Hear how Suncorp Bank and Liberty Financial are adapting their processes to make this type of lending easier than ever

Key product details from all the lenders featured in this supplement

32 More information

Getting started in commercial?

Read this first

PART 3

ASSET AND EQUIPMENT FINANCE 18 Brokers have long been working in the asset

and equipment space, so a focused approach is crucial to break into this area of lending. Includes advice from ANZ, Alleasing, aggregator AFG and broker Prolease and Finance

PART 4

DEBTOR FINANCE 22 Providing the working capital that

everyday businesses rely on used to be the preserve of the banks, but no longer. Leading non-bank provider Scottish Pacific explains how brokers can get involved in this growing area of lending PART 5

UNSECURED BUSINESS LENDING 26 Members of the new generation of

online, high-speed fintech lenders – Prospa, Spotcap and Moula – talk to MPA about how they’re working with brokers to provide solutions that didn’t exist before

MPAMAGAZINE.COM.AU NOW ONLINE: Every single article from this supplement, free to read Profiles of our current Top 10 Commercial Brokers Essential business and economic news daily in our newsletters Business strategy advice and much more … www.mpamagazine.com.au

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FEATURE / BROKER EDUCATION

EDITOR’S LETTER

YOUR POINT OF DIFFERENCE

B

rokers’ salad days are numbered, but the reason has nothing to do with ASIC. A 2016 report by the MFAA found the number of brokers grew by 5.8% in just six months; many of these brokers were entering states where the home loan market was contracting, such as Western Australia.

Brokers are increasingly competing against brokers, and whilst there’s still a 46.4% market share not controlled by brokers, the banks aren’t going to give it up lightly.

You need a point of difference, and that’s what this supplement is about.

Just 11% of brokers in the MFAA’s study had written any sort of commercial loan in six months, so simply by writing any of the loans featured in this supplement, you’ve set yourself apart from nine out of 10 brokers out there. Nor can we assume that broking’s business model – dependent

Simply by writing any of the loans featured in this supplement, you’ve set yourself apart from nine out of 10 brokers out there as it is on upfront and trail commission – will remain intact by the end of 2017. Commercial lending, meanwhile, has remained outside of ASIC’s Remuneration Review.

Beyond beating the competition for new customers or creating new revenue streams, commercial lending offers a valuable way to reconnect with your current client base. A 2016 survey by NAB found that one in three Australians would like to start their own business, and ‘not having enough money to start the business’ was their top concern. Add to that the large number of selfemployed clients you may already be sourcing home loans for, and you’ll find commercial clients coming out of the woodwork – or rather, paperwork.

This stand-alone supplement covers commercial property, self-employed clients, asset and equipment finance, debtor finance, and new types of highspeed unsecured business lending. Also look out for tips from Australia’s Top 10 Commercial Brokers and key statistics on commercial lending, as well as product guides.

If you’ve wanted to take your business in a new direction, this is the place to start.

Sam Richardson, editor, MPA

www.mpamagazine.com.au APRIL 2017 EDITORIAL Editor Sam Richardson Journalists Maya Breen Ben Abbott Production Editor Clare Alexander

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COMMERCIAL LENDING SUPPLEMENT

KEY STATISTICS

Commercial numbers you need to know There’s a huge amount of data out there on what business clients want and the economic conditions they face. These are the most relevant stats

LOOK AT YOUR HOME LOAN CLIENTS MPA’s 2016 Consumers on Brokers survey asked home loan and investment broker customers what other services would they would consider obtaining through a mortgage broker.

Loans for business

Financial planning

Insurance

Vehicle loans

None

Other*

19%

25%

20%

19%

16%

2%

*health insurance, credit cards, property investment advice Source: MPA Consumers on Brokers 2016

STARTUP BUSINESSES NEED YOU NAB’s 2016 Entrepreneurship Report talked to budding and current business owners about what they would need to get their businesses up and running.

What skills or expertise would you need to get your business off the ground?

What sort of business would you start?

14%

Café/restaurant/catering

49% Banking support 55% Business planning

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10%

Retail business

48% Legal, regulatory and compliance

IT/online-based business

6%

Personal services

6%

Construction/trade business

6%

EQUIPMENT FINANCE – EVEN FOR BIG BUSINESS Although brokers’ equipment finance market share is strongest in the microbusiness and SME space, they are beginning to make inroads into the corporate and institutional sector, as figures from research agency East & Partners demonstrate.

87.8%

61.3%

37.7%

24.5%

Microbusinesses

SMEs

Corporate

Institutional

BUSINESS CONDITIONS The year started with a nine-year high for business conditions, which hit +16.2 points in NAB’s Business Conditions Index in January. The long-term average for business conditions is just +4.9.

NAB also found that:

Source: East & Partners, 2017

COMMERCIAL PROPERTY PROSPECTS NATIONWIDE Thinktank regularly publishes reviews of the commercial property sector, highlighting the conditions in different markets.

Its latest report found improving or stable conditions in the commercial, industrial and retail markets in almost all regions.

Sydney

Melbourne

Adelaide

Brisbane

Perth

Commercial

Strong

Good

Weak

Weak

Weak

Retail

Fair

Fair

Weak

Fair

Fair

Industrial

Good

Good

Weak

Fair

Weak

Improving

Stable

Confidence is above the long-term average (+9.8 compared to +5.7)

Trading conditions improved from +17.2 to +22, a nine-year high

Conditions are highest in personal service and finance/property/business services

Deteriorating Source: Thinktank Quarterly Market Update, January–March 2017

However:

How much money do you think you will need (or did need) to start your own business?

75% of business said they did not require credit

50% I would love to own my own business

46%

40%

I have already started my own business

30% 24%

20% 6% 0%

16%

14%

10% Less than $5,000

8% $5,000 – $9,999

8% 6% $10,000 – $19,999

Conditions are lowest in retail and mining

20% 8%

$20,000 – $49,999

17% 8%

7%

$50,000 – $99,999

10%

$100,000 – Don’t know over $1 million

Source: NAB, The Lure of Entrepreneurship: Australia’s Start Up Culture, 2016

Profitability fell from +12.2 to +11.7 Source: NAB Monthly Business Survey, January 2017

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COMMERCIAL LENDING SUPPLEMENT

PART 1

Commercial property: building momentum Now that commercial property prices are on the rise thanks to low rates and high demand, brokers are increasingly willing to pay the price of learning something new to enter the commercial arena, writes Ben Abbott

JOHN KOLYVAS began his first commercial property finance role in 1987. Taking an active interest in the market in the 30 years since, he’s witnessed both highs and lows, including Australia’s last recession in 1990 very early on in his career.

“My career has given me exposure to the market during the good times, as well as an insight into how quickly it can turn and what mistakes investors make during a strong market,” he says.

The good news is that Kolyvas, who is now ING Direct’s commercial national sales manager, sees no cause for worry in 2017.

“I’m excited about 2017 because the commercial property market seems somewhat insulated to the supply and demand volatility of the residential market,” he says. “Commercial property markets should continue to experience the steady growth achieved over the last few years.”

The property outlook This outlook is largely shared by lenders across the commercial property spectrum. Despite some pockets of risk, lenders believe they – and brokers – can do good business this year.

“Generally speaking, commercial property values are driven by the health of, and outlook for, the economy,” says Peter Vala, head of sales and distribution at Thinktank. “We’re not

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COMMERCIAL PROPERTY

expecting any further reductions in the official cash rate during the course of this year, while employment and GDP conditions are looking reasonably steady. When combined, these factors tend to indicate that commercial property will remain well supported.”

Commercial property prices strengthened in the last 12 months, while yields compressed thanks to cash rate decreases. Tier 1 and Tier 2 properties in particular have been rising.

