How brokers can unlock new opportunities
By expanding their business horizons through the strategic imperative of diversification, brokers can navigate the moving feast of the modern lending landscape
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IN THE evolving landscape of mortgage broking, diversification beyond residential lending has become a critical strategy for brokers looking to sustain and grow their businesses. Several key drivers are pushing brokers to expand their offerings, while technology and market conditions shape this transition. What are the reasons behind this trend, and the types of alternative lending products gaining popularity? And what will the future landscape of broker diversification look like in a constantly changing economic environment?
The changing economy is a case in point, with small to medium-sized enterprises, in particular, struggling. CreditorWatch’s May Business Risk Index revealed that business insolvencies in Australia have reached a record high, with a 38% average increase across all industries over the year to May 2024.
In such an environment, many businesses are seeking advice from brokers, and being able to offer them a broad range of measures can build business as well as trust.
“Brokers who offer a wide range of solutions to their clients often cultivate stronger, deeper relationships and create new advocates in the process,” says Belinda Wright, head of partnerships and distribution – residential at Thinktank.
Small business loans, equipment finance and asset finance are particularly popular due to the growing number of SMEs requiring funding for expansion and operational needs.
“As with home loans, there is a wide range of lenders and products on the market for business lending, whether that’s commercial property, car loans, equipment finance or business loans,” says Walsh. “This variety in product and choice of lender is fantastic for competition; it’s also hard for business owners, particularly small business owners, to research, understand and navigate, so they are using brokers more to help them make sense of it.”
For businesses, the cost of living crisis is equally pressing. Around three in five (61%) of the SME leaders surveyed in a recent YouGov study commissioned by Prospa said their business currently holds cash reserves equivalent to less than two months of expenses, versus the ideal of three to six months of operating expenses. Three in four (77%) of the SME owners and decision-makers are looking for new and different strategies to cope, with many turning to brokers who are offering advice on new products they may not be familiar with.
The learning curve around accreditation requirements, deal-structure complexities and financial knowledge is less onerous going in the other direction.
“It appears the jump from commercial to residential presents less challenges and greater opportunities for traditionally commercial brokers. It makes a great deal of sense,” says Fazlic. “Commercial brokers are dealing regularly with business operators, and they need home loans too.”
Ongoing economic uncertainty and high inflation rates have heightened the demand for financial advice and diverse lending options. Regulatory changes aimed at tightening residential lending criteria have also pushed brokers to explore alternative lending markets. Additionally, government incentives for small businesses and infrastructure projects have boosted the demand for commercial and asset finance.
“Cost of living pressures have customers looking for a trusted source of expertise to help them with all their lending needs and to deliver flexible solutions,” says Smith. “This demand has generated more opportunities for brokers willing to explore expanding their business.”
Interest rate levels and economic cycles naturally play a significant role in the demand for residential mortgages.
“Brokers, facing the reality of these variable conditions, often diversify their offerings to maintain a stable income when residential demand wanes,” says Fazlic.
“Additionally, brokers must adapt to regulatory changes that alter the lending landscape, such as the introduction of stricter borrowing criteria, which may encourage them to explore less regulated financial products or markets with more opportunities.”
Rising operating costs and inflationary pressures are impacting small businesses’ creditworthiness. “As a result, lenders are tightening their credit risk appetite, and more decision-makers are actively seeking advice from brokers to navigate this and secure the funding they still demand,” says Sanz. “Prospa has seen a 22% growth in leads coming from brokers year-on-year.”
As a leading Australian non-bank lender, Liberty offers innovative solutions to support customers with greater choice. Over the past 26 years, this free-thinking approach to loan solutions has seen more than 850,000 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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Prospa Group Limited (ASX: PGL) is a leading fintech with a commitment to unleashing the potential of small business in Australia and New Zealand. We do this through an innovative approach to developing simple, stress-free and seamless financial management products and services. Since 2012, we have provided more than $3 billion of funding to support the growth and operations of thousands of small businesses. We also work with more than 12,000 trusted brokers, accountants and aggregator partners to deliver flexible funding solutions to their clients.
