Introducing our new Relationship Manager

Joel PeterPlease join us in welcoming our new Relationship Manager – Joel Peter!

Joel has spent around eight years working in the banks in Australia and New Zealand, primarily in lending. He has also worked as a broker so understands the challenges that brokers face.

As Relationship Manager, Joel will be building relationships with referrers and educating them on PMA’s suite of solutions. He’ll also be able to workshop potential scenarios with referrers and source suitable opportunities to assist referrers close deals.

Joel is particularly looking forward to helping brokers and borrowers to find solutions for a situation where they would otherwise have otherwise lost an opportunity.

A fun-fact about Joel, he loves basketball and the NBA. His guilty pleasure is watching and listening to NBA broadcasters and podcasters debate what is currently going on in the NBA and says his favourite basketball moment was the buzzer-beater shot from the Toronto Raptors’ Kawhai Leonards to win over the 76ers in last years’ Eastern Conference playoffs. You can check out that moment here.

If you have any questions for Joel you can contact him on 03 8370 7081 or [email protected]privatemortgagesaustralia.com.au.

 

 

 

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Perfect Scenarios for a Private Loan

Perfect Scenarios for a Private LoanAt Private Mortgages Australia, there are a lot of things we do that are different to the traditional bank lenders. Your clients can take advantage of this when they need help with a particular situation.  Let’s look at the scenarios that are perfect for a private loan:

Urgent Funding

This is a common scenario. Your client needs funding urgently and cannot wait the usual 4-6 weeks that a traditional bank loan takes. They need funds within one to two weeks, so need someone who specialises in getting the funds for them with speed. This is a perfect scenario for a private loan.

Read an urgent funding case study here.

Development Funding

For times when your client needs a first mortgage (Senior) or second mortgage (Mezzanine), draw downs,  or completion finance for a development project.  A lot of the banks will not consider completion finance because they do not like lending on incomplete security. This type of private loan particularly assists your clients when something happens towards the end of the project and they need funding to complete it (think budget blow-out).

Read a development funding case study here.

Asset Lending

In this scenario, your client needs to release equity for a business purpose but cannot show serviceability. They want to borrow purely against the value of an asset. A private loan can be made against real estate, where we do not need to look at the client’s income and serviceability.

Read an asset lending case study here. 

ATO Debt Finance

If your client has been denied a payment plan and the ATO has marked their credit file and issued a letter of demand, a short-term facility for 6-12 months at an affordable rate can assist.  Banks will not loan funds to anyone who has an ATO debt. We pay out the ATO debt for them, so they have a clear ATO portal. This allows them to go back to the bank and get a traditional loan.

Read an ATO debt finance case study here. 

Valuation Not Contract Price

Your client has purchased a property under the market value and needs to settle the transaction. They want to borrow against what the property is worth and not what they paid for it. Most banks will only lend the lesser of contract or valuation price. We can lend on the higher valuation rather than the contract price, which may be lower. Sometimes we have lent more than 100% of the purchase price because we can see that it is worth a lot more (think uplift in value due to a development approval).

Read a valuation not contract price case study here. 

Paying Out Business Partners

Say your client is splitting up a business partnership for example, if one of the partners is retiring, they require funding to pay out that business partner as part of an agreement or settlement. We assist by providing a private loan so they can complete this.

Read a paying out business partners case study here.

Urgent Business Opportunity

Your client has a business opportunity which requires some funding to complete. They may have an opportunity to purchase stock at a discount and need funds quickly to secure the opportunity. Once purchased, the stock can be sold to pay back the loan or they can arrange a more traditional loan, which takes longer to organise.

Read an urgent business opportunity case study here.

Credit Repair

Your client is unable to attain traditional finance due to credit issues. Usually something has happened to cause the issue and your client needs time to work through the issues. The process can be lengthy and they may need access to business finance while their credit file is being repaired.  If they have real estate with available equity, then we may still be able to help. We take into consideration how much we are lending against that asset opposed to how much income the client has.

Read a credit repair case study here.

 

Private Mortgages Australia offers cost-effective loans to small-to-medium businesses that cannot get finance from the banks. Our lending process offers greater flexibility and quicker turnarounds than traditional lenders, so that your clients can get the best solution for achieving their goals.