Broad-based demand from international and domestic investors has also helped drive higher prices, especially in the Sydney and Melbourne markets. “Face rents have also started to rise more broadly with diminishing incentives, most noticeably on the East Coast,” Vala says.

Cory Bannister, chief lending officer at La Trobe Financial, believes these market conditions benefit alternative lenders as well as brokers as major banks tighten their commercial appetites.

“The combination of low interest rates, steady yields that outperform residential assets, and interest from overseas investors, combined with tightening credit conditions from the major banks, has meant more and more borrowers are turning to finance brokers to seek alternate options,” he says.

“These often land in the hands of a specialist such as ourselves. We strongly believe in assisting those underserved by the banks, and surprisingly, many commercial property owners and investors are currently in that bucket.”

This competition has not gone unnoticed by the major banks themselves. “With low interest rates and reduced barriers to entry, the competition in this market has provided customers with more choice,” says ANZ’s general manager of commercial origination, Cosi De Angelis. “There are a number of nonbank lenders that remain extremely aggressive in this market.

“While we have seen a reduced appetite to lend for new-to-bank clients from most of the major banks,” he adds, “we continue to support our experienced clients with projects that are

well structured and with little settlement risk.”

According to Bannister, other market trends include an uplift in the number of SMSFs acquiring commercial property, many for the purpose of operating their business, and solid interest in the office and light industrial property markets. ING Direct, meanwhile, has seen more non-self-employed PAYE applicants attracted to the returns available in commercial property.

The lender response Lenders are responding to new market opportunities with both products and technology. For example, Thinktank’s SMSF LRBA product offers LVRs of up to 75%, extended loan terms of up to 30 years and a dedicated relationship manager on every transaction.

La Trobe Financial has tried to make commercial lending as easy and accessible for

FOUR STEPS TO CRACKING THE COMMERCIAL MARKET IN 2017 1. Find the right referral partners La Trobe Financial’s Cory Bannister suggests partnering with accounting or financial planning businesses, a great referral source for commercial business.

Because they have a great understanding of the client’s position and strategy, they can be good allies for brokers new to commercial. “By partnering with other professional services firms like real estate agents, brokers can also target local small businesses by running seminars, which may include topics such like purchasing your business premises through your SMSF, consolidating business debt through refinancing, or managing ATO obligations and business expansion strategies,” Bannister says.

2. Understand commercial SMSF lending New or existing commercial brokers who don’t have a relationship with an alternative lender should seriously consider expanding their list of panel lenders, says Thinktank’s Peter Vala, because this opens up a wider range of finance options beyond the mainstream banks. “We’ve seen a significant proportion of commercial properties being purchased through SMSF LRBAs, and we fully expect this to continue in the period ahead,” he says. “I believe starting and continuing to develop a sound knowledge in the area of commercial SMSF lending is likely to prove extremely beneficial and rewarding.”

3. Become your client’s banking advisor ING Direct’s John Kolyvas believes brokers who position themselves as banking advisors to SMEs and commercial investors – rather than simply brokers – are likely to succeed. “These types of customers have more complex and broader needs, and brokers can support them as their trusted advisor,” he says. “Brokers need to remain educated on commercial property market sentiment and also on banking products outside of straight term loans.”

4. Get hungry and understand appetite ANZ’s Cosi De Angelis says staying on top of current lending appetite across the banks is not an easy task for any broker, new or old. “Knowledge of appetite will assist brokers to identify those transactions that will allow them to be more successful in 2017,” he says. “Staying close to bankers and catching up regularly is a good strategy.”

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COMMERCIAL LENDING SUPPLEMENT

COMMERCIAL PROPERTY

brokers as possible. “We have recently partnered with Simpology on their e-lodgement Loan App tool, which delivers a dynamically configurable online loan application for all of our products, including SMSF, commercial and construction/development finance,” Bannister says. “It keeps our external broker partners on the same page as our internal processing teams.”

ING Direct is investing in its application process, and the first half of 2017 will see it expand its lending proposition and make its broker experience more efficient. “This will benefit both residential brokers lodging their first commercial application and commercial specialist brokers with more complex needs,” Kolyvas says. “More lenders in the market are looking at efficiencies in how they process applications, and some are starting to digitise some of their processing. Particularly in the below $1 million market, lenders are conscious of appealing to less experienced commercial brokers and making their application process friendlier.”

Educating brokers is also a priority for lenders. Thinktank, for example, is adding to its education platform, which was initially built to provide relevant information and insights that help brokers identify, capture and convert more business opportunities.

“This year will also see the launch of a series of strategy sessions intended to solicit market feedback and suggested enhancements on product development that will directly assist the broker market and continue to maintain Thinktank’s leadership in the commercial property finance sector,” Vala says.

La Trobe Financial has been working with aggregators over the past 12 months on localised commercial property master classes for brokers to give them the tools to write more business by educating them on not only how to write the business, but also how to identify the opportunities. “These master classes have been very well received and have resulted in brokers converting more enquiries, ultimately providing more solutions for their clients,” Bannister says.

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Market predictions De Angelis says the property market as a whole may face some challenges in 2017, particularly in the high-density residential sector. “While there will be some headwinds, I think the relatively low interest rates, strength in the NSW economy, continued flow of Chinese funds and Australia’s reputation as a safe haven will continue to support the market,” he says. “The tightening of appetite from the banks will work towards ensuring a sustainable commercial property market as we work into 2018.”

Thinktank’s Vala argues that, on the back of a reasonably stable domestic economy and in the absence of any major global shocks, further but moderating gains should be expected. “The keen interest from offshore

GOING INTO COMMERCIAL PROPERTY LENDING? Talk to your aggregator. They may have dedicated BDMs or even an entire department focused on commercial lending. They can also provide introductions to lenders and may be able to help you segment your database to find commercial clients.

Consider timelines. Whilst commercial property transactions can involve huge sums, the time to completion can be similarly long.

Consider other revenue streams to keep your business going in the meantime – the other articles in this supplement provide a few options.

Reach out to local developer associations. If possible, become a member and attend their events. If one doesn’t exist, set up your own: Australia’s top commercial broker, George Karam, is a founding member of the Western Sydney Developers Forum.

buyers appears to be holding up, while low interest rates render commercial property attractive for Australian investors and owneroccupiers,” he says. “At the same time, SMSF lending can be expected to remain robust, with the long-term tax advantages for wealth accumulation drawing in more and more activity.”

Vala does acknowledge some ‘pockets of distress’ among various property types and areas, but he says this is not enough to shake a medium-term positive outlook for the industry. In fact, he says this is likely to bring Thinktank’s experience and structuring know-how to the fore. “The commercial market is made up of a patchwork of factors and dynamics, which makes having a relationship with a specialist lender like Thinktank a smart thing to do,” he says.

La Trobe Financial’s Bannister believes brokers are increasingly likely to take advantage of the opportunities in commercial property, as they see the value in diversification. “Thanks to the combined efforts of ourselves and other commercial lenders, as well as the MFAA and FBAA and aggregator groups, the diversification message has taken a firm hold, lifting finance broker participation in commercial property finance,” he says. “Combine this with the injection of talented new brokers keen to learn, and the forecast for 2017 is extremely positive.”

Kolyvas says ING Direct had a record year in commercial lending last year; settlements were up 28% on the previous year. Having added two new commercial business development managers and two new credit managers, he says the bank is ready to support further growth.

“Our business is 100% reliant on brokers, and we focus on building and maintaining close working relationships with them,” he says. “We’re continuously encouraging and listening to broker feedback, which has been instrumental in how we have shaped and developed our business.”

