And separate the reasonable from the unreasonable
And separate the reasonable from the unreasonable
- 2018 Commercial Lenders Roundtable
- Top 10 Brokerages 2018
- 2018 Brokers on Aggregators
Representatives from across the commercial lending space joined MPA to talk about the market, how they’re working with brokers, and the opportunities moving forward
Arguably, the commercial lending space has not faced as many headwinds over the past year and a half as residential lending, but changes to regulations and banks’ credit appetite have certainly had an effect.
However, the opportunities for brokers in spite of those headwinds are huge; the appetite of the banks may have changed, but by all accounts business borrower appetite is stronger than ever.
As many of the mainstream banks pull back from lending to businesses, these borrowers will still be looking for ways to access finance, and brokers can help them find the right solutions.
To look at the issues and opportunities surrounding commercial lending, MPA held its Commercial Lenders Roundtable with a bumper group of participants. Gathering at Café Sydney on a beautiful July day, 11 industry professionals sat together to compare their experiences of the past 12 months and discuss the commercial space as a whole.
Participants came from a cross-section of the industry, including two banks, an aggregator, non-banks, fintechs and brokers. This provided for a great discussion, which even included questions being asked within the group, as they were keen to hear from each other.
It was not about competition or promoting one brand over the other; all participants were happy to share their experiences, provide feedback and talk about the ways in which they were helping the industry. And some had already been working together through the Combined Industry Forum or at education events.
Commercial lending means more than just one thing, especially in a group as diverse as this. They talked about their experiences of SME cash flow lending, asset finance, commercial property and construction.
One of our participating brokers who focused on commercial property, particularly large developments and construction finance, said the space had been tough this year.
This prompted an interesting discussion among the non-banks as to how they were coming in to support those deals that were being turned away from the banks – as well as, more generally, about the difficulties faced in the commercial property space when compared to business lending.
Read on to hear more about what these groups are doing across the commercial lending space and what they think about the growing opportunities for mortgage brokers.
Many thanks to our panellists: John Mohnacheff from Liberty, Steve Lawrence from La Trobe Financial, Aris Allegos from Moula, Yotta Agamemnonos from Loanworks, Brendan Wright from FAST, Chris Thomas from NAB, Malcolm Withers from Pepper, Greg Moshal from Prospa, John Kolyvas from ING, and the two brokers who made time on the day as well: Kevin Wheatley from Bayside Residential and Commercial Mortgages and Renee Tocco from Loanezi.
Q: How has the commercial lending space been different to the residential in terms of challenges over the past 18 months?
With so many different areas of commercial lending, the conversation was opened up to participants to compare and contrast the various challenges they had experienced.
“It’s no secret in the commercial space: it’s been a real tough time this year,” said commercial broker and director of Bayside Residential and Commercial Mortgages, Kevin Wheatley.
Wheatley specialises in large developments such as hotels, shipping ports and shopping centres, so most of his experience as a broker has been in dealing with lenders in that space. He said he had seen developers paying high prices for land while the property market was contracting, and that an inability to raise funding for construction had led to the stalling of this industry.
“The cranes we’re seeing in the sky at the moment are projects that have started in the last 12 months, probably earlier, but we’re not seeing too much more come out of the ground at the moment,” Wheatley added.
While that has been the case for larger developments, smaller development lending has been “an absolute dream” for La Trobe Financial. Vice president and head of major clients Steve Lawrence said the lender was seeing more and more “bank-quality customers” coming through as the big banks pulled back.
“What we’ve been seeing is customers coming our way in larger numbers in that development space,” he said.
While the major banks were looking for higher presale levels for the multi-unit developments, Lawrence said that wasn’t the approach of La Trobe Financial.
“We don’t always look for those 100% plus presales the banks are currently looking for; we can do nil-presale deals up to $15m, of course at lower LVRs, and deals with presales at levels lower than the banks. We’ve never been beaten by a bank on presales, and also we can turn around those deals much quicker,” he said.
From a major bank perspective and in contrast to commercial property, National Australia Bank’s general manager, commercial broker, Chris Thomas, said the bank had seen strong demand in industries such as agricultural financing.
“Equally, there are a lot of flow-on effects from the significant infrastructure spending that’s going on through the eastern seaboard, and we’re seeing a number of customers who are partnered with their brokers, looking for finance to support that level of growth and to handle those contracts,” he said.
As the only aggregator in the room and thus perfectly placed to evaluate the residential and commercial markets, FAST CEO Brendan Wright said property was certainly tougher, but lending to business was seeing strong growth.
