Growth Opportunities in Mortgage Lending: Are You Missing Out?

Demand for commercial loans increasing

As the memories of Covid closures, lockdowns and customer limits start to fade, more and more SMEs are looking to get back to where they were before the pandemic and are even thinking about expanding their business. Therefore, demand for commercial mortgage lending is on the increase.

According to the Industry Intelligence Service Report (IIS) by the Mortgage and Finance Association of Australia (MFAA), the number of settled commercial loans by brokers from 1 April 2021 to 30 September 2021 hit $13.4 Billion: a staggering 42.92% increase year-on-year.

During this stint, the number of mortgage brokers writing commercial loans also increased, reaching a record-high 5,268, compared to 4,539 brokers in the same period the year prior.

If you are a mortgage broker only specialising in home loans and investment home loans, this could be the time to diversify into commercial loans to grow your business further. Diversifying is far more important now, post-pandemic, if you want to grow your mortgage broking business, especially with higher interest rates creating some stagnation in the residential market.

Entering the commercial space

While most brokers will agree that diversification is vital in growing a broking business, the next question is how exactly does one get started the commercial space? If there have been thousands of brokers that entered the commercial space last year, how can brokers entering this year compete against those that have been in the commercial space for longer?

The good news is that there’s no wrong time to enter the commercial space. Just because you’re entering now doesn’t mean you’ll struggle to write commercial loans. It doesn’t mean that those who have been in the commercial space have been able to grow their broking business in the manner that they envisioned.

The key to being competitive in the commercial space is in how effective you are in finding solutions for your business clients. And you can do that if you understand the common problems SMEs and property developers face when they seek financing.

SMEs and Serviceability

According to Equifax, business loan applications went up by 11.2% during the March 2022 quarter. However, despite demand from business borrowers increasing, it doesn’t mean that being able to obtain finance has gotten any easier. According to a report by the cloud banking platform Mambu, nearly 50% of small businesses are unable to get sufficient funding. Simply put, obtaining approval for a bank loan is a difficult prospect for Australian SMEs.

A major factor in obtaining a bank loan boils down to serviceability. Unfortunately, not all businesses are able to satisfy these general requirements. For instance, some businesses are seasonal so they have lumpy cashflow, others may be starting a new business or opening a new branch/store so can’t show regular cashflow. This is when businesses start to hear ‘no’ from banks and traditional lenders. However, there are other options.

More finance solutions equal more lending opportunities If you want to increase lending opportunities and settle more loans, you must be able to offer solutions that suit a borrower’s needs. If a bank loan isn’t right for your client then who can help?

This is where working with a private lender comes in handy. Private lenders like Private Mortgages Australia have more flexible terms tailored to the needs of businesses. They don’t always rely on serviceability the way banks do, and instead focus on an exit strategy when deciding to lend or not.

Another advantage with private lenders is that their application process is much faster than the traditional application timeframe in most banks. In Private Mortgages Australia for instance, a loan can be settled in as little as 5 business days upon receipt of all outstanding information, rather than the several weeks, or even months, it typically takes a bank to settle a commercial loan.

Having multiple finance options at your disposal can allow you to find a solution that works best for your clients. If a bank finance solution isn’t quite meeting the needs of your clients, you’ll be in a position to offer alternative finance options that may suit them better.

Good for your client and good for you

There are many benefits when working with private lenders:

Future-proof your business

Having a private lender on your panel will provide you with more options for clients and also help you to future-proof your broker business. When there’s a lull in the residential market you can still work on commercial opportunities and keep your business flourishing.

Increase income

On average, a business loan is generally around the $1M mark and the usual fees paid to our referrers for a loan that size is about $20K (depending on your client mandate). So even if you refer just a few loans to us per year you can add a sizeable amount to your income.

No training required

The best bit is, you don’t have to spend hours training to become a commercial broker, if you have an existing client who owns a business and is looking for a finance option, send them our way and we’ll do all the legwork. And if the loan settles, we’ll pay you a generous referral fee within 24 hours, with no clawbacks!

About PMA

Private Mortgages Australia offers short-term, flexible loans to business clients. Whether your client is looking for working capital, a refinance or development finance, our lending team is readily available to assist, even if you’re unsure if the client is right for a private loan.

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).