For further information about private loans for business projects, give us a call on 1800 856 683 or contact us via our website: www.privatemortgagesaustralia.com.au/contact-us/

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Coded vs Non-Coded Loans

Non-coded loansWhen it comes to obtaining finance from a private lender, it’s really important to understand the difference between coded and non-coded loans. In Australia, we have the National Consumer Credit Protection Act (NCCP Act) which is legislation designed to protect consumers and ensure ethical and professional standards in the finance industry. There now is a nationally consistent framework to legislate the way in which credit is regulated

The NCCP Act applies to credit contracts entered into on or after 1 July 2010 where:

  • The lender is in the business of providing credit
  • A charge is made for providing the credit
  • The debtor is a natural person or strata corporation
  • The credit is provided:
    • For personal, domestic or household purposes, or
    • To purchase, renovate or improve residential property for investment purposes, or to refinance credit previously provided for this purpose.

Under this legislation, loans are determined to be ‘Coded’ or ‘Non-Coded’. Private lenders must be aware of the difference between these classifications. So, what determines what is a Coded and Non-Coded loan?

Coded Loans

If a loan falls within that Protection Act, it is deemed to be a Coded Loan. This simply means that the loan is to be used for domestic purposes only. Borrowers can use the loan to buy a car, to go on a holiday or for other similar domestic reasons. Coded loans are generally provided by big banks, smaller banks, and non-banks collectively referred to as ‘traditional’ lenders.

Non-Coded Loans

A non-coded loan is a loan that is used for business purposes. It is the Private lenders decision to be licensed or unlicensed depending on the types of borrowers they service. Private Mortgages Australia can only lend to business borrowers. It is therefore important to assess whether a loan is coded or non-coded.

Purpose of the Loan

To determine whether a lone is deemed Coded or Non-coded under the legislation, you need to establish who the borrower is and the purpose of the loan. You can be guided by the following:

  1. Corporate Borrower = Non-Coded Loan
  2. Individual Borrower:
  3. Domestic purpose = Coded Loan
  4. >50% Business Purpose = Non-Coded Loan

A Corporate Borrower may borrow funds under their company name for business purposes and this is automatically deemed to be a Non-Coded Loan.

When an Individual Borrower is looking for a loan, the process is a little more complicated. If they are borrowing funds for domestic purposes, the loan is deemed as Coded. However, if more than 50% of the funds are to be used for business purposes, such as buying into a business, purchasing a franchise, commercial property or other business reason, it is deemed to be a Non-Coded Loan.

The lender can obtain a “business purpose declaration” from the borrower to the effect that the purpose of the loan is for business purposes only, to prove that it can be deemed a Non-Coded Loan. The Lender also needs to make reasonable enquiries into the purpose which could be done by siting evidence of the use of funds. For example, requesting evidence of an invoices and then paying that invoice at settlement to ensure the funds are used for the approved purpose.

In private lending, you must make sure the loan is going to be Non-Coded under the terms of the NCCP Act. It is therefore important that you understand the difference between the two classifications.

For further information about private loans for business projects, give us a call on 1300 856 683 or contact us via our Contact Us page.

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Funding For Instant Asset Write-Off Purchases

Changes to Instant Asset Write-Off threshold announced by Morrison governmentIn March, the federal government announced a fivefold increase to the Instant Asset Write-Off (IAWO) threshold to $150,000 and extended to businesses with annual turnover of up to $500 million, from $50 million. Businesses have until June 30 to take advantage of the higher threshold. New equipment, computer hardware, office fit-outs and furniture, and vehicles are among the assets potentially eligible for the write-off.

The instant asset write-off was first introduced in 2015 and has been extended every year. According to the Sydney Morning Herald, ‘in 2017-18, more than 360,000 businesses claimed deductions worth over $4 billion under the scheme.’

This much needed cash injection will help to keep businesses afloat however, the increased and expanded measure will only run until 30 June 2020, before reverting to its legislated $1,000 threshold and reduced eligibility to small businesses with a turnover of less than $10 million. While the write-off had been extended on a yearly basis in previous budgets, the postponement of this year’s budget to October has raised uncertainty over the future of the incentive, although Prime Minister Scott Morrison has declared that tax measures to encourage investment will be part of his JobMaker plan.