At Prospa, we’re serious about our impact on our people, communities and the planet.
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The primary drivers of diversification include market saturation, economic shifts and changing client needs. The slowdown in the housing market has led brokers to explore other areas to maintain their revenue streams. Rising interest rates and cost of living pressures have also prompted clients to seek more comprehensive financial solutions as they turn to brokers for a wider range of services.
“A changing economic environment and evolving consumer needs have many brokers seeking to diversify their businesses. With more customers in need of holistic solutions rather than single products, brokers are seeing the benefits of expanding their offerings. They are taking the opportunity to expand their skill set, strengthen their businesses and unlock the potential of their existing client base,” says David Smith, chief distribution officer at Liberty.
Jas Fazlic
Finsure
Industry experts
Jas Fazlic is a highly accomplished and dynamic professional in the finance industry, currently serving as head of commercial at Finsure. With a career spanning over 15 years, Fazlic has gained extensive knowledge and expertise in mortgage broking, business banking and commercial lending, establishing himself as a leading authority in the commercial third party space.
Finsure
Jas Fazlic
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Jas Fazlic
Finsure
David Smith
Liberty
Industry experts
Jas Fazlic is a highly accomplished and dynamic professional in the finance industry, currently serving as head of commercial at Finsure. With a career spanning over 15 years, Fazlic has gained extensive knowledge and expertise in mortgage broking, business banking and commercial lending, establishing himself as a leading authority in the commercial third party space.
Finsure
Jas Fazlic
Roberto Sanz joined Prospa in 2015 with more than 15 years’ experience in finance and sales, which he applies to growing the extensive broking channel. He draws on his passion for building high-performing sales teams, combined with his vast industry knowledge and Master’s in Banking and Business Strategy, as leader of Prospa’s intermediary and partnerships channels in Australia.
Prospa
Roberto Sanz
There is also a trend of reverse diversification, where commercial brokers are increasing their residential business. This trend is often driven by the need to balance portfolios and mitigate risks associated with market fluctuations.
“Traditionally, brokers have specialised in a single area,” says Smith. “Over time, many have sought to diversify by incrementally adding products to their offering. Growing and successful brokers are seeing the opportunity to have multiple streams in their businesses, regardless of whether their background is residential or commercial.”
Wright at Thinktank sees the same trend. “We often see evidence of reverse diversification, where previously specialist commercial brokers are now open to and writing a lot of residential lending,” she says. “Commercial brokers usually find the transition to residential lending quite manageable, while still involving a learning curve.”
Jas Fazlic
Finsure
Industry experts
“It’s expensive to acquire a new client in the residential lending market when competing against the advertising budgets of lenders as well as a growing number of brokers entering the game”
Roberto Sanz, Prospa
Competition is another factor.
“It’s expensive to acquire a new client in the residential lending market when competing against the advertising budgets of lenders as well as a growing number of brokers entering the game,” says Roberto Sanz, general manager sales and partnerships at Prospa. “Brokers are beginning to understand that if they aren’t building a holistic service and product offering beyond residential lending for their customers, they might lose out to competition and the financial advisers who are.”
Nearly 3,000 brokers have joined the industry in the last five years.
“To differentiate themselves, brokers are turning to diversification,” says Jas Fazlic, head of commercial at Finsure. “By offering unique services not commonly provided by competitors, brokers can create a niche for themselves.”
Brokers can act as a one-stop shop, assisting clients with residential mortgages, car loans, business loans, equipment financing and more.
“By becoming a trusted adviser across various financial needs, brokers can foster stronger client relationships that lead to repeat business and referrals,” says Dan Walsh, head of professional development and member engagement at the MFAA.
