Brokers are being encouraged to expand into commercial loans, with non-bank lenders offering flexible products designed for SMEs. Benefits for brokers include higher commissions, stronger client relationships and diversified income.
Commercial funding for small to medium enterprises remains an underserviced sector, with businesses increasingly looking outside the major banks to non-banks for access to finance.
They are also urging brokers not operating in this space to diversify, boost their income streams and client relationships and take advantage of an expanding market.
While SMEs in some areas are struggling due to pandemic lockdowns, others have been able to pivot to an online model and capitalise on government stimulus and support, and some are seeking funding for warehouse space.
Commercial lending products
John Mohnacheff, group sales manager at Liberty, says thenon-bank has been a leader in the third party commercial lending space for more than 15 years.
“Our continued product innovation ensures brokers can help a broader range of customers, including the underserved SMEs. As customer demand grows, Liberty will continue to refine our product suite to ensure we support both brokers and customers’ changing needs,” says Mohnacheff.
He says Liberty has a comprehensive range of commercial loan products, demonstrating its commitment to helping more kinds of business customers.
“As a specialist lender, our solutions are highly flexible and can be tailored to suit an extensive range of commercial lending needs. We have prime, non-prime, SMSF and low-doc options on offer for business customers, as well as secured and unsecured loan options.
“Our suite of lending products also includes competitive commercial loans which can help customers to invest in commercial property.”
Pepper Money head of commercial Malcolm Withers says Pepper launched its commercial property loan product in 2019 following strong demand from “our broker partners to bring the customer-centric approach we are known for to the commercial property space”.
“It forms an integral part of our offering to brokers and customers today,” says Withers.
He says Pepper Money’s commercial offering was built with customers’ needs in mind.
“Our prime and near prime commercial property loans include full-doc and alt-doc options for customers who need commercial lending solutions up to $3m in loan size. Whether they want to buy an investment property or commercial property to operate their business out of, or access equity and cash flow to support them in growing their business, we have solutions to help them achieve their goals.”
Withers says Pepper Money can provide customers with more access to equity through higher LVRs as well as cash flow flexibility and longer loan terms, a 100% offset sub-account, free redraw, and online banking tools.
Its Near Prime product supports customers who have gone through a life event but have come out the other side and are looking for a new loan. Withers says Pepper Money is one of the few lenders with this offering.
“Everyone’s situation is unique, and we work to understand each individual customer’s story when assessing an application.”
Thinktank general manager partnerships and distribution Peter Vala says the company was formed in 2006 with the goal of simplifying commercial property lending for brokers and customers by providing flexible solutions to improve a borrower’s business and personal cash flow.
“Although commercial lending still represents the majority of business we write, we are becoming more balanced across a range of products and security types,” he says.
“This can be associated with progressive product diversification and extension into the residential owner-occupied and investment market, in addition to our presence in residential and commercial SMSF.”
Thinktank offers a full range of loan alternatives, including full-doc, mid-doc (alternative income verification), quick-doc, commercial SMSF, residential and residential SMSF.
“All of our products are straightforward set-and forget facilities with no annual reviews, no regular revaluation requirements and no ongoing fees.
“Our extended 30-year loan term is a good example of the flexibility we can offer, which can greatly assist a borrower’s monthly cash flow. We also have an in-depth understanding of SMSF LRBA lending that supports a range of borrowing structures not available through other lenders,” Vala says.
Andrew Way is director of established non-bank provider Semper, which he describes as a “pure-play” commercial lender.
“Since 2001, the company has provided bespoke solutions to address funding challenges or support growth,” says Way.
“Semper has a reputation for facilitating opportunity and enabling business growth through the provision of highly competitive rates that are weighted fairly against risk, backed by a robust warehouse funding facility.”
Way says Semper is renowned for structuring complex $2m-plus commercial deals that often require a blended product or collaborative approach – for example, a mix of first and second mortgages or additional third-party participation, such as equipment or factoring finance, with business adviser/accountant input.
Semper’s points of difference include providing structured debt solutions for complex commercial transactions worth $2m and over, with the average calendar year transaction size in 2021 being $8m; competitive rates from 5.99% per annum; and collaboration with other specialist lenders’ complementary products (ie invoice finance) in conjunction with a business client’s accountant and/or lawyer.
The lender also has a robust warehouse funding facility and loans written exclusively through professional services.
Equity-One managing director Dean Koutsoumidis says commercial lending is in the company’s DNA.
“Our focus is to provide a relevancy to borrowers who are not accommodated by the majors. It is all we do, quite frankly,” he says.
“Since we began operations over 20 years ago, our offerings have remained relatively unchanged; that is, interest-only loans for terms of one to five years.