“There’s plenty of demand, particularly with small and medium-sized enterprises looking for finance. They are sourcing funding from a number of lenders around the table here by the way. We’re seeing significant opportunities, which is bucking the trend to be honest,” Wright said.
Nodding at the other end of the table as Wright spoke, Prospa CEO and co-founder Greg Moshal added that he had seen a continued need from small businesses for working capital, which provided a great opportunity for Prospa to work with brokers.
“[Business owners] are looking for trusted advisers, so it’s also been fantastic for us to look at the broker market as key partners,” Moshal said.
“We can add an additional revenue stream, so especially when times are potentially tougher in certain other areas, we’re happy to be supportive in helping them diversify from a revenue standpoint.”
Fellow business lender Aris Allegos, owner and CEO of Moula, said businesses like his had grown from a niche to more mainstream because they were fulfilling a need.
“What I think is important to note there is it’s even difficult for brokers to keep navigating through that,” she said.
Tocco specialises in asset finance and said she had noticed that once the election was over people were back in a “buying mood”.
“I think the election had a really big impact; the royal commission wasn’t great, but the commercial space is successful and profitable, and we just all need to focus on making it sustainable through putting the right structures in,” she said.
Wheatley agreed that “the timing couldn’t be better” for institutions like Prospa and Moula. “Most SMEs have run out of equity in the properties that they’ve had because they’ve leveraged off those in the past, so short-term money markets, cash flow finance is very much in demand,” he said.
Having recently transitioned from a bank, Pepper Money’s head of commercial, Malcolm Withers, said it had been an interesting time.
The lender only this year launched into the commercial lending space, and Withers said this was in reaction to the deterioration of banks’ lending appetite as well as the banks’ changing standards in regard to how they assessed customers.
“Business customers have seen a massive shift into the non-bank space. This has provided a huge opportunity for brokers who in the last four years now have more access to capital than they ever had in the past,” Withers said.
One thing that John Kolyvas, national sales manager, commercial, at ING has observed in the last 12 months is the emergence of niche markets.
“There are a lot of other players coming in that have got little niches in the value chain of SME lending, and some of them are tiny,” he said.
“I met a group providing cash flow finance to entities that were supplying two major supermarkets exclusively. That’s very much a sharp niche with a very particular appetite, and we’re seeing more of it. I think that’s one of the biggest fundamental shifts.”
“Brokers who understand that it’s not all just technology and data, it’s actually about understanding customer needs and fulfi lling a solution quickly, do really well” Aris Allegos, Moula
Q: What are the opportunities for brokers looking to diversify into the commercial space?
As the demand for lending to businesses has increased, and there are so many different products and lenders, more and more potential customers are looking for help to identify finance options.
While this does not mean all mortgage brokers should ditch the residential space, there are certainly opportunities to help their existing customers more widely.
Liberty’s group sales manager John Mohnacheff said traditionally the commercial market had been held by the banks and major lenders, but these institutions did not have the same capacity as non-banks to deal with smaller loan amounts.
“With the evolution of lenders like Moula, cash flow lending has become short, sharp and nimble, and the banks have found it very difficult to do that,” he said.
“If you go to a large bank and say you want a business facility for $200,000, they’ll direct you to a telephone. They simply can’t; there’s no scale for them to do it, and that’s the opportunity for the broker to jump in there and become the conduit to the small, nimble lenders.”
But brokers have become “wary”, Withers said. Entering the space can be confusing, so he focuses instead on having the right conversations to get them started.
“When we talk about diversity, people say, ‘But I’ve got to learn all these products, and now I’ve got to sell them everything’. It’s not necessarily about that. It’s about having a conversation and getting to know your customer’s business,” Withers said.
“We don’t have that conversation with our customers because we think they’re selfemployed customers who need a home.
“In diversifying your business, start by having great customer conversations, and understand that your self-employed client is actually a business owner, not only a self-employed customer” Malcolm Withers, Pepper
“In diversifying your business, start by having great customer conversations, and understand that your self-employed client is actually a business owner, not only a selfemployed customer."
Withers added that it didn’t always mean that a broker needed to do it all themselves; sometimes it was about bringing in partners.
He said partnering with others who could provide that additional offering also meant brokers were not risking losing customers in the future.
Wright pointed out that many of the brokers FAST worked with were capable of lending to any size business, whether small, medium, large or corporate, and they were also doing home loans. He said brokers needed to think about how they built their own businesses.