COMMERCIAL LENDING SUPPLEMENT

PART 2

SME lending: beat the crowds Brokers are moving en masse into SME lending, and lenders are responding with products and training designed to take brokers well beyond the home loan

SUNCORP’S NATIONAL manager of SME and commercial, Robynne Frost, believes she’s lucky to be in a commercial lending role in the current market. “Even with some of the challenges we’re facing, I wouldn’t want to be anywhere else,” she says.

A new startup channel within Suncorp dedicated to SME lending through intermediaries, Frost’s business is only 18 months old, but already it’s fulfilling its promise to capitalise on the next big opportunity. “We saw the trends in the market that showed business lending is growing substantially in Australia,” she says, “and with other challenges to growth, like APRA’s restrictions on investment lending, we saw SMEs as a good opportunity.”

This opportunity applies as much to brokers as to the bank. “We’ve definitely identified an opportunity and trend toward diversification among brokers, who have been for some time facing a future in which customers will likely expect a lot more than just a traditional home loan,” Frost says.

The statistics support Frost’s enthusiasm.

The broking market as a whole is still transitioning towards a greater volume of business lending, so there is a gap waiting to be filled by entrepreneurial brokers. “We know 25% to 30% of our home loan customers are SME customers,” Frost says. “What we also know is that 44% of brokers Australia-wide

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SME LENDING

are only writing home loans.”

However, it appears commercial lending’s time may have finally come. John Mohnacheff, who has spent years spreading the word as Liberty Financial’s national sales manager, has witnessed over the past year a significant shift in brokers and aggregators diversifying to offer asset finance and commercial, in addition to mortgages. He says a symbol of that is Aussie Home Loans’ embrace of commercial lending.

“Aggregators have realised that to maintain their relevance, brokers have got to be able to cater for the SME market,” Mohnacheff says.

“The happy result of that scenario is that brokers are trying it, and after they’ve tried it, they are saying it was not as difficult as they thought it was.”

This is good for brokers. “They’re not going to go and beg a bank for the money,” Mohnacheff says. “They want to get on and build a business – they don’t want to sit around or go from one branch to another. They are embracing commercial brokers.”

However, brokers need to be ready for a different type of conversation to remain relevant. When customers already know what they want, brokers need to remain agile or risk being overtaken by the free knowledge that’s

THE SME LENDING GAP

25–30% Percentage of Suncorp’s customer base that is self-employed

Remaining relevant SME lending has always been the traditional domain of the banks, Mohnacheff says, but the market is shifting. “Business lending was theirs through and through, but brokers are now saying, ‘I’m going to be in the business market; I’ve got a lot of lenders on my panel outside the Big Four who can work with me and help me.’”

That may be because brokers are being flanked by competitors. Suncorp’s Frost says brokers have realised they may lose customers if they don’t upskill.

“If a home loan customer turns out to be self-employed, many brokers have often been too scared to ask deeper questions – they just move on and do the home loan transaction,” Frost says. “That approach risks a situation where, if a business has a need, they will go and see another broker or go directly to a bank. The broker not only loses the SME lending business, but the home loan customer as well.”

Mohnacheff says today’s entrepreneurs have a more intelligent approach to opening a small business. Thanks to the internet, they are better informed in all aspects of opening a new business. These educated entrepreneurs know what they want, but need someone to do it for them.

44% Proportion of brokers that are still only writing home loans

8% Number of consumers that will go to brokers for SME lending Source: Suncorp Bank

available, as well as the emerging direct peerto-peer channels that are being created by fintech disruptors.

Frost sees a big chance for brokers open to the SME market. “Our customers’ expectations of brokers are rapidly increasing as their appetite for advice on multiple product solutions, not just home loans, increases,” she says. “Today’s market provides a huge opportunity for brokers to diversify and offer SME lending to their customers.

That represents a huge opportunity for the industry.”

Up to speed After Suncorp began exploring SME lending through brokers, the bank found that it

needed to adapt its approach. Although it had a team of existing BDMs for home lending, it needed a dedicated infrastructure for brokers, who were finding small business lending more complex than home lending.

“While growth was phenomenal, there were lots of challenges around brokers having the right skill base to be able to do these transactions,” Frost says.

The bank has responded by establishing a footprint across the Eastern seaboard, with six dedicated SME business development managers who provide tailored services to assist brokers solely with small business transactions. But the bank has also gone much further. Seeing a need for education, Suncorp committed to helping brokers understand SME lending in a deeper way.

“Our approach has been around education and giving back to the industry, which we achieve through our SME master class program,” Frost explains. “In the past 12 months, we have trained in excess of 900 brokers on how to improve their confidence around things like reading financials, trends and ratios so that they can provide more ‘whole of business’ advice to SME customers.”

Once brokers have attended the program, Frost says they are inducted into a Small Business Alumni program, allowing them to continue to build knowledge and skills in small business lending. “That comes in the form of monthly communications, access to tips and tools, and ongoing education and training,” she says.

Suncorp has been very happy with the early results of its education program. “The outcome is some of the quality transactions we are seeing coming through brokers,” Frost says. “It is a really high-touch model, building strong relationships with brokers and providing the hands-on support as they do the transaction.”

Technology and product Technology is playing a big role in making the SME market easier for brokers to manage. For example, Suncorp’s investment in technology led it to become the first in the market to offer

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SME LENDING

online lodgement capability through NextGen. “This simplifies and improves the process for our broker partners, especially when submitting a dual small business and home loan product,” Frost says.

But lenders like Suncorp know they have to do more. In 2017, Frost says she will be aiming to make it faster and easier for brokers to do business with the bank.

“In our first year we’ve experienced terrific

growth, and we have been listening to what’s important to our broker partners,” she says.

“We are looking to improve and deliver on these points, and we have process improvement initiatives underway.”

Liberty Financial’s John Mohnacheff says Liberty’s products “have always been squarely pitched to the SME market” – particularly its “superstar” SMSF commercial product. Going to 75% LVR, he says it is a great vehicle for

GOING INTO SME LENDING?

SMEs, allowing them to own a commercial premise and rent it back from their super fund. “It’s a match made in heaven.”

However, Liberty has been focused on improving its service proposition. “We’ve been putting on more BDMs and have sharpened our turnaround times,” Mohnacheff says. “If brokers put a deal in this morning, nine times out of 10, they’ll get conditional approval tomorrow by lunchtime. We are focusing on speedy turnaround times and giving answers – we are focusing on speed and certainty.”

Capturing the SME Be ‘job fit’. The main reason why SME businesses fail is a lack of strategic and business planning. The same goes for brokers trying to diversify, according to Suncorp’s Robynne Frost. To move into a new market segment, brokers need to understand what’s important to this new type of customer, and also what needs to be changed within their own business.

“Take small steps,” Frost says. “If you’re working through a home loan application and notice your client is self-employed, use that information as a conversation-starter to learn about their business.”

Frost suggests asking things like: What are your business plans for the next 12 months? How will you fund those plans? Do you have appropriate insurance to cover unforeseen circumstances and protect your business and family? How do you receive and make payments?

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Tap accounting referrals. Accountants see a long procession of brokers, who typically knock on the door and offer to help them only with mortgages. There’s one problem with that. “Accountants don’t see a lot of home loans, but what do they see a

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lot of? SMEs,” says Liberty Financial’s John Mohnacheff. “When you can go to an accountant and tell them you can help with the commercial lending aspects, the accountant suddenly says, ‘Now I’m interested.’” If brokers can diversify and strengthen their referral pool beyond the realm of the typical mortgage broker, Mohnacheff says it’s a win-win.

Use your lenders. Brokers should freely lean on lenders that are hungry for SME business, Frost says, because they will be able to assist in getting deals over the line. “If you come across an SME opportunity, call your local Suncorp SME BDM and talk it through. We can tell you straight away if it meets Suncorp’s risk appetite, assist you with serviceability and advise which supporting documents to attach to ensure a smooth assessment process.”