“Our customers’ needs have not changed in all that time as the majors, unfortunately, cannot cater for everyone. That’s where we come in. Whilst we offer the security of fixed rates, we also do not have any break costs or early termination costs, so it provides borrowers with a short-term commercial solution whilst they are getting all their ducks in a row.”
Sam Sfeir, head of strategic partnerships at Moula, says SMEs are the engine room of the nation’s economy.
“We’re entirely focused on backing good business, and commercial lending is still at the heart of our business,” he says. “We launched with unsecured business loans back in 2013, which remain core to our total offering to this day, alongside our business payments product and new products in development.”
Moula offers unsecured business loans for $5,000 to $250,000, with 12- to 24-month terms and no early repayment penalty.
Sfeir says Moula wants to deal with outcome-oriented businesses that know what they want and where they’re going.
“We’re focused on delivering credit decisions as fast as possible, at the speed of business, which generally means same-day, and often within two hours for loan applications under $50,000.
“Commonly, businesses come to us for funding to help seize opportunities. Perhaps they have an opportunity to buy stock or supplies at a discounted rate, or have landed a new contract and need capital to put on more staff. Businesses love that we give them the ability to repay funds early, at any stage, without any fees or penalties.”
Lend head of third party Donelle Brooks says Lend is solely focused on the commercial lending sector, providing brokers real-time access to a comprehensive portfolio of business funding solutions via its custom-built platform, which acts as an alternative commercial finance hub.
“The most aligned products are delivered seamlessly through Lend’s predictive modelling software, which assesses a business’s future performance as the key metric for accessing credit,” says Brooks. “As such, Lend ‘removes the gap’ between borrowers and lenders, and supports brokers universally, independently of their commercial finance maturity and financial literacy levels.
“Lend enables brokers to access a centralised stable of commercial finance solutions and receive aligned funding solutions in real time. This includes a full portfolio of unsecured business loans, secured business loans, asset finance, line of credit, supply chain finance, debtor/invoice finance and private lending.”
Brooks says Lend’s main point of difference is its use of technology to provide greater access to business funding. Its custom-built predictive software determines the borrower’s serviceability and capability to pay the loan.
“This enables a clear view of the business’s potential – ‘what this business looks like today’ versus an incumbent model of only measuring previous performance – ‘what this business looked like yesterday’.”
Opportunities for Brokers
Commercial lending offers brokers an additional avenue for income, enhanced client retention, and greater network expansion, says Vala.
“It also opens up new opportunities through meeting broader customer needs and developing deeper relationships with them and their advisers. Financially, potential income is higher in terms of upfront and trail commission outcomes when compared to residential, while the duration of commercial and SMSF loans tends to be much longer than residential, so the loan and the client stay on the books for longer.”
Vala says access to alternative loans can improve cash flow for brokers’ clients and remove unwanted and onerous covenant reporting requirements and risks associated with annual reviews or shorter-duration loans.
“Many commercial borrowers have been caught out over the years when their loan of one to five years came up to maturity and conditions at the time made it difficult to extend, refinance or even sell. Access to products without regular revaluations or intervention by the lender provides peace of mind and greater confidence, particularly when property markets and business conditions fluctuate.”
Mohnacheff says as a largely underserviced industry, commercial lending offers ample opportunity and a great way for brokers to broaden their customer base.
“We know that customers seek convenience, and being able to offer a broad suite of services is likely to be a key drawcard to get new customers in the door, ” he says.
“Diversifying into this space can help brokers not only attract new customers but also service existing customers who may require commercial lending support. Commercial borrowers need guidance now more than ever before, and brokers can take advantage of this untapped potential.”
Withers says diversifying ultimately gives mortgage brokers more opportunities to help their customers succeed, allowing them to build stronger relationships with customers and become their go-to person, not just for their home loans but also for business solutions.
“There are three main advantages for brokers who offer Pepper Money commercial products to their customers – quick and in-depth assessment of applications, seamless settlement, and an easy commercial lending process.”
Withers says Pepper Money can provide a credit decision for commercial property applications within three days and complete a seamless settlement process in as little as four weeks, giving businesses “the cash they need, when they need it”.
“Pepper Money’s loan process is easy for brokers to understand and use. Brokers can submit commercial applications online into the credit queue and can speak directly to the team handling the application.”
Koutsoumidis says like many professions, mortgage broking has become more specialised than ever.
“This also, however, provides a wonderful opportunity to focus on your relationships,” he says. “The key, we believe, is to be able to offer your clients a cache of offerings from the best lenders in their field. This should include commercial lending and, naturally, Equity-One.”
Way says diversifying into commercial is essential to “evolve a broker’s business” by increasing revenue streams and creating “stickier” client relationships.
“We strongly encourage brokers to move beyond a basic ‘tick and flick’ environment and invest in both enhancing their financial literacy as well as becoming familiar with the different types of commercial lending available and associated lenders/lending criteria,” he says.