Broking industry is waking up to the limitless potential of commercial finance
One key takeaway from the Mortgage and Finance Association of Australia (MFAA)’s latest Industry Intelligence Service report was that the number of mortgage brokers writing commercial loans has grown at a rapid clip.
Released last week, the report revealed that the number of brokers writing commercial loans was up over 24% year on year as of September 2024.
A record 7,000 brokers wrote commercial loans through their aggregator, with the settled value of commercial loans reaching nearly $23 billion (up 31.2% year on year).
Every Australian state recorded commercial lending growth, with Victoria and NSW/ACT the standouts.
The data underscored a trend that has grown steadily over the years. The total commercial lending loan book value of mortgage brokers nearly doubled between September 2019 and September 2024 – from $43.1 billion to $85.9 billion.
Broking industry makes moves
Mortgage industry heavyweights have taken notice of this trend and have adapted their offerings to take advantage of emerging commercial opportunities.
LMG’s bid to become home of the diversified broker is one such example. The leading aggregator has been on a full-throttle marketing campaign to spruik its commercial finance capabilities.
MPA recently caught up with LMG’s group executive of commercial finance Stephen Scahill (pictured below) to discuss the aggregator’s overhauled MyCRM application platform. This overhaul very much had customers’ commercial and asset finance needs in mind, Scahill said.
“The average person is going to have financial needs beyond just a mortgage… What we’re seeing is good brokers want to say to their customer, ‘I’m your destination for all your financial needs, whether that’s a car loan or if you want to buy a factory,’” he said.
ING Australia, one of the largest non-major banks in the country, is marching to a similar beat.
Under the guidance of head of business banking Hein Wedgam (who is approaching his first-year anniversary in the role) the Netherlands-headquartered powerhouse has sought to increase its presence in the SME market.
“We have over two million retail customers, many of whom are small business owners,” Wegdam recently told MPA. “The demand is coming from them, they want to be able to do all their banking in one place and we want to support them.”
He added: “We have had a commercial property portfolio for some time, but this has been limited to a subset of SMEs. We’re now broadening out our offering, meaning more brokers can take advantage of it.”
Wegdam said he is “very in tune” with broker diversification. “In recent years we’ve noticed there’s more broker demand for commercial lending. Our business banking strategy addresses this demand and makes it easier for brokers to offer financing for both residential and commercial customers.”
In the non-bank lending space, private credit specialist Aquamore’s head of distribution Matthew Porch (pictured below) believes many commercial deals are falling through the cracks of the major lenders. This has given rise to new opportunities for the likes of Aquamore to sweep in and offer commercial funding to the businesses that need it.
In fact, alternative lenders – which work almost entirely within the broker channel – are among the most active credit providers in the SME space, with the likes of Prospa, Pepper Money and Liberty growing their loan books exponentially.
Seizing the opportunity
The vast majority of Australia’s 2.6 million businesses are SMEs. Statistically speaking, a substantial proportion of homeowners also have business financing requirements.
At the broker level, there is a nuanced debate going on about how to best service these needs.
Grant Smith, deputy chief lending officer at ORDE Financial, believes that opening a dialogue should be the first step for brokers.
Rather than replacing the role of a business banker, Smith reckons brokers can add value by identifying lending gaps and offering flexible solutions accordingly.
“There is an opportunity to discuss shorter term business lending needs versus longer term property and investment goals,” Smith told MPA. He encouraged brokers to initiate strategic conversations that bridge both personal and commercial finance.
Read more: Opening a dialogue on commercial lending
While bringing accredited commercial brokers into your business is an option, building robust referral networks is essential.
Clark Finance understood the importance of this when it merged its operations with Lydian Finance earlier this year.
Discussing the benefits of the merger, Vaughan Clark, Clark Finance’s founder, chief executive and namesake, said: “You can't expect to be an expert on everything, but if there's something that comes across my desk I’m not sure about, I’ve got 25 people I can reach out to straight away,” said Clark.
As for investors, Matt Spears of Sydney-based Evoke Capital sees commercial property as a natural progression for his sophisticated client base.
“We’re seeing more of our resi investor clients selling down their residential portfolios and reallocating into commercial assets,” Spears told MPA. “It comes down to yield considerations and the diminishing advantages of negative gearing on residential investments.”
When done right, commercial property investments can generate higher yields with fewer overheads than residential investments. Given Evoke is expected to close this financial year having written $250 million worth of loans, it has certainly done wonders to the brokerage’s volumes too.
While these brokerage, lenders and aggregators have got the memo, there remains an enormous missed opportunity in the commercial finance space.
SMEs borrowed $154 billion in 2024, of which just 40% originated via the broker channel (compared to over 76% in the home loan space). That’s a $90 billion-plus opportunity there for the taking.
With business finance enquiries on the rise, that opportunity will only grow with time.
