The idea of diversification is hardly news to brokers. Aggregators and lenders have been pushing the necessity of diversification for years. For brokers who are looking to add new revenue streams, commercial lending can often end up in the “too-hard” basket. But according to
La Trobe Financial vice president and head of distribution Cory Bannister, commercial lending is not as frightening as many brokers seem to think.
“By far the most common misconception we hear regarding commercial lending is that it is incredibly complex; best left for specialist brokers; and certainly not for the faint hearted. Our view is that it doesn’t need to be,” he said.
Bannister said lender choice can make all the difference for brokers looking to break into commercial lending.
“One of the most crucial decisions a broker will make when lodging a transaction is which lender to use as this will often dictate the level of difficulty or complexity. Brokers should investigate a lender’s policy and process for the specific transaction prior to lodging to avoid any unnecessary delays or surprises,” he said.
Debunking the myths
Bannister said there are a few common reasons brokers tend to hold the misconception that commercial lending is best left to specialists. First and foremost, he said, is having previously had a bad experience.
“The broker may have attempted a commercial transaction and chosen the wrong lender partner, which typically means that the lenders policies and procedures are too complex, or they received no support from the lender BDM to package the transaction, and they probably had no access to a credit team willing to guide them through the process; or simply they may have chosen the wrong “first transaction”, like anything, often you need to crawl before you walk,” he said.
Another reason many brokers feel commercial lending is out of their reach is simply because of rhetoric in the market. Or, as Bannister puts it, “because ‘they’ said so”.
“The often-told fable that commercial lending is too hard or too complex has been around as long as Aesop, and it has been told so often that it is hard not to believe or ignore it. Think about who told you this fable, chances are they don’t want you to get involved (because they already are), or they too are afraid to try. Try for yourself and decide.”#pb#
Finally, Bannister said many brokers are simply uncertain where to start when looking to break into the commercial market.
“Starting anything new is often the hardest part of the process, whether it is learning a new sport, a new language or in this case writing a new loan product, which is often because you don’t know where to begin. Give two to three lender BDMs a call and ask them to assist you,” he said.
Getting started
Bannister said the commercial finance market is incredibly varied, both in terms of the products on offer and the variants in each product.
“Almost every conceivable commercial finance need is adequately catered for today. For brokers, it is about finding the lender you are most comfortable with for providing the required solution for your client, this is not always price driven, particularly in the commercial space where the solution, coupled with ease of dealing, is often paramount,” Bannister said.
For brokers looking to get started in commercial lending, Bannister said their aggregator should be their first resource.
“We would suggest that where the broker is a member of an aggregation group, the aggregator BDM is often the best place to start for advice. Aggregation groups often have an internal referral network for commercial finance, drawing on the experience of other brokers within the group who can assist with mentoring or training requirements. Aggregator BDMs will also have a solid understanding various lender policies and can work with lender BDMs to arrange any necessary training and accreditation needs where required,” he said.
Accreditation can also be a hurdle for brokers to clear in the process of entering the commercial market, Bannister said.#pb#
“Lender accreditation can often be the first hurdle a broker faces so you should make specific enquiry about this before you attempt to lodge applications, as the volume of commercial business a broker intends to write with a lender will likely determine if the sometimes onerous accreditation requirements are worth the time and effort. There are some lenders with reasonably simple, even automatic, accreditation processes for commercial lending offering their product training with live applications on the fly,” he said.
When looking for commercial customers, however, Bannister said brokers should first look at their existing database.
“Brokers should mine their CRM to identify clients who already hold commercial property and see if there is an opportunity to refinance it for them, particularly if they have held the property for some time. We often see untapped equity sitting in a customer’s Asset and Liability statement tied to commercial property,” he said.
A deeper look into their CRM may help brokers see potential commercial clients who don’t yet hold commercial property, Bannister suggested.
“The next step would be to look for self-employed clients, and approaching them to see if they are interested in purchasing premises to conduct their business from, possibly even in an
SMSF structure whilst the opportunity remains. This is where brokers can work in well with Financial Planners in providing overall solutions for the client,” he said.
And in looking outside their database, Bannister said brokers can turn to referral relationships to find potential clients.
“In terms of lead generation, apart from the broker’s existing database, which we would recommend brokers start with initially, we would suggest brokers align themselves with complementary partners such as financial planners or accountants who are often a good source of referral for commercial transactions,” he said.
But, perhaps most importantly, Bannister said brokers should start small when engaging in commercial lending for the first time.
“We recommend brokers start with reasonably small non-complex commercial transactions and use lenders who are willing to assist them throughout the process. This is where a close working relationship with a supportive and solutions based lender becomes imperative.”
