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Broker Daily recently hosted its first commercial and asset finance roundtable. Here, six experienced brokers shared insights into what’s shaping the industry.
A major topic of conversation was the unique complexity involved in servicing commercial and finance borrowers.
Brokers looking to diversify should do their due diligence to avoid getting both themselves and their clients into strife. Treating residential and commercial the same is not the way to go about it.
“When you think about it, commercial and residential, they’re two different species at the end of the day. And a credit manager looks at a commercial aspect very different to a residential. Residential is straightforward, because they look at income and support services and what they got to live on. But with commercial, they have a commercial mindset around what’s going to happen in the long run as well,” said Effie Nicol from Yellow Brick Road.
The industry is everchanging, meaning brokers must keep on top of changes to regulation, compliance and general trends.
Isabella Constantinou from Simplicity Loans & Advisory said: “One of the challenges for commercial brokers in general last year was the [number] of lenders coming into the private space. Literally every week there was a new lender reaching out to us as a business.”
“That’s really hard to navigate because if you’re a commercial broker that maybe does part commercial part [residential] and you only deal with the name brands, it’s a bit of a dangerous place to have to navigate. Even as a business like Simplicity that only does commercial and we’ve got a lot of checks and balances in place to vet lenders, you still can get caught out with lenders in the private space that just they ultimately don’t have the right intentions.”
There are impacts that dealing with the wrong lender can have on borrowers. A loss of trust is a major one that can be hard to repair.
Constantinou added: “[For example], some private lenders charge big commitment fees when they issue a term sheet and if the client decides to proceed, they have to pay the commitment fee. Often, it’s non-refundable. If they do proceed to settlement, it then gets rebated against the lender’s establishment fee.”
“But you have to be so careful with who you’re dealing with, because a lot of the time, there are lenders out there that will charge their commitment fee with no intention of settling the deal. So, they just take a return for reviewing. Spending five minutes reviewing a deal, they collect five grand and [say], for some reason, we’ve read the valuation. We don’t believe in it and we’re not proceeding to the deal on that basis. It’s such a scary place [if brokers don’t] know what they’re doing in this space.”
This is where keeping on top of learning and development is key. For brokers, it’s important for personal effectiveness to ensure clients are adequately serviced, and for leaders, to ensure brokers representing the business are doing so to the best of their ability.
“There’s a lot of noise like in the commercial space, as there would be in [residential]. You get so many email blasts about different policies and stuff. It is so important to keep abreast of what’s happening in the market,” Constantinou said.
“We have so many different lenders. If we looked at our library of lenders, that probably be a hundred of them, but 90 per cent of our deals would go to probably 20 the max. Because it’s all about the relationships that you build as well. We get really good outcomes from for our clients because we have very, very good relationships with those 15 to 20 lenders that we deal with.”
Ongoing education is key. Further to that is the role case studies can play. According to Nicol, these resources can be invaluable to a broker learning the ropes as they give real solutions to put into action.
“You might have a scenario you’re not familiar with … You educate yourself as you read them and I think we don’t do enough of that,” Nicol said.
“There are a lot of brokers out there trying to be commercial brokers. They’ve got no idea what they’re doing. [They’re] not actually focusing on the right things: educating yourself, being proactive, speaking to the right people to get there. And I think that’s where that commercial space is lacking.”
Shore Financial’s Theo Chambers noted that a lack of understanding from a broker can have long-lasting impacts on the borrower.
“They could go down that part path that seems more suitable and then realise after a month or two that this doesn’t actually work … They’ll end up in a worse off scenario that wasted two months, costed a lot of money potentially.
“An example could be where someone’s put a client with a private lender because they’ve not realised someone like La Trobe could do a low doc loan. And the difference could be an interest rate of 7 per cent versus capitalised interest at 10 per cent or 12 per cent. [If] that’s on a $10 million portfolio, it’s costing someone a million dollars. It can be big difference,” Chambers said.
For Constantinou, commercial and finance brokers need to be savvy on the business side of things.
“The goal should be to become an extension of that client’s business. You don’t want to just be their broker; you want to be the person that they go to for any of their finance questions. I’ve got developers who will just ring me and ask me a question about something. They don’t have an active deal, but they know that they can call me because I’m their professional or consultant in their business that can give them that advice rather than just doing one deal, settling it and never speaking to that client again,” she said.
The inaugural Broker Daily Commercial and Asset Finance Roundtable was a success. We thank each of the brokers who came along and shared their experiences with the team.