Liberty Financial likewise recommends using the ranks of its own BDM team to assist with learning how to find and successfully submit SME deals. “Most aggregators and a lot of lenders have good education portals, and there’s no better tutor than a BDM you trust,” Mohnacheff says. “If you can learn to do a Liberty loan, then sure as chickens you can place a loan with another lender too.”

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Frost says SME businesses are a priority segment for Suncorp as a whole, and the banking push through brokers is an important part. “We are looking at the market and seeing how we can be sharper and faster and better,” she says. “We are going to be continuing to build and improve our broker proposition as part of that.”

But there are still challenges, like convincing SMEs that brokers can help. “One of the challenges we have collectively as an industry is building consumer confidence in going to a broker for small business and commercial lending,” Frost says. “Only about 8% of consumers now consider going to a broker for those lending needs. While it’s changing, we need to build confidence in consumers going to their broker.”

Mohnacheff believes brokers themselves will be the catalyst. “The most pleasing thing is, we have all the leading aggregators saying, ‘We need to play here’, and that brokers need to be invested in learning about these invaluable classes of lending,” he says.

“Because if we don’t, we will become less and less relevant.”

In Mohnacheff ’s mind, this shift can’t come too soon. “It’s been too bloody long,” he says. “When Liberty embarked on this journey, we knew it would be a long one. It takes a long time to turn the Titanic. But we’ve persevered and persevered and persevered.

Now it’s finally happening, and this is music to my ears.”

IS YOUR BROKERAGE WORTHY OF A PLACE ON THE LIST? MPA’s annual search for Australia’s best brokerages will soon come to an end.

Whether you operate a franchise or independent business, get involved for the chance to make this year’s list.

Being named a Top 10 Brokerage sets you apart from your competitors and gives clients confidence they are dealing with the best in the business.

Entries close Friday 7 April at mpamagazine.com.au

COMMERCIAL LENDING SUPPLEMENT

TOP BROKER TIPS

Tips from Australia’s top commercial brokers MPA’s Top 10 Commercial Brokers are the elite of the commercial broking world, and there’s much you can learn from their example

THE GROWING OPPORTUNITY IN COMMERCIAL LENDING For our Top 10 Commercial brokers, between 2014 and 2016: The average total loan volume per broker was

UP 81% to $150m

Number of loans per broker was

Loan volume required to make the Top 10 was

UP 153% to 70

UP 44% to $84m

Yet over the same period, Australia’s economic growth was just 3.3%

GETTING THE APPLICATION RIGHT Whilst there are many areas of commercial lending, and thus many types of commercial applications, this year’s Top 10 have a few tips that can be applied to all areas of lending.

“We have a pretty defined process that ensures we demonstrate that we actually have taken [the deal] to the banks … we do a process to review the deal before it goes to the banks and get the client to sign off on it. Then once we go to the banks, we come back with the four main options, and they choose which bank they want to go with … everything’s been defined upfront before they make a commitment, so they know what they’re getting themselves into.”

Mark Churchill

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“A great application always starts with a great relationship, and we take the time to get to know our clients really well. We pride ourselves on the quality of our applications.

We don’t just forward the information to the bank – we actually write the full application ourselves. In most cases, the bank will use our application as their own, which saves a lot of time in the assessment process. We pre-empt all the usual questions and requirements from credit upfront, and it’s rare for us to have to go back to the client more than once to get an application processed and approved.”

Daniel Green

“I think the key to any good application, regardless of the industry, is transparency of information.

So many times you go straight to the staples of a transaction – how much do you want, what’s the security, how are you going to pay it back, rather than asking the key questions: Why are you making this move, what’s the difference between being a paid consultant rather than your own business owner, and do you have the skills to be able to operate that?”

Jamie Giles

TARGET INDUSTRIES

DIVERSIFY YOUR BROKERAGE

Want to find something different? Our Top 10 brokers and their brokerages offer finance to the following industries:

We asked our Top 10 what they offered other than commercial lending.

Aged care

Petrol stations

Agriculture

Pharmacies

offer home loans

8/10 brokers Child care

Professional services

Dental practices

Property development

Gambling

Pubs and clubs

Hair and beauty

Real estate

Hospitality

Self-storage

Medical centres

Supermarkets

10/10 brokers

offer equipment finance

offer property development finance

5/10 brokers

10/10 brokers

offer debtor finance

COMMERCIAL BROKERAGE FOCUS: HAWTHORN FINANCE Hawthorn Finance is managed by Daniel Zadnik, who has consistently appeared in MPA’s Top 10 Commercial Brokers for the past three years. Based in Hawthorn, VIC, Hawthorn Finance has been offering commercial, asset and residential finance since 2008, with a client base of small businesses who appreciate the brokerage’s longevity.

“The biggest selling point is that, as an owner of a business, we tell the clients that they will have a long-term relationship with us,” Zadnik says, “and they don’t have to keep educating the next relationship manager at the bank.”

Zadnik’s brokerage is also part of the McLean Delmo Bentleys group, a network of independent accounting and advice firms across Australia. This vastly expands Zadnik’s reach and covers a wide range of industries, including agriculture, professional services, hotels, pharmacies and real estate. Hawthorn Finance also receives a stream of referrals from other members of the group, whilst drawing on their expertise in accounting, taxation, superannuation and financial planning. As Zadnik puts it: “We have all the bases covered.”

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PART 3

Asset and equipment finance: find your focus Brokers already account for the majority of asset and equipment finance business in the SME market, so diversification success or failure depends on finding your focus

ASSET

AND equipment finance is something today’s mortgage brokers hear a lot about. As lenders seek to expand distribution by introducing new products and aggregators diversify out of pure mortgages, the barrage of encouragement to diversify can be deafening.

But is it right for everyone?

Prolease and Finance has been in the asset finance market since 1989. Owner Darren Goodman says the company handles primarily car finance due to high demand in the small business market, but will finance everything from trucks and forklifts to printers and copiers.

Goodman, who is also responsible for Vow Financial’s referral business, says the decision to expand into asset finance depends on the broker and the business, and whether they have the right infrastructure in place and skill set to succeed in the market they choose.

In the end, it seems success in asset and equipment finance may depend on your focus.

Financing cars ANZ’s general manager of commercial origination, Cosi De Angelis, says car finance can be a good place for brokers moving into the asset finance market to start. At present, he says, 40% of the equipment finance market is cars, making it a big potential market for brokers.

“For the mortgage broker, that is the easiest

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ASSET AND EQUIPMENT FINANCE

asset class to start targeting,” he says. “Cars, trucks and equipment may seem a little difficult, but for the average broker, car finance is really easy.”

There’s also a high degree of crossover between a broker’s core mortgage business and the need for a car. “We believe that within 12 months of a client changing the mortgage on their home or buying a new house, they’re looking at buying a car,” De Angelis says.

“There seems to a high correlation between that event and the purchase of a new vehicle.”

If brokers don’t offer car finance, they may eventually be forced to. Motor dealers themselves don’t seem to be hesitating in their own moves to sell mortgage brokers’ bread and butter.

“Car dealers are out there today, doing exactly what mortgage brokers are looking to do, but in reverse,” De Angelis says. “Car dealers are looking to obtain credit licenses and sell products other than the car to their customer base. If brokers aren’t able to ringfence their customers, then they may find themselves losing the mortgage.”

However, Goodman says that while getting into the car market might seem an easy segue, it can actually be a daunting prospect at first. “There’s no easy way to just jump into it,” he says.

That’s partly because brokers need the right infrastructure to be able to compete.

