Top Considerations For Mortgage Brokers Diversifying Into Commercial Finance
The mortgage industry is evolving, and more brokers may be looking beyond home loans to expand their customer base. One promising area of diversification is commercial finance, which allows brokers to cater to business clients needing funding for real estate, equipment and other assets. Transitioning into commercial loans can offer several potential advantages, generally including more pay, increased revenue potential, a broader client base and long-term career stability. However, a prospective commercial finance broker may need more than just a shift in focus.
This article explores the key considerations mortgage brokers might want to consider when expanding into commercial finance.
Why Would A Mortgage Broker Diversify?
There are several compelling reasons why a mortgage broker may choose to diversify and become a commercial finance broker:
- Market demand: Many business owners require financing beyond home loans, and brokers who can meet this need on their behalf may be in high demand.
- Client retention and growth: Offering finance solutions can help commercial finance brokers maintain long-term relationships with clients who may require multiple types of financing.
- Expanded expertise: By gaining knowledge in commercial lending, brokers enhance their professional skill set and become more valuable within the financial industry.
- Economic resilience: Diversifying into commercial finance can provide stability, as demand for business funding often remains strong even when residential lending slows.
A prospective commercial finance broker may want to consider several crucial factors before entering the commercial lending space.
Considerations When Diversifying Into A Commercial Finance Broker Role
Expanding into commercial finance requires careful planning and strategic decision-making.
Finance brokers can benefit from equipping themselves with the proper knowledge, building strong relationships with lenders and understanding the unique challenges of commercial business loans.
Below are key considerations to help mortgage brokers transition successfully into this space.
Look To CAFBA For Additional Training
The Commercial & Asset Finance Brokers Association (CAFBA) is an essential resource for mortgage brokers looking to transition into commercial finance brokers.
CAFBA provides professional development programs, training courses and industry accreditation to help brokers build their expertise in commercial business finance.
One of the most valuable resources offered by CAFBA is its PACE Premium education program, which is designed to equip commercial loan brokers with the necessary skills to succeed in business finance.
The program covers essential topics in property development finance, such as loan structuring, risk assessment and regulatory compliance.
Finance brokers who complete CAFBA training can gain credibility in the commercial finance market and build trust with clients and lenders.
Alternatively, Accendo Financial is a well-known education provider that offers training course, skill-based learning to support commercial brokers to improve their service for SMEs.
Familiarise Yourself With Relevant Concepts
Commercial business loans and business lending differ significantly from residential lending, so finance brokers may want to invest time in learning key concepts. Some important areas to focus on include:
- Loan structuring: Understanding different commercial loan structures, including secured and unsecured options and fixed vs. variable interest rates.
- Risk assessment: Learning how lenders evaluate business creditworthiness, financial statements and industry risks.
- Loan types: Familiarise yourself with the various types of commercial loans, such as development finance and asset-based lending.
- Legal and compliance requirements: Keeping up with Australian financial regulations and responsible lending obligations specific to commercial finance.
Without a solid grasp of these concepts, a prospective commercial finance broker may struggle to navigate the complexities of commercial finance solutions.
Consider Your Client’s Needs
Each company has specific requirements for business finance, so brokers will typically assess their clients’ needs before recommending financial solutions. Some key questions to ask include:
- What type of funding does the client require? What are their business goals when getting a loan? (e.g., commercial property development, business expansion, equipment financing)
- How much commercial funding is needed and what are the repayment expectations?
- What is the company’s financial history and credit standing? (e.g. start-up vs established company)
- Are there any industry-specific considerations that could impact the loan approval process?
Understanding these factors can help brokers match their clients with the most suitable lending and funding solutions and improve their chances of securing approval.
Network With A Wide Range Of Lenders
Building strong relationships with lenders and investors in commercial finance is just as crucial as understanding loan products.
Commercial finance typically requires an extensive network to offer clients the best options. The best solutions to expand your lender network include:
- Attending industry events and workshops to connect with banks, private lenders and alternative credit providers.
- Joining industry associations like CAFBA, MFAA to gain access to exclusive lender relationships.
- Getting accredited with aggregators such as LMG, COG, Connective… that provide commercial finance brokers with essential tools, support and access to business lenders.
- Leveraging existing contacts in the financial industry to learn about new commercial finance solution opportunities.
- Partnering with commercial brokers to gain insights into different lender requirements and approval processes.
Creating a more diverse team and lender network can place you in a better position to secure financing for a wide range of clients.
Prepare In Advance To Get Your Clients Approved Quickly
Commercial finance deals may require you to help your clients put together a thorough application for quick approval.
Due to complexity of underwriting and due diligence requirements, brokers entering this space should be well-prepared for lenders’ requirements.
Some of the information you can start gathering from your clients to speed up the approval process typically include:
- A valid ID: Drivers’ licenses or passport
- An active ABN/ACN: Different lenders will require different amounts of monthly revenue and time in business
- Detailed financial analysis: Financial records, banking, business plans
- Clients’ consent for lenders to carry out credit checks
A potential commercial finance broker may want to manage client expectations by communicating clearly what is required from them and keeping them informed of every step of the application.
Try To Find A Mentor
Transitioning into commercial finance can be challenging and having a mentor can provide valuable guidance. A mentor with extensive experience in commercial financial solutions can help finance specialists navigate the following:
- Complex loan structuring
- Lender negotiations and relationship-building
- Client management and expectation-setting
- Common pitfalls and how to avoid them
To find a mentor, brokers can connect with experienced professionals through industry associations, join networking groups or events focused on commercial finance or partner with established commercial brokers for mentorship and collaboration opportunities.
Learning from someone with hands-on experience can accelerate a broker’s success in the business lending landscape and commercial finance industry.
Conclusion
Diversifying into commercial finance presents a lucrative opportunity for mortgage brokers but typically requires careful planning and preparation.
A prospective commercial finance broker can successfully expand their services and thrive in the commercial business loans market with the following tips:
- Gaining the right education
- Understanding key financial concepts related to business loans
- Networking with lenders
- Managing expectations and preparing the clients to secure funding.
For those ready to transition, staying vigilant, continuously upskilling as a finance broker and understanding the unique needs of your business clients will help them achieve long-term success.
As a fintech, non-bank lender that specialises in flexible business funding, Lumi offers small businesses with the best Business Line Of Credit in the market, as awarded by WeMoney Awards 2024. This revolving finance solution provides ultimate flexibility with no ongoing fees. Our facility is considered one of the more cost-effective financing option for small business owners. This year, we’ve extended our lending limit to $750,000, providing business owners with same-day outcomes.
