Shifting sands spur borrowers to tap non-banks
Getting a residential, commercial or business loan from a traditional bank is tougher now, but specialist lenders are picking up the mantle just as funding needs accelerate in some sectors
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AFTER 10 CONSECUTIVE rate hikes from the Reserve Bank of Australia, there is no escaping the fact that more people are likely to fail to qualify for a residential, commercial or business loan from a traditional lender.
“These are borrowers who would have been considered bank borrowers just two years ago who may be locked out of a loan today with a major bank,” says Pepper Money general manager for mortgages and commercial lending Barry Saoud.
Those getting turned away from banks often qualify instead as specialist non-bank borrowers, and alternative lenders and the brokers who deal with them are reporting an uptick in business.
“More brokers are seeking the help of non-banks like Pepper Money, and they’re doing so across a wide range of borrower profiles,” Saoud says.
Nobody likes not being able to pay back money owed. But it’s happening more often now with credit card arrears recently surpassing 2022 levels and data from credit bureau illion showing that late payments at businesses increased by an average of 9% from December to February.
As high interest rates and inflation continue impacting the disposable-income position of most Aussie households, this means mortgage, credit card, personal and car loan borrowers could have a higher probability of missing payments over the next six to 12 months.
“If this is the case, I think we’ll see a significant increase in the number of borrowers that will no longer qualify for a traditional bank 'prime' loan,” Saoud says.
Other non-banks see the trend towards third party advice continuing. “Australians have witnessed a huge economic shift over the last few years, which has changed the way many are approaching finance,” Mohnacheff says.
Specialist lending is expected to play an essential role going forward, and brokers stand to benefit. “Customers will be looking to brokers for guidance and support as they navigate through a different landscape,” Saoud says.
“Commercial lending is on the rise and business owners are seeking trusted support to understand market challenges,” Mohnacheff says.
More businesses are going via non-banks as small to medium-sized enterprises, in particular, switch from the traditional bank channel to alternative loan options.
Grow is seeing an uptick in sub-$150,000 low-doc lending and sub-$250,000 lends with the support of bank statements, for example.
“Businesses are increasingly utilising overdraft facilities and other business loans to better manage cash flow, while supply chain issues have also resulted in increased demand for financing of used equipment and sale and hire back following the importing of machinery,” say Verschoor and Woszczalski.
The Banjo survey shows that around 50% of SMEs face hurdles when trying to get funding, with the major issues being the time taken to reach a decision, overly strict lending criteria, and difficulty in obtaining a suitable interest rate. Challenges navigating the application process and the customer’s previous credit history were also cited as barriers.
While non-banks have a reputation for having much higher interest rates than those on offer at mainstream banks, this may be less of a factor in 2023. “Non-bank lender rates are increasingly sharp, which is providing SMEs with greater choice and flexibility,” say Verschoor and Woszczalski.
As a corollary, more SMEs are now looking for loan advice from brokers: 29% of SMEs in the Banjo survey said they were looking for help from brokers with their business loan needs this year, compared to 19% in 2022.
Grow Finance is a leading non-bank business lender with a vision to help companies thrive in today’s increasingly complex and competitive environment. It’s a ‘one-stop shop’ for all asset finance and working capital requirements, including business loans plus asset, trade, invoice, floorplan and insurance premium finance. Grow is agile, innovative and inspired by product fusions and redefining product classes. The group actively responds to market demand with sharply priced product enhancements, product extensions and new products. Its growth is sustained through continual platform enhancements and progressive team extension, as supported by a recent capital raise and new warehouse facility.
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The evolution away from traditional options is a theme that is gathering pace and will likely dominate all kinds of funding markets over the upcoming year in the volatile environment.
“There is consistent demand for specialist finance nationally,” say Grow Finance co-chief executives David Verschoor and Greg Woszczalski.
The needs of borrowers are changing with the shifting economic ground. “As a result, there is greater appetite for specialist lending options – the value of bespoke lending solutions is becoming more widely known,” says John Mohnacheff, group sales manager at Liberty.
John Mohnacheff
Liberty
Industry experts
John Mohnacheff is Liberty’s knowledgeable and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Master’s in Marketing from the University of New England, as well as a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
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John Mohnacheff
Liberty
Industry experts
John Mohnacheff is Liberty’s knowledgeable and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Master’s in Marketing from the University of New England, as well as a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlement sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades' experience in financial services, he has held numerous roles across areas ranging from legal to company secretary, sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets.