The short turnaround for accessing the higher threshold will have many businesses scrambling to get the cash together to make eligible purchases before the June 30 deadline. However, banks have been placing rigorous lending policies in place which make it difficult for businesses to access funding. In addition, banks have been inundated by finance applications which means the chance of receiving the funding to make purchases before the end of the month is becoming very unlikely.

Private lenders may be the saviour for small businesses in this period. Last month we published the article ‘The Role of Private Lenders During the Coronavirus Crisis’ in which we talked about how lenders like Private Mortgages Australia can assist businesses with short-term loans to tide them over until they can get back on their feet. This also applies for funding of instant asset write-off purchases.

If a business needs funding to purchase equipment, vehicles or any other business related asset then a private lender may be able to provide the finance within a matter of days rather than having to wait weeks to see if the banks will approve an application. Because private loans are secured by property, private lenders don’t need to assess the businesses serviceability. Therefore, if the businesses cash flow has been impacted by Coronavirus this won’t play a part in the way the businesses application is assessed. If the borrower has a genuine business purpose, sufficient equity in a property and a realistic exit strategy then they are likely to be approved for a loan. Another benefit of a short-term loan is that the interest payable on the loan is also tax deductible.

 

For businesses looking to take advantage of the increased threshold for the Instant Asset Write-Off scheme a short-term loan may be a great option, however we encourage all businesses to obtain their own taxation advice as individual circumstances have not been take into account in this article and should not be considered advice.

 

For further information about how we can assist you or your clients then please get in touch with General Manager – Relationships, Shanta Lobo on [email protected] or 1300 856 683.

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The Role of Private Lenders During the Coronavirus Crisis

Private lenders and coronavirusAustralian businesses have had a rocky start to 2020, to say the least. Businesses still recovering from the impact of the bushfires are now having to face cancelled events, dwindling customers, reduced rental income and supply chain disruptions as a result of the coronavirus outbreak. It’s taking a real toll on companies, particularly SMEs.

While there are an array of measures being introduced by the Government to keep businesses going during this period, there are still some companies that aren’t eligible for support or their needs fall outside of the scope of relief packages. Banks are also helping customers with pausing interest repayments and waiving fees, however again, not everyone is eligible.

Private lenders have always had a focus on business lending and supporting small businesses and this is no different during this period of disruption. Particularly, private lenders are able to help those businesses who fall through the cracks. Here is some information about the ways private lenders can support businesses during the Coronavirus crisis.

Funds to tide you over

The financial needs of an SME during a crisis are varied but generally it is the necessity for short-term support until things get back to normal. Requirements can include:

  • general cash flow to keep the business operating, paying employees or progress projects
  • purchase of assets or investments
  • funding developments when banks are too slow or put up too many hurdles, such as presales

Because private lenders rely on an ‘exit strategy’ we don’t have to assess the borrower’s serviceability. A short-term fall in cash flow or profitability doesn’t impact our assessment of the application.

If the borrower has a genuine business purpose, sufficient equity in a property and a realistic exit strategy then they are likely to be approved for a loan.

Loans over $250,000

New business loans backed by the government are currently being made available to businesses affected by coronavirus across Australia. These government-backed business loans under the recently announced Coronavirus SME Guarantee Scheme, are loans of up to $250,000 that are available to eligible Australian SMEs. These loans will all be unsecured with terms of up to three years with no repayments required for six months.

Any businesses looking to borrow over $250,000 won’t be able to access this scheme and will need to seek other finance options. While the banks are still an option, they will likely be inundated with requests from businesses who are eligible for the scheme which means that accessing finance will take longer.

Private lenders can assist borrowers who are looking to borrow more than $250,000 and don’t want to wait the lengthy periods of time that banks take to approve a loan. With interest rates at all-time lows, a short-term private loan is more affordable than ever.

Waiting for JobKeeper

The JobKeeper Payment is part of a $130 billion wage subsidy scheme from the government to support businesses significantly affected by the Coronavirus and help keep more Australians in jobs. Almost half the Australian workforce should be eligible to receive the JobKeeper payment of $1,500 (before tax) per fortnight.

