Panel discusses pathways at National Finance Brokers Day
“Diversification’’ has become a buzzword in the broking industry, and commercial lending is an area that is widely regarded as an area of great potential for brokers.
From the importance of finding mentors and support people, to having a wide lender panel and pursuing education and training opportunities, success in commercial broking is achievable, a panel of experts says.
Business planning, putting clients before profits, setting clear expectations and being aware of cyber risks are deemed important for new and emerging commercial brokers, they say.
Speaking at National Finance Brokers Day, held on August 17 at Luna Park, a panel of speakers provided insights into opportunities and growth in commercial lending.
Titled “The Core of the Commercial Market and What’s Next”, the discussion was moderated by NFBD founder and Marketplace Finance head of third party relationships Dino Pacella (pictured above far right). At the annual event, which attracted over 350 brokers, lenders, aggregators, buyers agents and other industry partners, there were also discussion panels on residential lending and technology and innovation.
The five speakers on the commercial lending panel were BF Money managing director George Karam (pictured above left), CAFBA president Matthew Atkin (pictured above second left), Simplicity Loans & Advisory associate director, sales Isabella Constantinou (pictured above centre), Judo Bank chief third party officer George Obeid (pictured above second right) and Simplicity Loans and Advisory managing director Matthew Johnson (pictured above right).
What skills and processes are important when starting out?
Speaking generally about professional standards and the knowledge required to engage in high level business discussions, Johnson acknowledged that finding leads was one of the biggest challenges for non-business owners.
Confidence around lead generation is a key pre-requisite, he said.
“If you’ve got a plan around that and you’re confident around that, you definitely should go for it,” Johnson said.
He acknowledged the importance of professional standards and knowledge and the work of CAFBA and aggregators around training and education. Speaking from experience in managing his own business, Johnson suggested implementing processes and expectations of team members “from day one”.
Within Simplicity Loans & Advisory, the initial approach adopted by the business was “trying to act big when small”, he said.
“Having the mindset of where you want to finish up and trying to set yourself up where you want to end at the beginning is definitely the way to go about it when you’re setting up your business,” Johnson said.
George Obeid said that credibility was highly important in commercial lending. He suggested that brokers use CAFBA, industry bodies and aggregators to increase their knowledge and find a mentor with commercial lending experience.
“Understand what the requirements are and don’t go too deep until you get that experience,” Obeid said.
“It’s really important to maintain that relationship you have with your clients and not to taint that by trying to figure out how to do it.”
Obeid also suggested that brokers engage with a wide range of lenders, that they leverage their back book and that they tap into self-employed clients within their existing base to find out what their business needs are.
Karam suggested that brokers “upskill before they upsell”, and while doing so, that they refer the business to an experienced commercial finance specialist. Rather than diversify all at once, he suggested brokers do “a little at a time” to gain the skill set.
Atkin said that having a mentor was the most important thing brokers could do. Within his own business, having a mentor illustrated the importance of “giving yourself time to think”, he said. As brokers tend to get caught up in doing a deal, they can forget that they’ve got a business to run.
“I think it’s giving yourself a day out and go and think about what you want, who you’re dealing with, what kind of business you’ve got,” Atkin said.
Constantinou has worked in commercial lending for almost six years and was one of the MPA top commercial brokers for 2023. In 2022, Constantinou was crowned MPA Top Commercial Broker.
She started her role with Simplicity Loans & Advisory straight out of university and focuses on construction and development.
Sharing the key learnings of her journey, Constantinou spoke about the importance of having a support network, a mentor people to lean on.
“Having people in your corner who want to see you succeed, grow as a person and grow your business is the most important thing you can have in your pocket,” Constantinou said.
Given the breadth of commercial lending, starting out can seem daunting, however she suggests brokers “dip their toes in” and find what they love, whether its asset finance, trading business, commercial investment or construction.
“You don’t have to know it all at once … finding what you really love in that space and leaning into that is one of the most important pieces of advice,” she said.
Constantinou reminded women wanting to diversify into commercial lending to back themselves and to trust what they know and what they’re doing.
What do commercial brokers need to plan for?
In response to what brokers need to be cautious about and plan for, Karam said that commercial lending was generally not as linear as residential lending.
The timing between transactions can be lengthier, requiring brokers to plan within their business, including from a cashflow perspective, he said.
“Business is not as regular as the home loan space and there’s a lot of work that gets done beforehand before you land on those transactions,” Karam said.
Karam suggested brokers set clear expectations for their clients, the lender, themselves and their staff. Additionally, clients need to understand that commercial lending is not as quick as getting a home loan, in the sense that there is typically considerable analysis and forecasting, he said.
Brokers wanting to diversify should ensure that they have the skillset in the market, leaning on aggregators and lenders and other industry professionals, he said.
Johnson said that cyber risk was an emerging risk for commercial broking business owners, noting that a large volume of emails were typically sent to clients and lenders daily. Additionally, it is important that brokers understand who the critical lenders are and who they should be dealing with, he said.
“Being able to put your client with a middle lender who you’re comfortable I think is a huge risk for people going into commercial,” Johnson said.
“Leaning on mentors, on people around you or using a referral model can help take you to a lender where your clients can be looked after.”
Atkin said that the CAFBA Education Council provided a range of courses for brokers. While diversification is positive, it must be done right, he said.
To be a CAFBA member, brokers are currently required to have an appropriate level of experience, or their Diploma of Finance and Mortgage Broking. CAFBA is looking to further professionalise the commercial finance industry by becoming members of the Professional Standards Scheme (PSS), which Atkin said would put commercial finance broking in a similar realm as an accountant or lawyer.
“This makes appropriate customer outcomes as the bedrock of everything our members do,” Atkin said.
These standards, along with appropriate funder accreditation requirements, such as CAFBA membership, will in turn ensure that standards continue to lift across commercial broking, he said.
Focus on customer first
The commercial lending panel discussed the importance of starting out with the customer in mind and working backwards to develop a risk management framework to understand risk factors and tolerances.
Karam said that in his view, commercial brokers needed to focus more on the customer, taking inspiration from the residential broking industry around the practice of Best Interests Duty. The focus should be on better serving the client as opposed to income opportunities, he said.
Constantinou spoke about the importance of educating clients not only about the right lending option, but also about why the option had been chosen.
A multitude of lenders has given rise to a competitive environment, where there is a lot of variety from a rate perspective, typically among non-banks, she said.
“Navigating the way through the complexity of the lending environment is something that brokers need to stay abreast of what the different lender policies are and what is the best fit for their client, and staying informed with them on technology,” Constantinou said.
Where is the market headed?
According to the current MFAA Industry Intelligence Service report 15th edition (commercial finance snapshot), 6,118 mortgage brokers are also writing commercial loans, up 16% year-on-year.
Atkin said that he expected further diversification to drive consolidation in commercial lending, with fewer small firms and an increase in firms with brokers working across both residential and commercial lending.
Reflecting on growth in residential lending, MFAA March figures showing brokers facilitated 69.6% of new residential home loans, Karam acknowledged that each time standards had been tightened or lifted, market share had increased.
“The more that we can sell as an industry as we are at the moment, and as a profession which is the aspiration, the more that we can get the end user of the service to trust us,” Karam said.
The MFAA has confirmed it will run a series of one-day “New Commercial Broker” workshops in October, held in Sydney, Brisbane, Melbourne, Perth, Adelaide and Hobart.
CAFBA is in the process of finalising the first module of its application for the Professional Standards Scheme, expected to take approximately 18 months.