The latest Taking the Pulse of the Nation survey, conducted by the Melbourne Institute and Roy Morgan, showed fewer Australians are able to save for unforeseen expenses. The survey reported a decline in the ability of respondents to cover a sudden $3,000 expense, with only 35% to 40% of those experiencing financial challenges able to draw on savings or assets, a drop from previous years.
Wright says, “The past year has been challenging due to inflation, rising interest rates and a changing economic environment. The residential lending market has experienced periodic slowdowns in purchases, but there has been steady refinance and equity-release activity across the sector as customers fortify their cash flow positions and reposition their financial circumstances.”
Jas Fazlic is a highly accomplished and dynamic professional in the finance industry, currently serving as head of commercial at Finsure. With a career spanning over 15 years, Fazlic has gained extensive knowledge and expertise in mortgage broking, business banking and commercial lending, establishing himself as a leading authority in the commercial third party space.
Finsure
Jas Fazlic
Roberto Sanz
Prospa
Roberto Sanz joined Prospa in 2015 with more than 15 years’ experience in finance and sales, which he applies to growing the extensive broking channel. He draws on his passion for building high-performing sales teams, combined with his vast industry knowledge and Master’s in Banking and Business Strategy, as leader of Prospa’s intermediary and partnerships channels in Australia.
Prospa
Roberto Sanz
Roberto Sanz
Prospa
Roberto Sanz joined Prospa in 2015 with more than 15 years’ experience in finance and sales, which he applies to growing the extensive broking channel. He draws on his passion for building high-performing sales teams, combined with his vast industry knowledge and Master’s in Banking and Business Strategy, as leader of Prospa’s intermediary and partnerships channels in Australia.
Prospa
Roberto Sanz
“With more customers in need of holistic solutions rather than single products, brokers are seeing the benefits of expanding their offerings”
David Smith, Liberty
Drivers of diversification
Reverse diversification
Drivers of diversification
Published 22 Jul 2024
Roberto Sanz
Prospa
Dan Walsh
MFAA
David Smith was appointed as Liberty’s chief distribution officer in January 2024. Strategy driven with a customer-first ethos, Smith is responsible for the broader distribution platforms of the Liberty Financial Group, including its business partner relationships. He brings a wealth of knowledge and expertise to the company, having spent over 20 years in the financial services sector. Smith holds a Bachelor of Business (Hons) from Brunel University London and a Postgraduate Diploma in Marketing from the UK Chartered Institute of Marketing.
Liberty
David Smith
Dan Walsh has over 30 years’ experience in credit and financial services, having worked in retail banking, risk management, business finance and mortgage broking. Walsh joined the Mortgage & Finance Association of Australia in 2018 as head of education, taking on the role of head of professional development and member engagement in 2023. Since joining the MFAA, Walsh has advanced the development and implementation of the MFAA’s Learning Management System, Competency Framework and Mentoring Standards.
MFAA
Dan Walsh
Source: MFAA Industry Intelligence Service report, 16th edition
More brokers diversifying into commercial
Established in 2011, Finsure has evolved into one of Australia’s largest mortgage broking groups. The core of our business ethos is a desire to provide the strongest value proposition to all our broker partners. This underpins who we are as an organisation, and why we are able to provide the maximum value to those who align with us. We currently have a network of over 3,100 brokers, while our loan book exceeds $100 billion. With an international presence, Finsure is a dynamic, scalable, technology-enabled aggregator that is ahead of the pack and driving broker recruitment through its innovative solutions and breadth of service.
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Jas Fazlic, Finsure
“It appears the jump from commercial to residential presents less challenges and greater opportunities for traditionally commercial brokers. It makes a great deal of sense”
“This depleted runway of cash reserves aligns with the increased interest we’re seeing in our Business Line of Credit,” says Sanz. “As more and more small businesses increasingly require access to funds on demand, whether they’re looking to drive growth or manage ongoing operating challenges, a revolving line of credit is a great solution.”
Commercial property loans are also in demand, driven by a resurgence in commercial real estate investments. Other types of services, such as vehicle finance or self-managed super funds, are gaining traction as brokers seek to offer comprehensive financial solutions to their clients.