However, many businesses are blaming confusing exclusions, uncertainty about which employees will be eligible and the yawning gap between when they must start paying staff and getting reimbursement from the tax office.

Private lenders can help businesses while they await the JobKeeper Payment reimbursement to arrive. A private loan is ideal for short-term loans and can greatly assist keeping the business going and keep paying staff while the government organises the JobKeeper payment.

Increased construction costs

Despite a negative outlook on the industry from many analysts, construction in Australia has continued to go ahead and property prices have remained steady. Construction has been one of the few industries able to continue during lockdown periods and is considered a critical part of the economy as Australia recovers from the pandemic. However, rising supply costs are causing issues for developers, particularly as projects come close to completion.

Private lenders are able to assist with completion costs for developers who may have experienced supply cost increases. A short-term loan can enable a developer to complete a project and finalise sales.

While the Coronavirus crisis has created less than ideal circumstances for businesses there are ways to keep operations going during these tough times. Private Mortgages Australia has seen an increase in demand for short-term from businesses experiencing difficulties due to Coronavirus and expects this to continue while government restrictions remain in place. For further information about how we can assist you or your clients then please get in touch with General Manager – Relationships, Shanta Lobo on [email protected] or 1300 856 683.

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Why interest rates are irrelevant

private lender interest ratesSecuring a business loan can be confusing and finding a transparent lender can be a difficult task. When choosing a lender there is a lot of jargon to sort through which is why it is easy for borrowers to focus only on getting the lowest interest rates. However, it’s far too common for borrowers to buy into a loan because the interest rate looks good only to discover a range of hidden costs and fees.

Interest rate vs total cost of the loan

The rate of interest is only one portion of the total cost of a loan. Trying to calculate the true cost over the life of a loan can be daunting but it makes good business sense to do so. This is why finding a lender that is entirely upfront and transparent about fees is incredibly important. One way to check is to see if they provide a proposed disbursement schedule or estimate of all upfront costs with any indicative offer.

Possible fees

Here is a list of fees a lender may require as part of the loan agreement, which can greatly increase the overall cost of the loan:

  • Establishment/Origination/Application Fees: Setting up the loan/account .
  • Documentation Fees: A fee to cover time spent preparing the loan documents.
  • Direct Debit Fees: When making a repayment some lenders charge for every transaction which add up over time.
  • Monthly Management Fees: Ongoing fees charged for the management of the loan.
  • Withdrawal Fees: Charged for every withdrawal, often seen in Line of Credit loans.
  • Late Fee: If the payment schedule is missed.
  • Early Repayment Fee: Charged if you pay the loan out before the due date.
  • Amendment Fees: Added by the lender if you request amendments to your loan/ repayments.

Educating borrowers

Helping borrowers to understand the difference between a good interest rate and the total cost of a loan is extremely important, particularly when dealing with short term lending. We have had clients come to us in the past who have been offered an interest half of what we offered, however when they took into account the other fees and charges they were required to pay they discovered that we were significantly cheaper than the other lender. When you look at the total cost of the loan, interest rates can become completely irrelevant.

Below is an example of a $435,000 two-month loan for a second mortgage we arranged for a client to help them complete a development project:

Interest for the two-month loan:                                         $16,530 (22.8% per annum)

Approval fee:                                                                               $15,206 ($2,871 to Referrer)

Legal fees:                                                                                     $2,735

Total cost of the loan:                                                               $34,471

This shows that, as the loan was only for two months, the interest was just less than 50% of the total cost, demonstrating how critical it is to know what all the other costs are.

The total benefit

When looking at whether to take this loan, the borrower also needed to consider how much money they would make out of the transaction.  They not only needed to look at the cost of the loan, but at the benefit that the loan was going to deliver.

This is where a rough feasibility study for the development was important.

Gross Realisation Value:                                                        $1,950,000

Land purchase:                                                                          $650,000

Stamp duty:                                                                                 $35,000

Build cost:                                                                                    $650,000

Other costs (agent, council, holding):                               $115,000

Total costs:                                                                                   $1,450,000

TOTAL GROSS PROFIT:                                                          $500,000

This means the project yields a gross profit of $500,000.