“Some brokers find the car market way too competitive and aggressive, and some avoid it completely,” he says. “With cars, you have to be quick – people find a car today, and they want to pick it up this weekend – so you need the systems and processes in place to do that.”

Lenders are also reluctant to accredit new car finance brokers. “If you’re not giving lenders volume, often they won’t accredit you,” Goodman says. “The only way to get that is either through a mortgage aggregator that has a relationship with them, or by linking up with an existing broker and running it through their business as an authorized representative.”

Because each lender also has different software for car finance deals, brokers really

need experience to be effective. The sum of these factors is a chicken-and-egg scenario where brokers need experience to do deals, but are unable to get easy experience upfront.

Then there’s the big question: Is the commission worth it?

“What we find is a lot of the mortgage brokers who think, ‘Let’s get into this’ and

start doing it themselves have found the amount of work versus income doesn’t seem to warrant it,” Goodman says. “A lot prefer to align with someone and refer to them and get a referral commission, so they are not doing all the work but are offering the service to their customers.

“We’ve got a lot of experience dealing with

TAKING ON THE BANKS Brokers are far from outliers in the asset finance market. With a annual market volume of $40 billion and receivables worth $100 billion, brokers already have an overall 61.6% market share, according to the Commercial Asset Finance Brokers Association of Australia.

President David Gandolfo says the interesting fact is that brokers are not only dominating the micro and SME spaces, but are also penetrating the corporate and institutional markets – typically the domain of the mainstream lenders rather than asset finance brokers.

However, it’s not an easy road. Gandolfo says brokers entering the market should realize it is complex and relational, which makes it different from writing mortgage business.

“Asset finance isn’t as simple as it looks,” he says. “You need some degree of experience and commercial knowledge in order to package loans appropriately in terms of their tax effectiveness. Asset finance brokers are also very relational, not transactional. Typically, you have commercial clients with ongoing requirements for upgrading and replacing machinery, equipment, and the means by which they generate income.”

Gandolfo recommends brokers get educated before they dive into the market. “Our brokers are typically asset finance professionals,” he says. “Some mortgage brokers come from sales backgrounds, but our members all come from finance backgrounds.”

BEATING THE BARBARIANS Stratton, one of the largest asset finance brokers in Australia, has noticed over the last 12 months that relationships with customers are becoming more strategic rather than transactional. Business customers are no longer just interested in rates.

“They’re focusing on a range of other value drivers, from responsiveness to more sustainable solutions and partners that can play a strategic part in the growth of their business,” says John Alvarez, Stratton’s head of commercial and third party.

Stratton is investing in infrastructure and capabilities that will allow it to capture more relevant customer information, to enable it to better understand customer needs and work with lenders to create better solutions. “The old model, where broker behaviour is modelled on reacting to customer needs when they become a problem, is dying,” Alvarez says. “The new model is one where brokers nurture relationships, pre-empt customer needs and proactively seek ways to create value.”

Stratton also expects fintechs to play a greater role. “Like barbarians at the gates of Rome, they are looking to disrupt the incumbents,” Alvarez says. “We love it, and continue to challenge ourselves to deliver differentiated products and a seamless customer experience.”

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ASSET AND EQUIPMENT FINANCE

mortgage brokers,” he continues. “The key message I often give is they are far better off focusing on a $1 million mortgage deal than a $20,000 car deal. They are different beasts in terms of pace and time, and if they don’t have the infrastructure, they can end up offering a poorer service to their clients, which they don’t want to do.”

Credit and commission Prolease built its own referral base primarily through relationships with accountants, in addition to wholesale car dealers. That was in line with a strategy to get close to a more reliable white-collar market with good businesses that require regular funding.

While Goodman is a generalist, he argues a good way to enter the market today is to pick a niche. “Find an industry you have connections and links in,” he says, “and focus on equipment in that industry as opposed to trying to beat all the rest of the guys in the car market.”

Goodman says business as a whole looks good this year when measured by enquiries and growth. However, there are other factors coming into play that are requiring asset finance brokers like Prolease to become better jugglers of clients and credit.

“The risk of a Royal Commission into banking means a lot of lenders have tightened up on credit policy and are changing their policies slightly, like they did during the GFC,” he says. “Whereas before if you had 10 enquiries and you may do eight or so because you lose two of them to competitors, now you are only doing six because you can’t get two across the line.”

Non-conforming lenders are stepping into the gap. Although clients need to pay a premium, they are often more than willing if they don’t fit the shrinking appetite of the major banks.

“Often mainstream lenders are concerned about the type of equipment they are financing, whereas non-conforming lenders are concerned more about the strength of the applicant,” Goodman says. “Whereas a major lender doesn’t want the asset on their books, the non-conforming lender sees someone who

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looks as if they are going to pay.”

Alleasing is one player with a new broker model, which launched at the end of 2016.

David Onto, who heads up intermediary distribution, says the business has got off to a good start with $134 million in deals, thanks to its unearthing of some quality brokers.

Alleasing allows customers who can’t access any more senior capital from their banks to realise the value of existing assets through arrangements like sale and leaseback. “Where banks are interested in brand-new assets with known residual value at any given time,” Onto says, “our expertise is managing the value of an asset at any given stage of its life cycle.”

Onto says brokers with access to providers like Alleasing – ones who know where to go for their clients – are ahead, because they are less about the product and more about the solution. “If you offer what everyone else is in the marketplace, it’s difficult to derive real

GOING INTO ASSET AND EQUIPMENT FINANCE? Ascertain your target market. If you already offer commercial lending, ask your existing clients what sort of equipment they require and how they fund it. If you’re entering commercial lending, car finance for home loan clients may be an easier place to start.

Do the numbers. ASIC’s banning of flex commissions may make brokers’ income stream more stable, but you still need to work out whether you can make money doing it yourself or would be better off referring.

Divide your resources. The tempo of car finance is completely different to that of mortgage lending – many clients expect their car finance within 24 hours – so many brokerages dedicate a member of staff to car finance.

value for that,” he says, “but if you have a niche, you put yourself in a better position.”

This plays into the commission equation.

Because commissions are by negotiation in the asset and equipment finance market, brokers doing a $100,000 piece of equipment may end up earning minimal commission on the deal if they face lender competition. With interest rates so low, brokers are also struggling to justify a good rate of commission for their services.

Onto says this is when providing solutions counts. “If you can add a bigger fix than would have existed otherwise, you can create more elasticity in the brokerage itself,” he says.

“There’s an amazing opportunity for brokers.

The average business banker stays in their role these days no more than 18 months.

Brokers can offer truly consistent service and relationships that the banks don’t anymore, and that is really their competitive advantage.”

Mix and match AFG’s commercial general manager, Keiran Evans, has seen an increase in the number of new lenders entering the asset finance space, leading to increased market competition. “It is also bringing improvement in technology as the new entrants attempt to take advantage of the lack of platform investment by many of the existing dominant lenders,” he says.

Evans thinks brokers have a significant opportunity in the market. “There is no doubt customers are seeking a more holistic service proposition to their finance needs, and brokers have a rare opportunity to satisfy this demand,” he says. “Expanding brokers’ core competencies beyond a single finance channel – be that asset, commercial or residential – will ultimately deepen the broker/customer relationship and likely lead to other opportunities.”

Note: Just as this article went to print, ASIC declared they were banning the use of flex commissions for brokers and car dealers in the car finance market. Brokers will be able to offer discounted interest rates and thus earn lower commission.

Mortgage Professional Australia (MPA) is the leading business magazine for the mortgage and finance industry.

