The banks are missing a massive opportunity by not financing self-employed business owners, who are increasingly turning to the third-party channel.
Evan Dwyer, managing director of specialist lender RedZed, said the synergies are strong between a self-employed borrower and a commercial or SME borrower, which often leads to multiple products to suit their more complex needs.
“I’m starting to find these people who are completely disillusioned with the banking system, do not want to go near them, are happy to pay a margin for us to understand their story and for them to have repeat business,” Mr Dwyer told Mortgage Business. “I think there is a big market here.”
Mr Dwyer said self-employed borrowers could be trying to release cash to grow their business, or consolidate some higher unsecured debt that their business has taken on.
“They don’t walk into a broker and say ‘Give me a home loan’,” he said. “They walk into a broker and say ‘Look, I’ve got these assets, what can you do for me in terms of cash out?’”
As a specialist lender, RedZed has invested in more detailed underwriting processes.
“Those processes we have discovered were useful when you wanted to write someone who had an arrear or a default, but they are actually terrific if you want to write a self-employed person and understand what their business is doing and where they’re taking it,” Mr Dwyer said.
“You’ve got the margin, you’ve got the ability to make different enquiries, and so we are finding that those underwriting processes were a natural fit for that market segment,” he said, adding that brokers need to look beyond a home loan to help these borrowers out.
Only certain brokers are fit for this type of work, and finding the right ones requires some effort, Mr Dwyer said.
“You are picking your way through the distribution channel to try and find introducers, but it’s amazing when you find one, they can do the deal and go: ‘Here’s their home, here’s their business story, here is their factory, we can do 60 per cent against the factory and 70 per cent against the home and we’re done’,” he said.
While it is a big step to go from a residential to commercial loans, Mr Dwyer said they do tend to attract “better, wealthier borrowers”.
“What we’re seeing is that these borrowers don’t want to walk into a branch anymore, they want to see a broker who can give them a bunch of different products,” he said.
“We need to go to the brokers to find those customers.”