Post-Pandemic Mortgage Broking Trends

Demand for Business Finance Opens Up New Opportunities for Mortgage Brokers

According to Altus Financial, cash flow and profitability are among the top challenges small businesses face. These challenges are further magnified considering the lasting effects of the pandemic that began in 2020.

Now that the worst of COVID seems to have passed and restrictions have eased, SMEs in 2022 are now looking to grow and expand. In fact, a mid-year report from Judo Bank showed that one in two SMEs are in their growth/expansion phase, with one in two looking to access new funding in the last six months.

This demand for funding presents mortgage brokers willing to diversify into the commercial space an excellent opportunity for boosting their commissions.

Commercial Lending: High Demand, Low Supply

Despite this trend for small and medium enterprises, only a fraction of the mortgage broker industry caters to commercial needs (around 5.3% according to an IBIS World Industry Report K6411b Mortgage Brokers in Australia).

Brokers who can diversify quickly into the commercial space can capitalise on this untapped segment with little competition for those that get in the game early.

Granted, the next question is how realistic is it to diversify into commercial lending?

Understanding the borrower market

One interesting, yet mostly overlooked statistic, is that 30% of the clientele of residential mortgage brokers are also small business owners. And these small business owners will need financing for their business from time to time.

From a customer standpoint, it’s far more convenient for the borrower if the broker who helped them find financing for their home could also help them find financing for their business. From the broker standpoint, you already have a relationship with the borrower and have an understanding of their current situation which makes it easier to solve their problems.

As interest rates continue to increase it will become even more difficult for business borrowers to prove that they can service a loan from a traditional lender. Furthermore, after two years of the pandemic, proving profitability is also going to be tough. However, alternative lenders such as Private Mortgages Australia don't just look at serviceability and make a great option for business borrowers who are struggling to get bank finance.

Benefits of Working with a Private Lender

Unlike traditional lenders like banks, private lenders are more flexible with their terms. For example, at Private Mortgages Australia, our emphasis is on the value of the security property and the borrowers' exit strategy, rather than solely on how the borrower will service the loan.

In addition, private lenders typically have a faster application process. For businesses needing quick finance to cover unexpected costs or to take advantage of a great opportunity, a quick application and approval process is crucial. At Private Mortgages Australia we can usually settle a loan within 5 days if we get all the required details, rather than the lengthy time that a bank takes just to do an assessment.

Private Lenders are able to provide much shorter loan terms. So while a private loan comes with a higher interest than what a typical bank loan provides (which is usually why people are hesitant to take out a private loan), the much shorter loan term means the overall cost of the loan can be a lot less.

What this means for mortgage brokers

Even for those who specialise in residential loans, having a private lender on your panel that you can refer your business clients to when they need funding will not only help you to provide better customer service but to also increase your revenue exponentially. In the case of Private Mortgages Australia, you don't need to do any of the heavy lifting; just send the details of your client our way (or we can liaise directly), we'll determine if we can help and if we settle the loan then you receive a generous referrer fee within 24 hours and with no clawbacks! Brokers won’t need to become private lending experts to be able to help clients with business needs, just a general understanding of when a private lender may be able to assist is required.

The best thing about diversifying your offering is that most residential brokers are more than likely to have clients who are already business owners looking for business finance. By simply asking your existing clients about their business finance needs, you can provide your clients with better solutions and grow your income. Sounds like a win-win situation!