“They’re business owners, and this is the edge that they have in the marketplace; they can talk to another business owner and meet their needs,” he said.
“Brokers need to be aware that their competition could well be from other brokers, so you need to have a clear strategy around your business and your client base.
“One of the real upsides is to build on capability, not just in the small business and medium enterprise market but there is also a need to look after the needs of the directors and employees as well. That’s playing out really quickly."
Allegos said this was a good point, and that a lot of people pigeon-holed cash flow lenders in terms of what they could do.
“The reality is, it’s very solution-based lending, so if you’ ve got a broker who understands the customer’s needs and what they’re trying to solve for them, they can plug it into a platform like ours and quickly extract a solution that caters to that need.
“That’s the crux of our pitch and why brokers who understand that it’s not all just technology and data, it’s actually about understanding customer needs and fulfi lling a solution quickly, do really well.”
Going back to brokers being nervous about moving into commercial, Loanworks director of lending Yotta Agamemnonos said her team had been working on making it easier for brokers to work across the different spaces.
“We’ve really focused on making our processes as simple and certain as possible,” she said. “Whether a broker is putting forward a residential or a commercial loan, our processes are the same. They speak to the same people. If they’ve done a residential loan with us, then they’ll know what to expect.”
“We as organisations have to evolve and be acutely aware of what the consumer really wants, and be able to provide a solution quickly” John Mohnacheff, Liberty
“Brokers may be thinking, ‘I’ve never dealt in the commercial space, I don’t know what to do, I don’t know how to go about it’; however, with us it’s no different to doing a residential loan. We just want to make it as easy for the broker as possible.”
Kolyvas said ING was also trying to make it easier and had been running commercial workshops. He found that residential brokers were more often than not simply lacking the confi dence to move across, rather than the knowledge.
“It’s interesting because the residential brokers come along and we go into in-depth financial analysis, identifying risks and how to mitigate them, of which they’re generally already aware,” he said.
“When you’re talking to them and asking them to contribute to a group exercise, they all know the theory and they all contribute actively; they just don’t necessarily have the confidence to be able to put their knowledge into practice for the first particular deal.”
Mortgage brokers are not expected to try their first commercial deal on their own, and Thomas said partnerships with solution providers were critical.
NAB has 400 broker-aligned bankers across the country who work with brokers to help provide a service to borrowers, and he said it was “pretty special”.
“I think learning along the way is also critical because no two customers are the same and nothing fits the box, but it is how you work together to service the customer that is so important,” Thomas added.
Responding to this, Wheatley praised NAB for being the first to put its hand up at the start of the year to help SMEs with a cash flow product.
“Everybody had walked out on them. NAB was the only one of the mainstream banks outside of the non-banks, the Prospas and the cash flow funders that said, if you tick our boxes we’re here to help,” he said.
Having been a small business owner himself a number of times, Moshal said owners of these businesses were often confused by the complexity of the various loan products, which meant brokers were perfectly placed to help them.
“They don’t understand the jargon, and the thing we’ve definitely found is – and I think this is true of all people but it’s 100% true of SMEs – that they do value service and they do want to speak to someone,” Moshal said.
“We love working with partners because partners really serve that customer adviser role. Banks have created trust for over 100 years, and that’s fantastic, but as new entrants come in trust is a major point that’s got to be created.
“I think brokers represent that trust and earn that trust, and their selection of lenders and offering, that is a great advantage as well.”
“We find that giving a fast no can often be better than giving a fast yes for a business. It’s that extreme” Greg Moshal, Prospa
Q: What impact has the emergence of fintechs had on the commercial lending space?
Although the lenders that are frequently dubbed ‘fintechs’ are keen to move away from the term, there is no denying they are a group that’s revolutionising the way lending is done.
Wright said the beauty of fintechs was that they were “keeping the bigger organisations on their toes”, causing them to think differently and adapt. He added that it went beyond lenders, with solutions and platforms such as NAB’s QuickBiz, Simpology’s Loanapp and NextGen.Net’s ApplyOnline on the market.
“Lenders are looking at fintechs and thinking about how they can leverage the technology to be more efficient and effective. It might mean more products and services, but certainly the fintech lenders have got the major banks on their toes, and it’s a really good thing; competition is a good thing,” he said.
The need for faster, more efficient processes as a result of increasing competition from fintechs resonated across the table.