“With rising demand from customers, there is an opportunity for brokers to create ongoing relationships with investors and business clients,” says Smith. “Diversifying into the commercial space can help brokers retain clients by removing the need for them to go elsewhere for their business finance.”
According to MFAA data, there were 5,864 mortgage brokers also writing commercial loans in the October 2022–March 2023 period, a decline from the previous six months but the second-highest number to date.
Market conditions and regulatory changes
RAPID RISE IN SMEs CHOOSING NON-BANKS
“As the broker market share of commercial lending increases, so does the need for alternate lending solutions to facilitate purchase, refinance and cash-out activity,” says Wright. “There is already an increased demand for simple Lease Doc solutions and larger loan sizes against single securities without the need for cross-collateralisation.”
Source: ScotPac bi-annual SME Growth Index
Technology plays a pivotal role in facilitating broker diversification. Advanced software and digital platforms enable brokers to manage a broader range of products efficiently. Customer relationship management (CRM) systems, loan origination software and digital marketing tools help brokers streamline processes, maintain client relationships and reach new markets.
“Overall, technology is improving efficiency, and there will be opportunities to further streamline processes in commercial and equipment lending,” says Walsh. “This can free up time for brokers to acquire knowledge and build expertise in new product areas.”
CRMs, in particular, have become essential tools. Fazlic says, “CRMs assist brokers in effectively managing their interactions with both current and potential clients, providing a central repository for storing client information, tracking the status of various loan applications and maintaining ongoing communication.”
Additionally, fintech innovations provide brokers with access to alternative lending products and funding sources, further enhancing their ability to diversify.
Dan Walsh, MFAA
“This variety in product and choice of lender is fantastic for competition; it’s also hard for business owners, particularly small business owners, to research, understand and navigate, so they are using brokers more”
“The frictionless access to education, learning and development has been quietly proving pivotal in giving mortgage brokers an even greater advantage in a dynamic and competitive market,” says Wright.
Brokers can sometimes feel overwhelmed at the prospect of investing time or resources in technology when they are stretched already. But the reality is that dividends can be reaped quickly.
“Our loan process can be completely digital, allowing brokers to quickly identify, realise and convert an opportunity in hours and receive commissions within a week of settlement,” says Sanz.
Popular alternative lending products
The Mortgage & Finance Association of Australia (MFAA) is the leading professional association for the mortgage and finance broking industry with over 15,000 members. MFAA members include mortgage and finance brokers, aggregators, lenders, mortgage managers, mortgage insurers and other suppliers to the mortgage broking industry. Our purpose is to empower our members to prosper and thrive, ensuring Australians benefit from competition and choice.
Find out more
To serve clients well across diverse lending areas, brokers must develop a deep understanding of different financial products and stay abreast of market trends.
“Brokers don’t have to offer all types of lending areas all at once. Brokers can choose specific areas to specialise in initially and gradually expand their knowledge base over time,” says Walsh.
Education and continuous professional development are crucial.
“Ensuring that clients’ needs are met, and that the quality of customer service remains at a high level, requires continuous training, a clear understanding of additional compliance obligations and a support network to help you navigate the inevitable challenges that come on a learning curve,” says Fazlic.
Investing time in gaining an understanding of different lending areas, products and the lenders available, and making connections with people such as BDMs, provides crucial support as brokers get started. By building strong relationships with lenders and industry experts, brokers can also gain valuable insights and support.
“Along with obtaining the necessary accreditations, brokers need to build their own confidence and understanding of the lending areas where they are planning to diversify,” says Smith. “Regardless of the type of product or service, it helps to establish strategic partnerships and work with trusted experts.
“For each Liberty product, we have specialised BDMs, underwriters and support personnel available to offer hands-on guidance to brokers.”
Brokers should leverage training sessions and workshops offered by lenders and industry associations to build their knowledge base.
