Finding your way in commercial lending

With brokers now writing more than 50 per cent of home loans in Australia, the same trend is well and truly playing out in commercial finance.

While it may still be a few years off from tipping the 50 per cent mark, more brokers are spotting the opportunity commercial and business lending presents – and the banks are behind it, because like home lending, it’s such an effective way for them to grow their businesses too.

The great news is the federal government has also recognised the engine room that Australia’s small-business community presents. As Terry Moody, president of the Commercial Asset Finance Brokers Association, told FAST brokers recently at our Commercial and Asset Finance Summit, the government’s recent budget provided a clear signal that it is committed to small businesses with its $20,000 tax incentive.

At FAST, our commercial and asset finance flows have grown to reach around 30 per cent of total volumes, as our broker network moves to build new revenue streams in this space, and across the industry we’re seeing around $14 billion worth of commercial finance written annually through aggregators.

Of course, new revenue streams present challenges as well as opportunities. Here are some of the interesting points I’ve been discussing with brokers at recent events:

Which comes first: the horse or the cart?

A very valid question that has been raised frequently is around qualifications. Do you get the training to venture into commercial finance first, or do you wait for a client that needs that kind of service and figure out your way from there?

If you are committed to developing your business, you’ve got to be committed to investing in it. While it might not be necessary to become a complete expert immediately, if you’re serious about this opportunity, I’d recommend taking some steps to build your offering in this space before talking to clients about it.

Your first step might be engaging with your aggregator to see how they can help or enrolling in an introductory course in commercial finance. And if you’d prefer to start off with a referral model, your aggregator can help or reach out to your peers and get a referral arrangement in place as a first step.

How do I develop my business in this space?

Around 10 per cent to 30 per cent of most brokers’ existing client base will be small-business owners, so it’s all about incorporating commercial and asset finance into your client conversations. These clients are expecting their broker to offer broader solutions to their business and personal needs. When these needs are overlooked, there is a risk someone else is likely to step in and fill this gap. Commercial brokers and asset finance brokers have recognised the growing opportunity to meet more of their clients’ needs, and are now providing home loan solutions to business owners they have delivered to over many years.

A great way to get front of mind amongst your clients is via regular communications. One broker spoke at the MFAA Convention this year about how powerful her monthly e-newsletter had been in reminding clients about her expanded service offering. When the need came for commercial finance, the broker was front of mind.

Is it really worth it?

Some brokers ask if it’s really worth the groundwork required to build a service offering that meets clients’ broader needs. My answer is a firm and resounding yes. Being in a position to meet more needs of your existing client base not only strengthens your existing client relationships, but it can help you to attract new clients too. And by developing your business in commercial finance, you can diversify your revenue streams and help your business grow and reach new levels of success and profitability.

Just like the broker channel has ramped up in the residential finance market over the past 20 years, commercial finance is going to be next. It is fast becoming one of the most exciting growth opportunities for the industry. Get on board!

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