Pepper Money
Barry Saoud
There is a misconception that specialist lending only caters to customers such as Uber drivers looking for residential loans. In fact, commercial and small business loans via non-banks are playing an increasingly important role in the economy. MFAA data shows that commercial loans settled by mortgage brokers recorded their highest-ever value at $17.2bn in the six months to September 2022, up 28.6% year-on-year.
John Mohnacheff
Liberty
Industry experts
With comprehensive credit reporting data capturing 24 months of repayment history, the result is that more borrowers may fall outside of the banks’ credit and policy requirements for a significant period.
Specialist lending has always catered to those with irregular income, and non-banks will look at the big picture and be less inclined to treat the odd blemish on a repayment schedule as a fatal flaw.
“As rates change and inflationary pressure persists, it's become even more important to support those customers who may not fit the traditional borrower mould,” Mohnacheff says.
The reality is that specialist lenders are seen as well placed to provide credit during periods of uncertainty.
“In real life today, many people earn money in non-traditional ways,” Saoud says. This includes the self-employed, shift workers, casual workers, people with more than one job, or people with income from benefits.
“You’ve got a growing group of hard-working Australians earning good money shut out of traditional loans simply because they don’t fit the rigid income criteria of the banks.”
While business is expanding for non-banks, SMEs are turning off regular lenders. According to the Banjo SME Compass Report 2023, the proportion of SMEs that intend to fund growth with a bank loan in 2023 dropped to 24%, versus 40% that planned to use major banks as their first funding option last year.
The backdrop to this switch to alternative lending is the continued difficulty that SMEs – like struggling residential applicants – face getting funds from major banks.
“Working with credible, established and transparent lenders is important to avoid boxing clients into potentially high-interest, inflexible loans,” say Verschoor and Woszczalski. “This is creating increased opportunity and demand for non-bank lenders that are renowned for flexible lending criteria and speed of funding.”
John Mohnacheff is Liberty’s knowledgeable and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Master’s in Marketing from the University of New England, as well as a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
Greg Woszczalski and David Verschoor are co-chief executives at Grow Finance (Grow). Verschoor is a seasoned finance professional with broad knowledge of risk management, regulatory compliance and trading. He has extensive experience in credit underwriting and policy formulation, as well as the provision of strategic advisory, and worked at companies such as Westpac and BNP Paribas before joining Grow. Woszczalski has worked for over 20 years across many business sectors structuring and implementing cash flow solutions and consulting on company restructures. Prior to Grow, he was a member of the board of the Debtor and Invoice Finance Association, and co-founder and executive director at 180 group.
Grow Finance
Greg Woszczalski and David Verschoor
Barry Saoud
Pepper Money
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlement sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades' experience in financial services, he has held numerous roles across areas ranging from legal to company secretary, sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets.
Pepper Money
Barry Saoud
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has worked in numerous areas across legal, company secretary, sales and product management roles with the likes of Aussie Home Loans, GE Capital, HSBC and Norton Rose Fulbright. Saoud is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.
Pepper Money
Barry Saoud
Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.
Thinktank
Peter Vala
John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Marketing Master’s from the University of New England, and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.
Liberty
John Mohnacheff
“Australians have witnessed a huge economic shift over the last few years, which has changed the way many are approaching finance”
John Mohnacheff, Liberty
Catering to real-life customers
Not just residential
Catering to real-life customers
Not just residential
Published 01 May 2023
Barry Saoud
Pepper Money
Greg Woszczalski and David Verschoor are co-chief executives at Grow Finance (Grow). Verschoor is a seasoned finance professional with broad knowledge of risk management, regulatory compliance and trading. He has extensive experience in credit underwriting and policy formulation, as well as the provision of strategic advisory, and worked at companies such as Westpac and BNP Paribas before joining Grow. Woszczalski has worked for over 20 years across many business sectors structuring and implementing cash flow solutions and consulting on company restructures. Prior to Grow, he was a member of the board of the Debtor and Invoice Finance Association, and co-founder and executive director at 180 group.
Grow Finance
Greg Woszczalski and David Verschoor
As a leading Australian non-bank lender, Liberty offers innovative solutions at competitive prices to support customers with greater choice. Over the past 25 years, this free-thinking approach to loan solutions has seen more than 700,000 customers get financial across a wide range of home, car, personal and business loans, as well as SMSF lending and insurance products. Liberty remains the only non-bank lender with an investment-grade credit rating offering custom and prime solutions to help more people get financial.
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While the most optimistic sectors currently tend to be areas such as healthcare or trades and services, research, including that by the Australian Banking Association, shows that small businesses overall have a much more confident outlook than consumers in general.
In residential, higher interest rates may have changed the game in terms of the ability to borrow, but without really tamping down the desire to do so – people are actively exploring alternative avenues.