• • • • •

Profiles and case studies of successful brokerages Interviews with industry leaders Special reports and surveys In-depth features on specialist lending Business strategy content

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PART 4

Debtor finance: spreading the word Debtor finance industry consolidation and the rise of specialist brokers are propelling the value of the invoice firmly into the SME finance mainstream

WHEN WAYNE SMITH first came to Australia in 2007, there were no real specialists in debtor finance among Australia’s fastmaturing finance broking market.

However, as he has worked to raise the profile of debtor finance, first at Cashflow Finance and later at Scottish Pacific Business Finance, he’s seen a number of brokers rise to become true masters in leveraging the value of the invoice.

“I would say most definitely now we are seeing more specialists emerging,” Smith says.

“These are usually people who’ve been business finance brokers for some time, who are making debtor finance a bigger part of what they do.”

While not limited to debtor finance, this specialist vanguard of brokers is staffing up to meet demand and now do “decent volumes” of debtor finance business.

“The specialists know what they are looking for,” Smith says. “They are becoming experts at marrying up the sector and the situation to ascertain whether it is a business and situation that is suitable for a debtor finance facility.”

Market moves The debtor finance market remained relatively static overall last year, according to data from the members of the Debtor and Invoice Finance Association. But to assume the market has been stagnant would be a mistake.

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Instead, it has undergone a period of remarkable consolidation, which is expected to act as a catalyst for debtor finance’s acceptance as a true mainstream alternative.

Scottish Pacific has been at the centre of this evolution. Acquiring Bibby Financial Services, both GE and Suncorp’s debtor finance books, and listing on the ASX all in the space of a year, it has become an unmistakable finance force.

At the same time, rival ASX-listed CML Group swallowed up a number of smaller players in the sector, including Cashflow Finance, and is gearing up for further growth.

“Putting all those businesses together delivered some very big numbers for us, with over 1,500 clients and nearly 300 staff,” Smith says. “In the lead-up to Christmas, we had over a billion dollars in funding lines out to our combined client base. With all that work behind us, we’ve got an amazing opportunity in front of us as the biggest specialist provider of working capital outside of the banks.”

Scottish Pacific now has the ability to lend

$5,000 to $10,000 against one invoice at the lower end of the market; at the high end, it is providing funding to businesses turning over up to $1bn a year.

Smith says its newfound weight means Scottish Pacific can now set its sights on boosting the standing of debtor finance in Australia’s cash-flow-conscious SME sector.

finance. Really, now we have an opportunity to get on and grow the market.”

Enter the specialists Most commercial brokers are now well aware of the value of debtor finance facilities and consider them a tool they can use to assist certain SMEs. Residential brokers, on the

“We are seeing more specialists emerging – usually people who’ve been finance brokers for some time making debtor finance a bigger part of what they do” Wayne Smith, Scottish Pacific Business Finance “We’ve got the ability to write new products, and we’ve got a lot of interest in forming partnerships,” he says. “That could be people who run credit control systems, aggregation groups, banks that don’t provide debtor

other hand, often choose to team up with commercial brokers if they need additional support with a potential debtor finance client.

Smith says many residential brokers find their first encounter with the product is when

Q&A: KEVIN WHEATLEY, BAYSIDE COMMERCIAL MORTGAGES Can you outline a recent debtor finance deal?

Recently, we arranged a debtor invoice facility for an iconic Australian cosmetics company that increased their sales by 30% throughout Australia, UK and America.

As any businessperson will attest, with business growth, there is an increasing demand for working capital. Bayside Commercial Mortgages explained the benefits of a debtor invoice facility to the directors of the cosmetics company. The facility was easy to arrange, knowing all the invoicing was being processed through the parent company based in Australia.

A $3m AUD facility was arranged through Scottish Pacific to cater for the increase in sales, which resolved the cash-flow problems.

On the back of the debtor invoice facility, we also arranged an international trade facility to cater for the other countries.

Are specialist brokers rising in debtor finance?

I am not of the view that there are a growing number of ‘specialist’ debtor finance brokers out there. Many brokers are reluctant to give advice because they don’t fully understand how to structure the facility.

However, the experienced debtor finance brokers who do exist are

a real value-add to their business clients, because they know how to read an aged trial balance sheet, which will identify the debtor ageing and debtor concentration.

Do you have an opinion about recent industry consolidation?

I believe the consolidation of a couple of the major debtor invoice companies is for the better from a competitive perspective. Increased capital has improved what was always a liquidity issue with the smaller facilitators. Also, the acquisition of Bibby Financial by Scottish Pacific has been a real benefit to brokers who operate and provide funding internationally. There will always be new competitors in this financial sector, as it is a financial product that can grow with your business.

How valuable is debtor finance, in your view?

The individuals I provide advice to know I am a strong advocate for debtor invoicing, having used the product in a company I was the CFO for many years ago. I grew the annual revenue from $15m to $28m within a two-year period by using a debtor finance facility. The advice I give is, you can’t grow your business on the back of an overdraft, despite what mainstream institutions suggest.

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DEBTOR FINANCE

THE CASH FLOW CONUNDRUM Cash flow is among the top three challenges for small businesses in 2017, alongside uncertain Australian economic conditions and achieving business growth.

Medium-sized businesses also put cash flow in the top three challenges, next to reducing operating costs and adapting to evolving consumer needs.

When surveyed in September 2016, 72.5% of all SMEs named cash flow concerns as something that keeps them up at night.

Sources: Bankwest Future of Business Outlook Report 2017, Scottish Pacific SME Growth Index

they see a client using their home to secure a business bank overdraft. “With debtor finance, they can repay the overdraft, get more cash into the business and unbundle it from the family home. They can then use the home to purchase an investment property or remortgage at a different rate.”

Into this mix specialists are rising, creating a pool of commercial brokers adept at diagnosing when a business or situation could benefit from debtor finance.

“Specialists understand there are any number of reasons why a business might be short of cash,” Smith says. “They understand if there’s a business turnaround, a growth situation or a family home is being used as security, it is a great situation for debtor finance and suitable for businesses that trade with other businesses on standard trade credit terms.

“For example,” he adds, “they might be trading very successfully but have limited working capital, so their growth potential becomes limited by the level of funding available to them. Debtor finance works on the basis that the more turnover the business can generate, the more finance is available, so business growth is self-perpetuating.”

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An open mind The key to entering the ranks of the specialists is to start by keeping an open mind, Smith says. For example, if a broker already does equipment finance, then many of those businesses may well be suitable for debtor finance as well.

“A transport business is a classic example of that,” he says. “A broker might source finance for a couple of trucks, and then they could ask the client how they are funding their working capital and help them with that. A debtor finance facility will improve the cash flow and help with the truck repayments.”

Brokers also shouldn’t let a lack of knowledge or experience put them off. Smith says debtor finance doesn’t need to be difficult, even for residential brokers.

“All they need to do is look for the opportunity,” he says. “After that, they can be as involved as they want to be. In an equipment finance deal, brokers are expected to write the whole credit submission. But for a debtor finance facility, they can just give us a name and number, and we make the contact, do the work, and pay them an upfront and trail commission for the introduction.”

Whilst brokers don’t need to be more involved than that, Smith says that often, brokers do attend meetings with their clients.

“We are comfortable with them being as involved as they want to be. Brokers shouldn’t be put off by a perceived lack of knowledge.

Debtor finance is not overly complicated, and most providers will help them with the technical aspects if they want to develop their understanding.”

The right time For Smith, the journey of debtor finance in Australia has so far been a decade of spreading the word, including to brokers. In a time when banks have often been reluctant to take on SME lending risk, debtor finance has made irreversible inroads, and is likely to become a larger competitor to traditional channels.

Technology has also brought new entrants.

“The new entrants we’ve seen have a bigger

focus on selective invoice finance, effectively buying one invoice or a group of invoices from one debtor,” Smith says. “They have created online platforms for trading invoices, using the peer-to-peer mode to access private investor funds.”