“Partnering with lenders who offer extensive experience across various lending disciplines can prove crucial,” says Wright.
Garnering new business can be simple once customers are aware that a broker offers a range of services.
“Whether it’s asset finance, cash flow funding or residential mortgages, good service always comes back to knowing your customer,” says Sanz. “We call it being customer obsessed at Prospa. Does your customer know you offer SME lending services? Is there a need for funding, or an opportunity yet to be realised?”
Networking is another vital strategy.
“By establishing and nurturing relationships with a variety of lenders and industry experts, brokers can gain access to an expanded array of products and services,” says Fazlic. “This not only enables them to offer more comprehensive solutions to their clients but also becomes a valuable source of referrals and industry insights. A strong professional network can be the solution to the common problem of having limited product offerings.”
The role of technology
David Smith
Liberty
Dan Walsh
MFAA
David Smith was appointed as Liberty’s chief distribution officer in January 2024. Strategy driven with a customer-first ethos, Smith is responsible for the broader distribution platforms of the Liberty Financial Group, including its business partner relationships. He brings a wealth of knowledge and expertise to the company, having spent over 20 years in the financial services sector. Smith holds a Bachelor of Business (Hons) from Brunel University London and a Postgraduate Diploma in Marketing from the UK Chartered Institute of Marketing.
Liberty
David Smith
Dan Walsh has over 30 years’ experience in credit and financial services, having worked in retail banking, risk management, business finance and mortgage broking. Walsh joined the Mortgage & Finance Association of Australia in 2018 as head of education, taking on the role of head of professional development and member engagement in 2023. Since joining the MFAA, Walsh has advanced the development and implementation of the MFAA’s Learning Management System, Competency Framework and Mentoring Standards.
MFAA
Dan Walsh
David Smith
Liberty
Dan Walsh
MFAA
David Smith was appointed as Liberty’s chief distribution officer in January 2024. Strategy driven with a customer-first ethos, Smith is responsible for the broader distribution platforms of the Liberty Financial Group, including its business partner relationships. He brings a wealth of knowledge and expertise to the company, having spent over 20 years in the financial services sector. Smith holds a Bachelor of Business (Hons) from Brunel University London and a Postgraduate Diploma in Marketing from the UK Chartered Institute of Marketing.
Liberty
David Smith
Dan Walsh has over 30 years’ experience in credit and financial services, having worked in retail banking, risk management, business finance and mortgage broking. Walsh joined the Mortgage & Finance Association of Australia in 2018 as head of education, taking on the role of head of professional development and member engagement in 2023. Since joining the MFAA, Walsh has advanced the development and implementation of the MFAA’s Learning Management System, Competency Framework and Mentoring Standards.
MFAA
Dan Walsh
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Number of brokers
Period
Proportion of total
4,486
27.3%
Oct 2019–Mar 2020
Serving clients across diverse lending areas
Looking ahead, the landscape of broker diversification in the lending industry is expected to evolve significantly over the next few years.
“Continuous learning through education opportunities and building lender relationships will be crucial,” says Walsh. “The MFAA will be holding workshops for mortgage brokers new to commercial broking, and events for brokers experienced in the world of commercial finance to go even deeper in October.”
Indeed, broking is perhaps in the throes of a deeper change in how the industry services customers, especially when it comes to non-bank products and awareness of them.
The latest ScotPac SME Growth Index shows that 52% of SMEs now intend to use a non-bank lender for new investment, and a staggering 90% of SMEs say they are open to the idea of working with a non-bank. This is a major shift from a decade ago when just 7% of SMEs were considering non-bank lenders for their financing needs.
