Commercial lending is impacted by a number of disruptive factors, including inflation, higher rates, consumer uncertainty, and supply chain issues.
Cory Bannister, chief lending officer at La Trobe Financial, explained what’s attracting commercial clients to non-banks as turbulence increases.
“A rising interest rate environment can often cause headaches for commercial borrowers, particularly if they have ongoing review clauses and covenants attached to their loans, a common feature of commercial loans provided by the major lenders,” Bannister said. “Each year, and in some cases more regularly, key commercial loan ratios are reviewed for compliance.”
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This can include a revaluation of the property to test the LVR threshold, reviewing the interest cover ratio to maintain the approved ratio, or assessing the borrower’s debt-to-income position, among other things.
“All of these tests are likely to come under pressure in the current economic environment, which may mean commercial borrowers will need to seek alternatives,” Bannister said.
This dynamic could benefit brokers as borrowers turn to the less rigid options offered at non-banks for financing commercial property.
This type of business is recently seeing an uptick at La Trobe Financial.
“We are finding an increasing number of brokers turning to us for assistance for ‘set and forget’ commercial property loans, particularly as our maximum loan size of $25m means we are one of a few non-bank lenders able to stretch to assist blue-chip commercial property owners,” Bannister said.
Other non-banks also experienced the same trend away from restrictive terms and towards simpler lending options.
At Thinktank, loans can be refinanced to up to 30 years, which can lower monthly loan repayments and improve cash flow.
“This overcomes the restriction of those commercial property loans that have been limited to a short amortisation period that matches or is less than the WAULT [weighted average unexpired lease term] or WALE [weighted average lease expiry] associated with the related security property,” said Peter Vala, non-bank's general manager of partnerships and distribution.
Thinktank, too, is seeing a rise in refinancing of existing commercial loans to more flexible set-and-forget facilities as borrowers seek certainty and peace of mind.
“[This is] even more so if the borrower’s current loan might be short-term, subject to annual reviews, or covenant compliance measures,” Vala said.
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