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The commercial lending market is showing signs of improvement and growth, so how can brokers take advantage of this market segment?
Depending on whom you talk to, commercial lending is either full of bountiful opportunities for the enterprising broker or something that is fraught with difficulties to be left to ‘the experts’.
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Like all lending activities, commercial broking has its benefits and its risks.
The Adviser spoke to several leading brokers and lenders in this area to see what’s at stake.
The risks
Harry Pontikis, director of Chocolate Money, says the risks in commercial lending can be greater than those in residential – both for the broker and the borrower.
“The liability and exposure that goes with commercial lending can be more significant,” he says.
With residential lending, if a borrower is knocked back they often have many alternatives.
Commercial lending, however, can be more complex, so there are fewer chances to get it right.
“Brokers need to really make sure they don’t stuff up a commercial deal and need to make sure they know what they’re doing,” Mr Pontikis says.
Healthy Lending’s Scott Woodhouse agrees: brokers need to be confident in their commercial skills before attempting to do a loan, he says.
“I’ve seen too many residential brokers just try and do a commercial deal and do a bad job of it,” Mr Woodhouse says. “If they’re not capable of doing the loan properly, they can lose the client on a residential basis as well.”
Brokers need to understand a variety of issues and areas, including the client, their business and their cash flow, in order to structure a successful deal.
However, ANZ’s head of commercial broker, Cosi De Angelis, says there are also risks for brokers who decide not to offer commercial finance solutions.
“Customers are increasingly looking to brokers for their full financial solution,” he says. “This may include their home loan, insurance products, asset finance and business lending. If a broker isn’t talking to their client about a full financial solution, then the customer will speak to someone else about their financial needs.”
The benefits
Despite the risks involved, commercial lending offers many benefits for brokers – so long as they have the skills and expertise to do it correctly. Commercial broking, according to Mr Pontikis, has some tangible and noticeable differences compared to residential broking.
“The remuneration is significantly different and can sometimes be much more attractive,” he says. “Usually, there is also no claw-back, which is a bonus.
“If you have the expertise, commercial lending is a good niche to get into.”
Liberty Financial’s general manager of commercial finance, Suresh Pillai, agrees and says the benefits of commercial broking are plentiful.
“It’s about getting a deeper relationship with your clients,” he says. “You may have a residential broker who has, historically, just helped out a client with a home loan or investment property loan. By beginning to look at commercial property, a broker will have a naturally diversified revenue stream there.
“By offering commercial finance, brokers can expand the value that they give. It also offers opportunities to expand and look at equipment finance, commercial motors and more.”
Where to start?
According to Mr Pontikis, getting started in commercial lending isn’t just a matter of ‘ticking boxes’.
“Brokers need to have the commercial acumen to get involved in this space,” he says. “You want to make sure that you know what you’re talking about and what you’re doing.”
If brokers are keen to diversify into commercial lending to boost their revenue, they need to take it seriously and seek advice from experienced professionals.
“One option is to partner up with an experienced broker or brokerage,” he says. “They can guide you, teach you and make sure you aren’t making any mistakes.
“Alternatively, you could start with a referral agreement. You may not make as much money initially, but it’s a safer option.”
That way, he says, you can learn the proper processes without having to say ‘no’ to business.
“It’s not good business to say ‘no’, but brokers looking to get into this area should take baby steps,” advises Mr Pontikis. “That way, they’re less likely to make mistakes and can still benefit from offering commercial loans.”
Sintex’s general manager, Cathy Dimarchos, says brokers who seek out assistance and are willing to learn, will benefit most from commercial lending.
“Stepping outside of your comfort zone is the most difficult process,” she says. “These days, commercial lending does not need to be complex. Most of the process is similar to that of residential lending, and in some instances a lot simpler.
“Just like any business, find out who is doing what you would like to do and ask questions. Don’t be afraid to seek out assistance. We have all at some stage been in those very shoes, and I am sure that most people are more than happy to pass on their tips and to offer support.”
Despite Mr Pontikis’ hesitation in recommending commercial lending to all brokers, he does say that now is a good time to get involved.
“It’s refreshing to see the banks open for business with commercial lending,” he says. “They have really opened up their lending for commercial loans ... so things are looking positive.”
