5 Tips on How Brokers Can Diversify Into Commercial Lending

1. Develop a comprehensive understanding of the commercial environment
2. Understand business needs
3. Build relationships with private commercial lenders
4. Understand the difference between banks and alternative solutions
5. Getting started, starting now!

1) Develop a comprehensive understanding of the commercial environment

The first step for mortgage brokers looking to diversify into commercial lending is to develop a comprehensive understanding of this sector. To begin with, mortgage brokers need to understand the various types of commercial loans available, including term loans, lines of credit, asset and invoice finance and commercial mortgages. To see the list of commercial loans that Private Mortgages Australia offers please take a look at our referrer pack.

Depending on the industry, the priorities and goals of commercial clients can vary greatly. For instance, retailers will have very different needs compared to property developers.

Understanding the commercial environment helps brokers develop deeper relationships with their clients and allow them to provide better and tailored customer service.

2) Understand Business Needs

In the residential space, most homebuyers have very similar goals. They usually want to buy a house at the best possible price with the lowest interest possible on their home loans.

When servicing commercial clients, it’s easy to assume that lower interest rates on loans is the number one priority. While most borrowers wouldn’t mind low interest rates, business owners usually value speed and being able to access a solution that is right for them.

This is because many business needs are time sensitive or are very specific, such as needing a quick cash injection to pay employee wages or need funds for three months in order to complete a development project. If a business can’t find financing they need and quickly, then their revenue stream could take a hit.

Most banks can take up to 2-3 months to finalise a loan application which is a real issue for most businesses who needed the funds yesterday. And most of the time a bank’s lending policies are so rigid they aren’t suitable for a business anyway.

Therefore, brokers need to be solutions-focused, instead of just trying to look for the lowest interest rates possible. Understand what problem your business client needs solving, and look for a finance solution to address those needs.

3) Build relationships with private commercial lenders

More often than not, business owners go to traditional finance institutions like banks to secure financing. However, banks have very strict serviceability requirements and often have a lengthy application and approval process. Not to mention, credit history plays an important role in getting loan approvals and could cause problems for those with a less than stellar credit history.

Brokers who have connections to private lenders are at an advantage in catering to the different needs of their commercial clients by positioning themselves as trusted intermediaries between borrowers and multiple lenders. This can help them to provide finance solutions that the borrower would not normally be aware of and secure better loan terms and rates for their clients, while also generating referral business from satisfied customers.

4) Understand the difference between banks and alternative solutions

Having connections with multiple lenders is great. But these lenders are merely tools in a broker’s customer service toolkit. It’s still up to the broker to know how to use these tools to benefit their clients.

And to do so, it’s important to know the difference between banks and alternative lenders and to have a general understanding of which institution can help with a specific situation.

There will be times when a standard loan from a bank is the best option for a small business client. And if that client already has an established history with a particular bank with good credit rating, it makes sense to go to that bank as a first option since serviceability requirements won’t likely be an issue.

Alternative lending solutions work best if a client needs funding quickly, is in need of shorter-term loans, or is having difficulty meeting serviceability requirements.

5) Getting started, starting now!

“You miss 100% of the shots you don't take” - Wayne Gretzky

While diversifying into private lending provides plenty of opportunities to boost revenue streams, the most difficult step is always the “how”. Sure, everyone understands why it is good to diversify, not everyone knows how exactly they can do it.

Learning about the commercial environment, learning the different types of loans, getting additional accreditation – all these things look daunting and can make some residential brokers doubt if they could ever diversify into the commercial space.

The good news is that a broker doesn’t need to accomplish all these immediately to be able to diversify today. A lot of the business borrowers we work with are referred through to us by their brokers and we then do all the work required to get the loan across the line. Then, once the loan settles, brokers receive their referral fee within 24 hours, without any clawbacks.

Not only is it a great way to start boosting revenue immediately, but it also allows you to build experience as you’re learning the industry.

Moreover, it’s believed that roughly one-third of residential brokers’ clients are business owners.

Therefore, even if a residential broker is just starting out in the commercial space, chances are, they already have a base of commercial clients that they may be able to refer. All that’s needed is to start asking existing clients if they need help with commercial financing. Three times out of ten, the answer could very well be a “yes” and that right there is the start of the commercial journey. 

About PMA

Private Mortgages Australia offers short-term, flexible loans to business clients and property developers.

Our credit team is readily available to accommodate brokers, accountants and borrowers alike and will happily guide you and your client through the loan process. We pride ourselves on our quick response time. We also provide generous referrer fees within 24 hours of a loan settling with no clawbacks!

If you are a broker and have a business lending scenario you would like to discuss, feel free to contact us or you can complete our Quick App form here (< 10 mins).