However, Scottish Pacific Business Finance doesn’t mind giving a leg up to these businesses, using its newfound market clout. If it succeeds in raising the profile of the industry, it can only result in benefits for its own business.

“Our challenge now is to grow the market overall on the basis that we are going to benefit as the largest specialist provider,” Smith says.

“It’s our aim to continue to raise the profile of debtor finance among businesses that will benefit from it this year and beyond, as well as their advisors.”

GOING INTO DEBTOR FINANCE? Identify your business-owning clients. What industry are they in, and what sort of business do they run?

Have they recently applied for asset finance? New vehicles and machinery require capital for their ongoing operation.

Look at your clients’ business overdraft activity. If they’re using their home to secure an overdraft for their business, they may be better off using debtor finance to repay the overdraft whilst freeing up their home for remortgaging or the purchase of an investment property.

Decide on your level of involvement. You may want to establish a referral arrangement for debtor finance deals with a more experienced broker. Moving up a level, you can receive commission simply for giving a client’s details to a debtor finance provider. If you want to get more involved, then debtor finance providers can offer advice.

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PART 5

Unsecured lending: online, fast and in demand Small business lending is a rapidly expanding sector, and with online lenders focused on speed and ease, this is one ship brokers shouldn’t wave on by. Maya Breen talks to the top three platforms leading the way

THE ENTREPRENEURIAL dream is strong in Australia – around one in three of us is keen to own a business, according to The Lure of Entrepreneurship report from NAB. The survey showed about 40% of budding entrepreneurs and 75% of existing business owners need or needed less than $50,000 to get their business up and running, and almost half of existing business owners (46%) started out with less than $5,000.

The report also listed insufficient funds and generating enough income among the key inhibitors to starting a business, but with the rise of online lending platforms, it is now easier than ever for small businesses to get the extra capital they need to grow.

Unsecured business lenders and their high speed, stress-free application processes are making a big difference for SMEs. MPA caught up with the three that are pioneering the way forward.

Up and up “The size of the small business lending problem we solve is huge,” says Beau Bertoli, joint CEO of Australian-owned Prospa.

“There are over 2 million small business owners in Australia, and at any point in time, roughly 20% of them are looking for funding to help manage cash flow or grow. We think small business lending will grow into a multi-

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billion-dollar market, potentially reaching $20 billion in five years.”

Lachlan Heussler, the Australia/New Zealand managing director for Spotcap, a platform also based in London and Amsterdam, says that although the sector is relatively new and has only been around in Australia for about six years, the scale of growth in the last 12 months is phenomenal.

“You’re talking large triple-digit growth for the industry as a whole,” he says. “Whereas a few years ago, we were talking about the tens of millions, right now we’re talking about the hundreds of millions, and my view is, within the next three to five years, we’ll be talking in the billions.”

Turnaround times can be within 24 hours now, Heussler says, if not sooner. “Before the rise of the online lending sector, it was a very, very time-consuming and difficult process for [business owners] to approach one of the

effectively empowering them to get a loan.

They’re effectively trading their data for a product, and that’s been a massive evolution over the course of probably the last 18 months, where we’ve seen it become quite pervasive. People just accept that this is the reality in 2017.”

Allegos points out that it is part of Moula’s role to create further awareness among businesses over the next five years to grow the sector. “We’re in a great position, all of us platforms, in that it’s a significant market that isn’t going away,” he says. “I don’t perceive that it’s a market that the traditional banks necessarily have the capacity to play in.”

Spotcap’s Heussler agrees. “For us – not only Spotcap, but my friendly competitors as well – the onus is on us to grow the industry as a whole, and the thing that’s holding us back is just a lack of awareness

“What we find is the vast majority of our customers are coming back for second, third, fourth and fifth loans as part of that relationship with us, and the brokers are being compensated as part of that” Lachlan Heussler, Spotcap Big Four or even some of the second-tier lenders to get a loan.”

Aris Allegos, co-founder and CEO of Moula, says part of the reason for this rapid growth is that people feel more comfortable sharing data from their accounting solutions, compared to just three years ago, when there was greater concern over privacy and data security.

“We’ve gotten to a point today where, quite literally, almost everyone permissions data to us,” Allegos says. “They’ve come to trust us as a brand, number one, and also they’ve come to understand that the data that sits within their accounting solution is

from both the broker community and the end users – the small businesses. We just like the brokers and their clients to think of us first because there’s no need to go to the banks anymore to try and get this type of financing.”

Matt Bauld, head of sales and business development at Prospa, says platforms like his provide a solution the big banks cannot.

“Before we entered the market with our innovative technology and focus on customer experience,” he says, “the application process for small business owners needing finance was difficult and time-consuming. Now it’s fast and easy.”

HIGHLIGHTS FROM 2017’S ALTFI SUMMIT The Altfi Summit brings together alternative lenders from Australia and abroad, as well as other financial institutions seeking to partner with them. The 2017 Summit in Sydney began with a warning by organiser David Stevenson: “This industry is at a crunch point and needs to show it’s profitable.”

Rob Young, senior vice president of OnDeck, also warned that alternative finance was moving from scepticism to a stampede (of investors) to a shakedown (when investor expectations weren’t met) at breakneck speed in Australia. However, Young later told MPA, the next stage would be profitability, and Australia has a number of alternative lenders with considerable funding from abroad that could realistically achieve this. He also noted that mandatory data-sharing and bank-to-alternative lender referral arrangements – as are common in the UK – would hugely help the industry in Australia. Young saw brokers writing at least 15% of OnDeck’s business, the level currently written by brokers in the United States.

More business from businesses From the broker’s perspective, although these unsecured loans are short-term – up to 12 months in duration – and hence have no trail, all three lenders insist the repeat business from these types of clients is high.

“A working capital product, by its nature, is relatively short in terms of duration,” Heussler says; however, he adds, small businesses, particularly in Australia, have a continual need for working capital. “So what we find is the vast majority of our customers

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are coming back for second, third, fourth and fifth loans as part of that relationship with us, and the brokers are being compensated as part of that as well.”

“So that, for the broker, equates to a trail,” adds Allegos. “That’s what we’re effectively saying to brokers. When they come back for that second, third and fourth loan, that goes to the broker who made the original

marketing campaigns, among other things.

“There’s a whole range of reasons as to why they come and borrow from us,” Heussler says.

Brokers on the mind Looking ahead, these three leading online lenders have their attention firmly set on the broker channel. “The broker channel, for us, is obviously critical – as they should be for

and the company is working with most of Australia’s large aggregators to reach brokers via their distribution networks.

Prospa’s Bertoli agrees that brokers are a vital part of his company’s long-term strategy. “We’ve been working with brokers for nearly four years now,” he says, “and they will continue to be an integral part of our business moving forward.”

“We’re in a great position, all of us platforms, in that it’s a significant market that isn’t going away – I don’t perceive that it’s a market that the traditional banks necessarily have the capacity to play in” Aris Allegos, Moula introduction. Insofar as how many loans those guys will keep coming back for, we’re still working that out. But if I hazard a guess, it’s going to be probably not dissimilar to the average life of a mortgage in Australia, which is around four to five years. So there are almost similar revenue streams available to the people who get into this segment.”

The average size of these unsecured business loans is usually between $25,000 and $40,000, but can range from $5,000 to $250,000. Applicants are often seeking working capital to buy stock or manage cash flow in their business, but may also want it for hiring staff, expanding operations or

any lending product in this country,” Allegos says, adding that around 50% to 60% of Moula’s business comes via brokers.

“We like the broker channel because they pre-qualify a lot of our loans,” he says; he claims Moula’s conversion rates through brokers are two times better than what they are through the direct channel.

