Slowly but surely, the moneymen and moneywomen are opening their wallets
Commercial finance has received a shot in the arm now that the general election has come and gone, bringing a sense of stability and focus for small business owners.
Signs of market momentum are returning, giving mortgage brokers eyeing diversification or those already operating in the SME finance space a reason to pay attention.
Falling interest rates and a recovering property market, alongside the clear policy direction of a Labor party with an emphatic majority, are sweetening the deal even further.
“If we hone in on the Australian macroeconomic settings at the moment, I think we are in a really, really good spot for this next period,” Grant Smith, deputy chief lending officer at ORDE Financial, told MPA. “We’re starting to see signs of recovery in the residential market and I think that will be buoyed further with the election dust settled.”
True, there will be winners and losers in any policy mix, but the confidence of knowing where things are heading and knowing what the policies will be “allows the businesses to plan around that”, said Smith.
Read more: With a commanding majority, Labor has carte blanche for housing reform
While larger corporates have long had access to structured finance channels, it’s the SME segment – particularly in Australia’s outer suburban belts – that offers untapped potential for brokers. These are the accountants, real estate agents and financial planners who remain local high street establishments.
And with broker share of the commercial lending market creeping ever higher (though still at barely 40%), it is incumbent on them to understand the opportunities and risks that are out there.
“Access to capital is always the biggest challenge for a business,” said Smith. "Whether it's an established business facing a challenging period and needing access to working capital or cash flow to help navigate through it, or a new, early-stage business with significant growth potential that could be accelerated with the right capital support – access to funding is critical."
The lender evolution
Banks and private lenders have been quick to adjust their financial products to reflect the changing political and financial atmosphere.
ANZ lowered its fixed mortgage rates for both owner-occupiers and investors by as much as 0.4 percentage points and 0.45 percentage points respectively in recent weeks. The bank’s lowest fixed rate was 5.39% for a two-year term at the time of writing.
Most other banks, major and minor, made similar adjustments throughout April and early May. Macquarie reduced its variable interest rates for property investors, with the lowest variable investment rate now sitting at 5.99% per annum, while NAB announced cuts back in mid April.
As for ORDE, it opted to increase maximum loan sizes and loan-to-value ratios (LVRs) across its resi and commercial range.
“We were sitting at a max $2 million loan size and 75% LVR,” said Smith. “Brokers told us that was limiting opportunities. We listened. We worked with our product and credit teams, and we’ve now increased that to $3 million at an 80% LVR for commercial loans in key metro markets.”
But it’s not a one-size-fits-all solution. “The new product updates are targeted initially toward Sydney, Melbourne and Brisbane where we can monitor performance and expand from there.”
Smith explained how ORDE’s product evolution is driven by broker engagement. He encourages brokers to be vocal when they encounter limitations.
Our business development managers and our relationship managers and the broader leadership team within our distribution function… are on their ground in the face of brokers having active conversations around the opportunities we're missing out on.
“That is where we get our insights. The more we can flesh that out, the more we can learn and hear, then the more we can adapt and hopefully deliver the products that are needed to the broker market.”
Brokers leading commercial growth
As a 100% broker-focused lender, ORDE works with all types of finance brokers.
Smith sees two types of brokers emerging in commercial finance: The specialist broker and the diversified broker. Both play a vital role in connecting clients to funding solutions.
Smith said: “In the commercial segment we have some really highly specialised brokers and that is their bread and butter. That is all they do. They build their business around that commercial component for their customer base and if they want to service residential, they’re typically building a separate arm within their business. So they are very heavily specialised.
“We do see a really good mix between that really specialised, focused commercial broker versus the residential broker that has happened upon an opportunity, whether it's commercial, SMSF, a commercial purchase for one of their investor clients, whatever that transaction is and given the tools, coaching and guidance to get that deal across the line.”
Keep focusing on your meeting your clients’ needs, seems to be Smith’s advice to brokers.
“Brokers don’t need to change. They just need to keep delivering the service they’ve been doing, which sometimes does involves broadening their offering to cater to new requirements.
What brokers do so well and how they've established themselves such a strong presence in market is the relationship element; being there to take the time to fully understand the customer, not just at the point of the transaction but across the life cycle of their financial needs.
That, reckons Smith, is the core difference between the broker and the direct model.
Trump-sized elephant in the room
No financial discussion at this point in time would be complete without addressing the chaos brought on by US President Donald Trump’s tariff regime.
While a momentary truce is currently in effect, Trump’s willingness to heap levies on friend and foe alike had implications for all aspects of the Australia financial market.
Smith sees an opportunity brewing among the pandemonium.
Excess goods have piled up in China as exports to the US have reduced. “I think that’s a real opportunity for some smart, well-established businesses to really capitalise on this period and deepen their base,” said Smith.
Aquamore’s head of distribution Matthew Porch agreed that Australia’s tariff “contagion risk” was minimal, thanks to Australia being on the lowest tariff rung and having relatively minimal export exposure to the US.
Confidence, combined with falling interest rates, will “hopefully spur on a lot of SMEs to go out and borrow that money or buy that car or buy that piece of equipment to push the business forward”, added Porch.
He noted a softening of credit policies across the board, suggesting “the people that control the money are feeling a bit more confident to start releasing it and taking a bit more risk”.
If a post-election commercial lending turning point truly is at play, brokers should step up and start paying attention.