When Pepper entered the commercial space this year, the non-bank recognised the important role technology needed to play. Withers said residential mortgage brokers looking to introduce commercial would find its efficient online application process similar to its home loan online applications. Pepper also provides a strong solution for all brokers by delivering in a timely manner.
To improve the process, Withers said, creating direct links between the broker and the credit team had allowed for faster turnaround times.
“That’s why we decided to utilise technology with online lodgements and then give the broker who knows the story the ability to talk directly to credit. No one knows the customer’s story better than the broker,” he said.
“I was a broker for 10 years … and the challenge for the broker at the moment is there are so many options available to them” John Kolyvas, ING
Loanworks has done a similar thing by making it easier for brokers to speak directly to the decision-makers.
Agamemnonos said the brokers who worked with Loanworks appreciated its input with regard to how best to package deals, and also that they weren’t dealing with a BDM but rather with the person directly responsible for the decision.
On the technology side, she said this had been a focus of Loanworks since its early days.
“Twenty years ago, we developed our digital automated loan origination solution. Our lending business uses it to streamline our own lending processes, and our solution is now so sophisticated that our decisioning engine is used by banking industry challengers such as 86 400,” she said.
Lawrence said she took the words right out of his mouth, when emphasising how important it was for brokers to talk to the decision-makers.
“You’re absolutely right about brokers being able to talk to the decision-makers at any financial institution, which is not always the case. Speaking to the decision-makers, passing on what we required back to the broker/borrower to make sure we can speed up the time get the deal approved, that’s what it’s all about,” Lawrence said.
La Trobe Financial, he said, was focusing on “speed to market” and using technology like the Simpology Loanapp to do that.
He said it was all about servicing brokers and borrowers, and that La Trobe Financial had a “three-ring policy” that allowed a customer phoning in to talk to a staff member within three rings.
While many lenders are looking at their own technology in reaction to the rise of fintechs, Mohnacheff said Liberty realised there was a better solution.
“By partnering with fintechs and alternative providers like Moula, MoneyPlace and ALI, we can provide greater customer satisfaction by saying we’ve got that solution,” Mohnacheff said.
“We as organisations have to evolve and be acutely aware of what the consumer really wants and be able to provide a solution quickly. We’re all facing the same challenges, because the moment you rest on your laurels and say we’re almost there, you can be guaranteed that you’re not.”
As one of Liberty’s fintech partners, Moula’s Allegos said the lender was not focused on competing with the big banks but instead on investing in its own infrastructure and helping brokers with their transactions.
“A core part of what we’ve built, apart from our decision-making capability, is our partner relationship management tool, and it’s as simple as that,” Allegos said.
“The fact that our presence might result in NAB’s QuickBiz is fine. In fact it’s great; it validates the segment and gives us more capability to invest more in our broker tools, etc., so it’s really quite self-fulfilling.”
With expectations shifting and what consumers are getting from technology providers evolving, some parts of the commercial lending space have lagged, Moshal pointed out.
At Prospa, he said they never measured how long someone was spending on the phone to the client, because it was important to understand their story and come to the right decision.
“We find that giving a fast no can often be better than giving a fast yes for a business. It’s that extreme, and we should all just be aware that the expectations from all our customers is dramatically increasing and we all have to keep up,” Moshal said.
The need for fast answers was agreed around the table, which is one thing fintechs have spurred the banks to work on. Borrowers can now expect loan approvals to come through within minutes after filling out an application form online; no longer do they want lengthy processes and to wait for a decision, let alone wait on the phone or wait for an indicative answer.
These online applications and other platforms, however, might be making things more confusing. Thomas said that when he visited brokers he often asked them what they were looking for in terms of technology.
While every broker put their own spin on it, consistency was the answer that kept coming up, because there was no current standard emerging.
“They look at the residential market and they see a very consistent lodgement protocol, but in the commercial and equipment finance market they’re worried about everyone going their own way and being very different,” Thomas said.
Q: How are you training and educating brokers to keep up in the commercial space?
As the group had already discussed the inconsistency of commercial lending, the various banks’ appetites and developing technologies, it was important to gauge how each of the participants was working with brokers to ensure they kept up to date and were having the right conversations.
Moshal said it was important for Prospa to educate brokers as they entered a whole new area, and they did this through webinars and PD days, but he found the best results came from providing real-life scenarios.
“The reality is, you can have as much training as you want, but when you say I actually helped the business in this way, it’s amazing and it just resonates. I think real examples, real scenarios, have absolutely been key,” Moshal said.
Many of those at the roundtable had also been involved in the Combined Industry Forum, which has worked to educate and grow the broker industry.