Therefore, the cost of the loan divided by the gross profit is approximately 7% of the total cost. The client was able to determine that it made business sense to give away 7% of their profit ($34,471) to get the deal done. As we can see from this example, the interest rate is less significant than the overall cost of the project.

Sound advice

When considering a loan, a borrower needs to gain perspective on the overall outcome of the loan rather than getting caught up just comparing interest rates. This is where sound advice from a broker and a transparent lender is critical.

For further information about private loans for business projects, give us a call on 1800 856 683 or contact us via our website: www.privatemortgagesaustralia.com.au/contact-us/

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PMA Coronavirus Update

Still lending.

There’s a lot of conversations being had about the effects of COVID-19 on the property and finance industries so Private Mortgages Australia thought we’d provide a quick update on what is happening within our business.

Director Tony Barbone has put together this short video and there’s more information below:

Business as usual
While a lot of business are moving to remote working this is something that PMA has always done. Therefore, we aren’t having to make changes to our processes or working situations so we are able to carry on as usual.

Small change to LVR and pricing policy
To better place ourselves in the market we have slightly lowered our accepted Loan-to-Value Ratio and have made changes to our pricing policy for Registered First Mortgages (R1M) and Registered Second Mortgages (R2M) as follows:

LVRs

NOTE:  Higher LVRS may be considered on application. Lower LVRs apply for non-major metro areas and will be assessed on a case-by-case basis. 

*Standalone security only. All other sectors will require additional security.

The PMA difference
In the current climate we expect funding for other lenders to become more scarce as investors hold onto their cash. However, at PMA we’re different in that we make the lending decision. So once we’ve made an offer that’s it, we don’t then need to scramble to find investors which can often lead to settlement changes and delays.

We’re also backed by a wholesale funder who have committed up to $100M to finance our portfolio of first mortgages. So we’re confident that we’re going to be able to continue to lend and are expecting an uptick in business borrowers who can’t obtain finance elsewhere.

If you have any questions, please get in touch at [email protected] or 1300 856 683. 

 

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SMEs with tax debt need to take action

ATO tax debt refinancingOn 22 October 2019, the Government passed law which allows the Australian Taxation Office (ATO) to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs). The law received royal assent on 28 October 2019.

Under the law, the ATO can only disclose tax debt information of a business where certain criteria are met.

The ATO will only disclose tax debt information of a business to a CRB if the business meets all of the following criteria:

  • it has an Australian business number (ABN), and is not an excluded entity
  • it has one or more tax debts, of which at least $100,000 is overdue by more than 90 days
  • it is not effectively engaging with the ATO to manage its tax debt, and
  • the Inspector-General of Taxation is not considering an ongoing complaint about the proposed reporting of the entity’s tax debt information.

The ATO will notify a business in writing if they meet the reporting criteria and give them 28 days to engage with the ATO and take action to avoid having its tax debt information reported.

Many businesses have previously used the ATO like a bank and racked up debts by not paying their commitments on time. This decision could now have adverse effects on credit ratings and credit insurance limits, making it harder to maintain or extend credit terms with suppliers.

There has never been a better time to get your ATO debt in order and set your business up for success in 2020. Private Mortgages Australia is able to help businesses refinance ATO debt and pay out the tax debt with a short-term mortgage. This enables the borrower to pay off the ATO debt and build up a few months of good payment history. The borrower can then try to refinance to a long-term debt and pay off the loan.

For more information about how Private Mortgages Australia can help, read our case study or get in touch via our Contact page.

 

 

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5 Ways a Mortgage Broker Can Help You Navigate a Business Loan

Commercial Mortgage BrokerObtaining funding for your small-to-medium business can help you survive tough times or take your enterprise to the next level. Juggling all the steps you have to take to obtain a loan can be stressful and  take up valuable time and resources!

Taking time out from your business to do an analysis of your business needs and research your lending options is only part of the process. Once you find a lender you can work with, you need to negotiate a deal with them that works for you over time and understand all the terms and conditions required over the term of the loan.