Serving clients across diverse lending areas
Belinda Wright
Thinktank
Number of mortgage brokers also writing commercial loans
27.5%
4,539
Apr 2020–Sep 2020
27.9%
4,727
Oct 2020–Mar 2021
28.8%
5,268
Apr 2021–Sep 2021
28.8%
5,369
Oct 2021–Mar 2022
31.8%
6,118
Apr 2022–Sep 2022
30.1%
5,864
Oct 2022–Mar 2023
“As the broker market share of commercial lending increases, so does the need for alternate lending solutions to facilitate purchase, refinance and cash-out activity”
Belinda Wright, Thinktank
Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance up to $8m and residential-property mortgage finance up to $2m in the Australian self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $11bn of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, which include Full Doc, Mid Doc (alternative income verification), Quick Doc, SMSF loans and Private lending.
Find out more
Future landscape of broker diversification
SMEs intending to fund new growth using non-bank borrowing
60
50
40
30
20
10
Nov 2020
Sep 2018
Nov 2021
Feb 2023
Mar 2024
18.0%
27.4%
28.7%
47.0%
52.0%
“The alternative lending industry has serviced the ‘spot and refer’ model well, but we’re expecting lenders to rise to the demand for an end-to-end broker relationship managed loan model, and speed to be at the core of that service offering,” says Sanz. “With the awareness of alternative lenders rising amongst SMEs, the expectation from customers will be to go to one trusted adviser for all their financial needs.”
Brokers who successfully diversify their offerings will be well positioned to capture new business opportunities and build resilient portfolios.
“Borrower situations are forever changing, and the economy appears to be heading into a period of uneven transition,” says Smith. “By diversifying, brokers can continue to be pivotal in helping a wide range of customers, no matter what happens.”
A greater investment by lenders and third parties in their digital platforms for commercial financing will support improved customer outcomes and efficiencies.
“We know there is an increase in commercial loans being written by brokers, and we believe this market share will continue to increase over the coming years,” says Walsh.
The demand for alternative lending products is likely to remain strong, driven by ongoing economic uncertainty and the need for flexible financial solutions.
“As more Australians turn to mortgage brokers for comprehensive financial services, it is arguably essential for brokers to diversify to stay competitive while boosting income and opening the door to new opportunities,” says Wright.
Belinda Wright has over 20 years’ experience across the banking and financial services sector. She specialises in residential sales, credit and end-to-end home loan processing, with a focus on third party broker channel experience. She also has a background in marketing, commercial and institutional banking. Prior to joining Thinktank, Wright held roles at Westpac Group, ANZ and RAMS.
Thinktank
Belinda Wright
In Partnership with
Belinda Wright
Thinktank
Future landscape of broker diversification
Belinda Wright has over 20 years’ experience across the banking and financial services sector. She specialises in residential sales, credit and end-to-end home loan processing, with a focus on third party broker channel experience. She also has a background in marketing, commercial and institutional banking. Prior to joining Thinktank, Wright held roles at Westpac Group, ANZ and RAMS.
Thinktank
Belinda Wright
Belinda Wright
Thinktank
Serving clients across diverse lending areas
Reverse diversification
Belinda Wright has over 20 years’ experience across the banking and financial services sector. She specialises in residential sales, credit and end-to-end home loan processing, with a focus on third party broker channel experience. She also has a background in marketing, commercial and institutional banking. Prior to joining Thinktank, Wright held roles at Westpac Group, ANZ and RAMS.
Thinktank
Belinda Wright
Looking ahead, the landscape of broker diversification in the lending industry is expected to evolve significantly over the next few years.
“Continuous learning through education opportunities and building lender relationships will be crucial,” says Walsh. “The MFAA will be holding workshops for mortgage brokers new to commercial broking, and events for brokers experienced in the world of commercial finance to go even deeper in October.”
Indeed, broking is perhaps in the throes of a deeper change in how the industry services customers, especially when it comes to non-bank products and awareness of them.
The latest ScotPac SME Growth Index shows that 52% of SMEs now intend to use a non-bank lender for new investment, and a staggering 90% of SMEs say they are open to the idea of working with a non-bank. This is a major shift from a decade ago when just 7% of SMEs were considering non-bank lenders for their financing needs.