As well as being part of the forum, Wright said FAST had also worked with the MFAA to develop a commercial accreditation program, and also with the Commercial and Asset Finance Brokers Association of Australia (CAFBA).
“We look at what we can do, we work with the lenders on bringing their capability programs to brokers who aggregate through FAST, and we also work with industry bodies. So, we have a three-tiered approach – involving FAST, lenders, industry bodies – to build the capability of broker businesses to meet more than the home loan opportunity,” Wright said.
“Certainly, the fintech lenders have got the major banks on their toes, and it’s a really good thing; competition is a good thing” Brendan Wright, FAST
For the last two years, before he joined Pepper, Withers was involved in an industry commercial masterclass, joining forces with other lenders to offer training, and he will continue to focus on broker commercial education at Pepper.
“When I look at the broker education efforts, it’s getting better. Over the last four to five years there’s been a major uplift in the accessibility to education and opportunities for brokers to learn how to adopt commercial,” he said.
Joining Withers at the commercial master class was ING’s Kolyvas, who said he still jumped “on the tools” every couple of months to see the quality of transactions. He found this served to educate him on how to help brokers produce better submissions.
As well as increasing education for brokers, the industry has had to work harder on educating politicians and the public over the last year.
As a commercial broker, Tocco works closely with CAFBA, and she said she doesn’t think the hard work the associations do is spoken to enough.
“It blows my mind what every single board member does at CAFBA towards lobbying for this industry and keeping it viable and pouring into the longevity of the industry,” Tocco said.
“I think learning along the way is also critical, because no two customers are the same, and nothing fits the box” Chris Thomas, NAB
“These aren’t people who are active on social media, so that’s what I’m trying to do a little bit, because there is no clap, there’s no pat on the back, for the extensive amount of work that they’re doing. It’s not just CAFBA but every single industry body, and the aggregators.”
Bringing it back to the point of education and training, Mohnacheff said Liberty believed it was important to concentrate on what happened after the education. It was not just about teaching brokers but empowering them to use their new skills.
“We’ve come back to the one simple realisation that we have to put people on the ground. We’ve got over 60 BDMs talking to our brokers, helping them through it, holding their hands for their first, second and third deals,” he said.
Allegos added that this requirement was “inherent” in platforms like Moula’s, which have the technological capability but brokers also need the conversations on the phone to explore the appropriate solutions.
“BDM relationships are the key. The reality is you need vastly capable BDMs as the go-to people for support in fulfilling complex commercial scenarios, whether they’re cash flows or building towers. You’ve got to have a huge spectrum of knowledge to explore all the various outcomes, and that’s where the relationships with brokers become so key to it,” Allegos said.
“We’ll make sure they know what we do and help them through that process so they can look after the borrower, because that’s what it’s all about” Steve Lawrence, La Trobe Financial
The importance of the role of BDMs was echoed by Thomas, who said NAB had 160 business banking centres across Australia that brokers could access to speak to bankers and credit managers directly about transactions. It had also introduced seminars enabling brokers to speak to specialists about different forms of financing.
“The connection point is the people and how we connect and how we hold hands together. We’re really committed to lifting standards for the customer at the end of the day, and we’ll continue to invest in our platform because we continue to believe in this channel and see the growth ahead is going to be quite exciting,” Thomas said.
Educating brokers by enabling them to have conversations with BDMs or credit managers was a trend among the lenders. Agamemnonos said that because Loanworks controlled the entire process brokers got to
speak directly to the person approving their loan to discuss a deal if they were not sure how to package it.
Brokers can speak directly with the decision- makers. We listen to what they need and work with them to develop a solution. We’re in regular communication, constantly educating them, advising how they can make their scenario work,” she said.
“Each broker is different; however, we really try to customise the experience for each one. We’re all about relationships. I really think that our relationships are the core of our business.”
With a table of non-banks and fintechs, the importance of brokers was clear Lawrence said that at La Trobe Financial about 90% of its business was made up of broker transactions.
“We have one-on-ones with brokers; we bring brokers into our office for training sessions; we undertake presentations on commercial, presentations on construction; we undertake webinars on these topics as well.
We enter presentations with the aggregators, and we were recently the major sponsor of the FBAA Commercial masterclass,” Lawrence said.
“What everyone else has been talking about, we’re doing with the brokers, because at the end of the day they’re an absolute priority to us. We’ll make sure they know what we
do and help them through that process so they can look after the borrower, because that’s what it’s all about.”