Private lenders - Fast cash

While some of these diversification strategies require extensive legwork, short-term finance is a relatively straightforward add-on that can generate multiple advantages for a broker’s business.

Jon Pepper, director of short-term lender Ausec Finance, says there is a great deal of opportunity for brokers through adding short-term lending to their product suite and service offering.

“An opportunity to offer a short-term loan would arise, for the average broker, at least once a month,” he says.

As market conditions intensify and brokers feel the need to diversify, Mr Pepper says short-term lending is a profitable and worthwhile addition to any product suite.

“If I was a broker, I’m guessing my income would be substantially down this year compared to other years, and this is an area I’d look at to boost my revenue”

The sector is not regulated so there are no hard and fast statistics available on the short-term lending market. But it is a consumer need that never disappears – and demand is likely to heat up soon, says Andrew Way, director of Red Tree Capital.

“Obviously in poorer market conditions the market stagnates, but with consumer confidence starting to lift the market is now starting to pick up,” he says.

The market for short-term money

From everyday homebuyers to cashed-up entrepreneurs eager to pursue their latest venture, the make-up of the market for short-term finance is varied. As Mr Way puts it, “motivation is usually speed”.

In other words, these products are for borrowers who need to act fast. While a bank can take up to thirty days to settle a deal, short-term loans can settle within just a few business days.

A broker’s potential client base for short-term lending will differ depending on the nature of their business, but Mr Way says the bulk of opportunities lie in customers who need to refinance.

“Brokers who educate themselves on how to recognise the right time to offer short-term funding, and how to present and secure it, can greatly assist borrowers,” he says, “and thereby secure significant revenue streams.”

What makes short-term finance such a good add-on for brokers is the relative ease with which it can be arranged.

Mr Pepper says short-term finance is actually easier for brokers to arrange than a regular residential loan.

“It’s less complicated – there’s less paperwork and there’s a quick approval response,” he says.

Mr Way agrees. “The only workload on the broker is communicating a list of documents required and making sure they are forwarded quickly,” he says.

When it comes to commissions, brokers have a number of options. Unlike residential mortgages there are no upfront or trail commissions. Rather, the client and broker negotiate the commission in the price of the loan.

Mr Way says a normal commission is four per cent of the net principal, or one month’s interest cost, whichever is lower.

For some brokers short-term finance might conjure up images of shady loan sharks, but this is largely unfounded. Providing brokers use common sense and take the time to research their lender options, there is little danger involved in arranging short-term finance.

“The sector does tend to get a bit of bad attention, just because of a few small fringe operators,” Mr Way says.

Mr Pepper says brokers should ensure they are working with an experienced short-term lender rather than a broker purporting to be a funder. He also advises brokers to be wary of lenders with onerous fee structures.

-----------------------------

THE POWER OF REPEAT BUSINESS AND REFERRALS

Adding short-term finance in your portfolio is a solid way to build up a base of clients who will keep coming back.

“While short-term finance is for a short-term issue, there is always an underlying long-term issue,” says Roger Berther, director of Access Partners.

Mr Berther has been offering first and second mortgages for over 25 years, and short-term loans for at least five or six years. He says his short-term lending clients are often repeat customers.

Eta Nagyidai, director of Flair 4 Finance, expresses the same sentiments.

“If your client is purchasing a property, inevitably you’re going to be able to help them in other aspects,” she says, pointing to investors as an example.

“If they are a property investor, chances are they’ll have more than one investment property that you’ll be able to assist them with,” she says.

Andrew Way, director of Red Tree Capital, says his figures back this up.

“We have a greater than 50 per cent repeat business clientele,” he says.

-----------------------------

BROKERS IN THE KNOW

Organisation is paramount: When it comes to writing short-term loans, director of Flair 4 Finance Eta Nagyidai says her philosophy is all about organisation.

“When people need something yesterday, you’ve got to put all the necessary eggs in the basket as quickly and efficiently as possible,” she says. “You’ve got to be fast moving and on the ball.”

With short-term finance requiring legal facilitation, Ms Nagyidai also recommends putting in place efficient arrangements with a local law practice for a speedy turnaround.

Communicate and be transparent: With variable commissions and legal costs, it’s important to give borrowers an accurate estimate of how much they can expect to pay to secure their short-term loan.

Roger Berther, director of Access Partners, says he ensures all clients sign a mandate which appoints Access Partners as the broker and outlines all fees and a total figure representing what the client can expect to pay.

At the end of the day, Mr Berther says keeping the borrower’s best interests at heart is not just ethical, it makes good business sense.

“Put them into something that will help them and eventually that will also help you in the form of referrals and repeat business,” he says.