When it comes to commercial lending, brokers need to look beyond the rate. Short-term lender Equity-One works with brokers to provide solutions-based offerings to their small business customers
If you’re going to work with small business customers, then you’re going to need a variety of products to suit their needs. Short-term finance is something all SMEs will require at some point.
The non-bank has been operating for over 10 years and has managed to remain relevant to brokers and their customers by focusing on what it does best.
“We’ve always steered away from creating products of 10-year loans or 20-year loans because the reality is, if you’re not being accommodated by a bank, it’s probably because of a short-term reason,” says Equity-One’s managing director Dean Koutsoumidis.
“You only need an alternative financier for a little while until you get your ducks in a row and go back to a major. That’s just a reality,” he says.
Equity-One fills a gap and – despite a difference in price points – remains relevant to credit-worthy clients who the banks won’t dance with.
Frank Durso, managing director at Aus Finance Group (AFG), has known Mr Koutsoumidis since the late ‘80s. In a reversal of roles, Mr Durso was working at Citibank while Mr Koutsoumidis was working as a broker.
Mr Durso explains that, having worked as a mortgage broker, the Equity-One boss has a deeper understanding of his third-party customers and as a result has managed to build solid relationships in the broking community.
“You’re dealing with someone who talks the same language. He’s a lender, but he’s also been on the other side of the fence. That’s definitely something that works in his favour.”
Their working relationship has lasted because Equity-One is solutions focused, Mr Durso says – they’ll workshop a transaction until the investors are happy to provide funding.
“It’s a team effort,” Mr Durso says. “It’s not, ‘here’s your application form and a couple of bits of paper’. We actually sit down and workshop the transaction.
Darren Smith, a Melbourne-based broker and director at Balmain Commercial, says the loans he sends to Equity-One usually have 12-month terms. An average interest rate of 8 per cent p.a. might have some borrowers baulking, but the fact that there are no break costs for breaking with the contract after three months “holds them in good stead for loans where you might need a sense of flexibility or variable in terms of the loan term”, he says.
“They’re not lenders we use to ratchet up the capital tree, it’s more of a case of 40 to 65 per cent loan-to-value ratio type lending, and quick settlements.”
The importance of brokers
Almost 100 per cent of Equity-One’s business comes from intermediaries, with brokers forming most of that group as well, Mr Koutsoumidis says.
“We found more leverage in having good relationships with quality introducers, because they’re essentially your salespeople and they can duplicate the message, many, many times over,” he says.
“Brokers are a savvy bunch, most brokers are driven to do well and succeed and to grow their business and I think they will seize opportunities where they can.”
Darren Smith adds that in order to be successful, both the broker and the lender need to understand that commercial lending is not a boxticking exercise.
“It’s very different from residential,” he says. “You specifically have to be very quick to gauge the weaknesses very early on in the transaction and mitigate those weaknesses, and those guys [at Equity-One] are very good at understanding that side of the equation.”
Thinking about diversifying?
There’s a vast distinction between commercial and residential broking, AFG’s Frank Durso says, and that difference isn’t always recognised. Residential brokers who are thinking of shifting into commercial need to be aware that commercial brokers “do everything, including the credit, the feasibility studies… when we hand a commercial transaction across, basically we’ve already performed the credit function for the bank.”
He suggests mortgage brokers partner up with a specialist commercial broker and spend time learning that side of the business.
“A lot of the top commercial brokers have had 10, 15, 20 years of doing commercial lending, so you can’t expect someone who’s new to the industry to have that type of skill set.
“You’ve got to find a mentor that can assist in gaining that experience, or you’ve got to work at the banks and learn from the ground up.”
Mr Koutsoumidis agrees; brokers are becoming more specialised. However, he adds that Equity-One’s goal is to improve the transaction, which is ultimately achieved by communicating with brokers.
“Sometimes we find a broker might resist telling us how much help they might actually need,” he says. “We try to engage with them to a point where we think they have a clear understanding of what we need and what it takes to progress a loan to settlement.”