The rise of non-banks and the increasing reliance of borrowers on broker advice come at a time when there is ample demand for funding in some sectors. Over the next few months, Grow expects demand for overdraft products and an ongoing need for working capital to support trade during seasonal periods.
“Businesses are increasingly diversifying their operations and becoming less reliant on import and offshore manufacturing, which continues to drive demand for asset finance,” say Verschoor and Woszczalski.
Over the longer term into early 2024, many SMEs expect their revenue to grow, as they are faring better than they thought they would six months ago and are now starting to look to the other side of peak interest rates.
The latest CreditorWatch Business Risk Index (BRI) shows that average trade receivables, or the number of open invoices a business has on its books, were up 45% year-on-year in March, due in part to rising inflation but also to a resumption of ‘normal’ trading activity post-COVID.
Catching the lending wave
WHERE DO SMEs LOOK FOR HELP WITH BUSINESS LOANS?
Accountants
Brokers
Traditional banks
SMEs seeking assistance from accountants when evaluating and securing finance
“We expect more first home buyers will look to specialist lending solutions to get a foot on the property ladder,” Mohnacheff says. “Liberty’s extensive range of free-thinking loans could support many to enter the market sooner.”
Higher interest rates are also driving refinancing and debt consolidation to help reduce overall monthly repayments and simplify outgoings. “Specialist lending expertise is therefore becoming an essential component of a successful broker business,” Mohnacheff says.
Brokers who are across the range of products available at non-banks will be able to ride any lending wave. Saoud says brokers are “uniquely placed to offer the broadest range of lending options that a customer may need to find a solution”.
Access to the sheer diversity and breadth of non-bank options gives brokers an advantage over traditional and direct lenders as they satisfy a much broader range of client needs. “[This] is key to brokers continuing to play an important role in the lending marketplace, enabling diversification and delivering healthy competition for borrowers,” Saoud says.
Source: Banjo SME Compass Reports 2021–23
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Barry Saoud, Pepper Money
“Customers will be looking to brokers for guidance and support as they navigate through a different landscape”
Pepper Money is a people-focused non-bank providing a refreshingly real-life approach to lending across home loans, commercial loans, equipment finance and car loans. It works with all sorts of people and businesses, from blue collar to blue chip. Pepper Money takes a uniquely flexible human approach, assessing each person’s situation individually. Since 2000, it has helped over 375,000 Australians achieve their financial goals. Pepper Money is consistently recognised as Australia’s leading non-bank lender known for being broker-friendly with supportive and responsive BDMs, and offers a wide range of products that meet different customer needs – especially for non-conforming and self-employed customers.
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Barry Saoud
Pepper Money
Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlement sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades' experience in financial services, he has held numerous roles across areas ranging from legal to company secretary, sales and product management at the likes of Aussie (Home Loans), GE Capital, HSBC and Norton Rose Fulbright. He is a passionate leader with proven ability to grow businesses and exceed targets.
Pepper Money
Barry Saoud
Greg Woszczalski and David Verschoor are co-chief executives at Grow Finance (Grow). Verschoor is a seasoned finance professional with broad knowledge of risk management, regulatory compliance and trading. He has extensive experience in credit underwriting and policy formulation, as well as the provision of strategic advisory, and worked at companies such as Westpac and BNP Paribas before joining Grow. Woszczalski has worked for over 20 years across many business sectors structuring and implementing cash flow solutions and consulting on company restructures. Prior to Grow, he was a member of the board of the Debtor and Invoice Finance Association, and co-founder and executive director at 180 group.
Grow Finance
Greg Woszczalski
and David Verschoor
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Greg Woszczalski and David Verschoor
Grow Finance
“Businesses are increasingly diversifying their operations and becoming less reliant on import and offshore manufacturing, which continues to drive demand for asset finance”
Greg Woszczalski AND David Verschoor, Grow Finance
20
15
10
5
Source: MFAA Industry Intelligence Service report
$9.37bn
$10.27bn
$13.40bn
$16.00bn
$17.24bn
Apr 20-Sep 20
Oct 20-Mar 21
Apr 21-Sep 21
Oct 21-Mar 22
Apr 22-Sep 22
Rising value of commercial lending settled by mortgage brokers
50
30
20
10
40%
2023
36%
2022
38%
2021
40
0
29%
2023
19%
2022
18%
2021
SMEs seeking assistance from brokers when evaluating and securing finance
20%
2023
24%
2022
26%
2021
SMEs seeking assistance from traditional banks when evaluating and securing finance
John Mohnacheff, Liberty
“Australians have witnessed a huge economic shift over the last few years, which has changed the way many are approaching finance”