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Thinktank’s head of sales and distribution, Peter Vala, explains how brokers can make the most of adding commercial lending to their product suite.
Understanding the opportunity
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As a bit of background, retail (direct-to-consumer) lending is really focused on the purchase and refinance of owner-occupied and investment loans, with an overlay of cross-selling credit cards, personal loans, transactional banking and wealth management. Residential lending introduced by the broker channel is generally estimated by the market to now account for more than 50 per cent of all new loans.
The opportunities in the commercial market include loans for capital equipment through leasing and asset finance, property acquisitions, refinance of property loans, cash out for working capital, construction loans, and debtor and inventory finance. The amount of broker-introduced business across the market at present is circa 20 per cent and growing.
By virtue of the different types of lending available and current introducer rate, we strongly believe there are sizable opportunities in the commercial market for all brokers among their client base, regardless of experience.
The benefits of diversifying
Besides the potentially significant additional revenue stream, a key benefit of diversifying into commercial lending is how it will play into the retention strategy of broker-client relationships.
Offering a commercial lending service can help secure your client (and protect against the refinance of any existing facilities), and build a closer relationship with your customer as well as with their professional support network, such as accountants, solicitors and financial advisers. In turn, this often generates an ongoing stream of referral opportunities within existing and from new referral networks.
Moving into commercial lending
A broker can control how far they wish to step into the commercial market. It may well start with asset finance or lease finance transactions, and then naturally extend into a client’s commercial property needs.
Thinktank (TT) operates exclusively within the commercial property market, and we see this as a great place for residential brokers to start in the commercial lending arena. TT provides all the tools, direction and expertise needed for a broker to be successful in commercial property lending.
We have also developed streamlined, 'set-and-forget' commercial lending products that are not dissimilar to the parameters of a residential loan
What brokers should know
We recommend gaining an understanding of what part of the commercial market you would ideally like to operate in, and establish a number of key contacts/mentors that can help guide you through various lending scenarios. Your aggregator RM/BDM should be able to assist with the names of key contact points at various funders.
At Thinktank, our relationship team provide training and direct support in preparing credit submissions for commercial loans, and are there every step of the way to help a broker with their first and subsequent commercial property transactions.
TT also runs free commercial lending workshops and commercial courses that earn CDP points from the MFAA and FBAA.
More often than not, commercial lending is about coming up with a well-structured financing solution that will improve long-term cash flow and achieve the investment management objectives of the borrower and their business. Interest rates, fees and loan terms are important, but are definitely not the only considerations to focus on.
Be mindful that commercial transactions from major institutions often have conditions, covenants, revaluations, annual review requirements that may require ongoing work and expense on the part of the borrower and broker.
Looking ahead
At the end of the month when we review our recent performance, it is interesting to note there is consistently quite a number of brokers on our active transaction list who are new to commercial lending and new to Thinktank. What is pleasing is that we are also seeing repeat transactions from these new commercial brokers, as they build and strengthen their client base and top line revenue.
As a number of institutions revise their rates and reduce LVRs to stem the flow of residential investment loans, we think it is only natural that brokers will continue to look to the commercial space where there are significant opportunities.