“Notwithstanding we’ve built a robust tech platform that can do a lot of the analytics, it still helps to pre-qual who comes through the machine,” he says.

Along with brokers, accountants and financial planners are a very large part of Spotcap’s distribution plans, says Heussler,

GOING INTO UNSECURED BUSINESS LENDING? Approach the platform directly.

Although many of these lenders now work with aggregators, you can get accredited and work with many directly.

Many now have their own online ‘dashboards’ for their broker partners.

Work through the numbers.

These loans are small – usually between $25,000 and $40,000 – and so are commissions, so you should work out how many of these loans you’ll need to write to make it a viable part of your offering.

Surprise your customers. Not many business owners realise this type of finance is now available in Australia and assume they’ll have to wait for a bank. A 24-hour turnaround is a great way to ‘wow’ a new customer and make them into a long-term client.

A TYPICAL PROSPA CLIENT

Small business owner

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Wide range of industries

www.mpamagazine.com.au

Operating for at least six months

Up to $5m revenue per annum

Seeking loan of up to $250,000

Looking to seize opportunity or manage cash flow

Doesn’t have property security

MAGAZINES

SPECIAL REPORTS

ARTICLES

Shop MPA online today at

shop.keymedia.com.au

COMMERCIAL LENDING SUPPLEMENT

PRODUCT GUIDE

Commercial lending product guide Get started in commercial today, as the lenders in this supplement 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.

ANZ Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

ANZ Business Loan

Variable or fixed

Variable – base rate plus a margin

Variable

No maximum

Any security

IO & P&I

Greater of $600 or 0.75% (variable)

$750 per annum

Yes

ANZ Tailored Commercial Facility

Variable or fixed

Fixed – quoted total rate

Variable

No maximum

Any security

On enquiry

0.75% (variable)

On enquiry

Yes

Commercial Bills Products

Variable or fixed

Bank bill swap bid rate + funding index + a margin

Variable

No maximum

Any security

IO & P&I

0.75% (variable)

On enquiry

Yes

Product name

DETAILS FOR BROKERS ANZ Business Loan: Easy to use, fixed or variable, redraw available; suitable for property investment ANZ Tailored Commercial Facility: Market-rate product with an overarching credit limit, allowing for various interest rate risk management strategies; suitable for property investment or development Commercial Bills Products: Market-rate and highly flexible product with the ability to go fixed or variable; suitable for property investment or development

FACTORONE 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

On application

N/A

No maximum

Receivables

Revolving

Yes

Yes

Yes

Factoring

DETAILS FOR BROKERS Factoring: This cash-flow funding solution supports smaller or younger businesses trading on credit terms or businesses requiring cash flow support

MOULA Product name Moula

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Fixed

Starting at 0.75% per fortnight applied against the outstanding balance

N/A

$250,000

N/A

Principal & Interest

$0

$0

$0

DETAILS FOR BROKERS

Contact: 1 300 88 52 36 | info@moula.com.au

What we like: At least 12 months in business, average monthly sales of $5,000, at least fair or better credit history

TRADELINE Product name Tradeline

Interest type

Interest rate

Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Variable

On application

N/A

$1m

Director’s guarantees

Repayment plan

Yes

Yes

Yes

DETAILS FOR BROKERS Tradeline: A flexible working capital solution to fund purchases of goods for resale; can be added to a debtor finance facility 30

www.mpamagazine.com.au

LA TROBE FINANCIAL Product name

Interest type

Interest rate Maximum LVR

Maximum loan amount

Acceptable collateral type

Repayment type

Loan establishment fee

Service fee

Deferred establishment fee

Commercial Lite-Doc

Variable

6.99% PA

70%

$5m

Retail, office and light industrial

Principal & interest or interest only

1.25% of loan amount

$15 pm

Nil

Commercial Lease-Doc

Variable

6.99% PA

70%

$5m

Retail, office and light industrial

Interest only

1.25% of loan amount

$15 pm

Nil

Commercial SMSF

Variable

6.99% PA

70%

$5m

Retail, office and light industrial

Principal & interest or interest only

1.25% of loan amount

$15 pm

Nil

Commercial Non-resident

Variable

7.99% PA

70%

$5m

Retail, office and light industrial

Principal & interest or interest only

1.25% of loan amount

$15 pm

Nil

Rural

Variable

9.15% PA

55%

$5m

Rural property

Principal & interest or interest only

1.25% of loan amount

$15 pm

Nil

Fixed

8.99% PA

70%

$5m

Residential or commercial construction

Interest only

1.50% of loan amount

$15 pm

Nil

Development Finance

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

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 those 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 on-selling stock Export Factoring: This solution advances funding against invoices to overseas buyers

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

5.15%

75%

$3m

Commercial/residential

IO and P&I

0.5%

$0

Varies

Mid Doc

Variable

5.65%

70%

$2m

Commercial/residential

IO and P&I

0.5%

$0

Varies

Quick Doc

Variable

6.15%

65%

$2m

Commercial/residential

IO and P&I

0.5%

$0

Varies

SMSF

Variable

5.30%

75%

$3m

Commercial

IO and P&I

0.5%

$0

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 www.mpamagazine.com.au

31

COMMERCIAL LENDING SUPPLEMENT

MORE INFORMATION

Want to hear more about commercial lending?

COULD YOU be one of MPA’s Top 10 Commercial Brokers?

For several years, MPA’s Top 10 Commercial Brokers report has highlighted Australia’s best, ranked purely by their annual volume of commercial lending.

Brokers who make the Top 10 are interviewed, featured in the magazine and get their own dedicated web page on MPA’s consumer-facing sister site, yourmortgage.com.au. The winner is presented with a trophy as part of a special photo shoot. Australia’s number-one commercial broker – and AMA Commercial Broker of the Year – is currently George Karam of BF Money (previously Byblos Finance), who has held the trophy since 2015. Could you beat him?

It’s free to apply, and you can do it online – simply visit MPA’s website once applications open. Better still, subscribe to our newsletter, and we’ll send out an announcement and reminders, as well as the Top 10 report itself. You will need your aggregator and/or lenders to verify your numbers, and we will contact them to confirm these. Give it a go this year – average numbers go up and down over the years, so even if your numbers aren’t at the level of last year’s Top 10, they might still be enough.

This year’s Top 10 Commercial Brokers is open for applications from 24 July to 18 August. The report will then be published in MPA 17.11, which hits desks on 9 October.

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www.mpamagazine.com.au

SOURCES OF COMMERCIAL LENDING NEWS mpamagazine.com.au Daily news bulletins, plus regular features from the magazine on particular areas of commercial lending, interviews with major lenders and top commercial brokers, and regular business strategy pieces to help your business transition to new areas of lending. brokernews.com.au Breaking news on commercial lenders, interest rates, policies and regulatory changes. Also includes interviews and features from Australian Broker magazine. thinktank.net.au/news Commercial lender Thinktank publishes a monthly Commercial Market Focus, which is free to download. It brings together a vast amount of specialist research data and gives outlooks for different commercial property markets throughout Australia. business.nab.com.au NAB’s monthly, quarterly and annual reports on Australian businesses, now available on a single website, set the scene for the media, lenders and regulators. All can subscribe to their monthly emails.

cafba.com.au The Commercial Asset Finance Brokers of Australia provide updates on topics and regulation related to commercial lending, and members get the benefit of training and member-only resources. CAFBA has a reciprocal relationship with the MFAA. east.com.au East & Partners is a research firm that specialises in the business banking markets in Australia and Asia. They cover a wide range of topics in the commercial space, including the more niche areas of debtor finance and asset and equipment finance.

In addition to breaking news and annual outlooks, they publish monthly research notes; you can subscribe to all for free on their website.

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