Why brokers are turning to non-banks to meet business demand

Q. How is the rate cycle reshaping business demand for commercial lending?

Msquared Capital is seeing more time critical applications – alongside heightened demand for bridging finance. We saw a predictable rise in applications once the last RBA rate decision became certain. And businesses certainly are moving more decisively to secure capital before rates rise even further. Quite often, private or non-bank lenders will step in to meet those short-term bridging requirements. Businesses may need to act before a time critical date, such as June 30, December 24 or a drop dead date to fund an acquisition, or react to a critical event outside their business. The borrower may use that non-bank for a short period of time, while their main bank is processing their application in the background. Our borrowers often come and leave from the banks.

Q. Are you seeing a shift in the types of borrowers entering the non-bank space?

The brokers I speak to who are particularly heavily exposed to commercial, they see the non-bank space or private lending space, as a retention play for their own business. It’s first and foremost finding the most suitable transaction or home for a transaction for a borrower and understanding what their short and medium-term needs are, not just satisfying a transaction. I think that’s a mistake that brokers can make. You satisfy a transaction, but then eight months down the track, they’re not bank-ready, or they’re not ready to do the next part.

Q. Where should brokers be focusing their energy in the current lending environment?

Let’s take the average small-business client – they’ve got multiple business facilities. aSelf-employed borrowers typically have a higher probability of owning they’ll investment properties.. The broker will typically do the commercial facilities, do the home loan, do the investment properties. There is trail commission sitting on the back of those loans, and if they don’t satisfy the need, the risk is another broker will come in and take out the lot. Retention, customer satisfaction, and producing a great outcome for a borrower is where the best brokers focus

Q. What business fundamentals do brokers need to understand to unlock credit?

Really tell the story of the borrower. Sell us the dream. Why is this borrower doing what they’re doing, and how is this going to enable them to achieve those things? We had a civil works contractor who had lost a contract to a competitor. He thought it was dead and buried. But six weeks later, the competitor he lost the work to was unable to complete. The borrower needed both working capital and also some capex – allowing him to quickly acquire a couple of machines to get on a job site in 14 days. He has run a really successful business, but he’s got some non-productive assets. The broker came to us and asked whether we could secure a commercial facility. The borrower was then able to acquire the machinery and get on the job site, increase production in terms of getting people onto the job site, and having the working capital there to fulfil. We’ve approved that transaction, and the funds will be settling a week ahead of when he steps onto site.

Q. How can brokers maintain long-term relationships with commercial clients?

I think it’s having those tough conversations with the clients around expectations and what they are hoping to achieve. Asking what they need to do, whether they’re financially fit, and how they are setting themselves up in the next 12–24 months to make those moves.

Q. How does Msquared help ensure a frictionless process?

We’ve invested heavily in our valuation panel. We have one of the most diverse and broad valuation panels in the private lending space. We have 12 valuers on our panel who will readily assign. They’re the household names that banks would use, and like to see, because of our reputation and standing in the industry. The ability to have a valuation reassigned and utilised, and to be able to execute, it’s an absolute game changer.It’s a winner for us and for the clients.

Q. What’s different about Msquared’s approach?

We like to use the phrase ‘built by brokers for brokers’. The ethos in the business is just don’t do anything which is going to annoy a broker. Because we used to be brokers, in terms of our founders, so we know where all the pain points are.

Q. What is one key piece of advice you would give to brokers in commercial lending?

Consider all options. Be transparent, expect transparency from your lender, and be curious about what solutions are potentially out there for your customers because the world is changing dramatically.

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