Working with a Mortgage Broker

Like most of the tasks in your business, if you can’t do them yourself, find someone who’s an expert at them. Brokers create a bridge between you and the lending world. Their role has them matching business owners with business lenders year-round. They know the best lender to engage for your purposes, so you achieve your important goals. Here’s how they help:

1. They source suitable loan options

This requires a sound knowledge of the finance market and the benefits provided by different lenders. Being able to access a range of lenders, means they are more likely to find one that matches your specific needs. A Mortgage Broker knows who to suggest and why.

2. They find workable solutions

Lenders have criteria for preferred investments. By understanding your specific need for a loan, a Broker uses their knowledge to source the most suitable Lender. You don’t have to decipher which Lender would be more interested and inclined to provide the funding you need, that’s the role of the Broker. You get on with running your business, they get on with finding the right loan for you.

3. They navigate the fine print

A Mortgage Broker conducts Due Diligence on your behalf, so you achieve your desired outcomes safely and easily. There is a specific process to sourcing, securing and completing a loan. A Broker knows how to navigate all the risks associated with private lending. With a greater understanding of the terms and conditions, a Broker can guide you through the whole process and keep you informed.

4. They have the experience

Brokers have a network of Lenders with whom they have developed professional connections. Building rapport with a platform of Lenders is crucial to a Broker’s ability to assist a wide range of clients. A good Broker has extensive experience in private lending and has negotiated loans for many other small to medium businesses. They understand how to avoid any pitfalls and negotiate the best outcome for you.

5. They know their stuff

A Broker can translate all the financial jargon and acronyms prevalent in finance documentation into simple terms for you. You can rest easy knowing they can decipher any complicated terms and conditions that may apply, so you’re not left wondering what’s going on. Plus, they don’t mind you asking questions. They understand that you need to feel confident in agreeing to the terms and conditions of your loan.

Time you won’t get back!

The most important aspect of using the services of an experienced Mortgage Broker means you save time – the one resource you never get back. You can focus on building your business while your Broker takes care of all the rest. By taking on the responsibility of negotiating all the steps required to secure your business loan, a Broker saves you time, energy, money and a lot of stress!

As a private lender, we appreciate the work that Mortgage Brokers do to help our Borrowers. In fact, over 90% of the loans we provide are introduced to us by Brokers. If you have any questions about how a Broker can make your business borrowing plain sailing, please send us a message via our Contact Page.

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Diversifying into business lending: Are you ready?

Diversifying your mortgage broking businessThe Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is done and dusted, but some of the resulting changes to the finance sector are still to be seen. Potential impacts to commissions and remuneration for mortgage brokers have many considering diversifying to new income streams to ensure their survival.

The other main reason for residential brokers to diversify is to look after the long-term needs of their client base and uncover hidden value based on their needs. Research shows that 25% of mortgage borrowers own small businesses or are self-employed. More and more, consumers are looking for a single source to meet all their finance needs. Brokers who can provide the right product or service for their clients have the potential to build stronger relationships, uncover the hidden value of their database and put them one step ahead of the competition. If you don’t offer business lending to clients who need it, they could go elsewhere and eventually switch their mortgage lending as well.

The recent Reserve Bank’s Advisory Panel has stated that big banks are reluctant to finance newer businesses given the high risks involved. Recent research shows that small and medium size businesses (SMBs) are increasingly turning to alternative lending options because they aren’t having much luck with traditional banks. This presents an opportunity for brokers to provide guidance and value by helping business owners and those managing the finances of SMBs find viable, credible financing alternatives. The market has seen a rise in non-bank lenders providing small and medium business loan options, leaving businesses with a lot more options to navigate, even more decisions to make and in need of serious help.

Diversifying into business financing can be daunting, but understanding the lenders requirements and business documentation requirements is easier than you may think. Most lenders have a simple application process and offer training and support. Private Mortgages Australia hosts regular webinars that explain exactly what is required from a broker and how the process works.

Diversifying into small business lending can help brokers not only grow their business but to service more of their customers’ financial needs and deepen customer relationships. Increasingly, customers are looking for advice across
a broad spectrum of financial products, not just their mortgage.

To be successful, brokers will need to put the customer at the centre of everything, understand the customers’ full needs and to address those needs. This comes down to brokers ensuring they have a range of products on offer to address the holistic financial requirements of their customers.

We believe that diversifying into business lending is the biggest opportunity that brokers will have to grow and develop their business over the next few years.

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