The inconvenient truth about diversifying

With the focus on encouraging diversification, and the need for more commercial brokers, there are some key next steps brokers should take, writes Chris Slack

Finance brokers are facing new challenges and headwinds, none of which are ‘royal’ and rhyme with ‘pain’ but can still be seen as collateral damage.

Firstly, some lenders are questioning their ownership of broking groups, while other broking groups are looking to merge and vertically integrate with their own funds.

Secondly, some lenders are starting to see their commercial lending being infl uenced by more rigorous requirements on the consumer side of what they do; others are jumping on board and hoping they’ll be seen as part of the diversification ride to renewed prosperity.

For years, aggregators have been preaching that diversification is the new black; now it’s mission critical for many to be able to survive and thrive.

Consumers and SMEs still need lending, arguably more than ever.

Banks have been more selective about their business credit and are more comfortable with partnering or staying behind the scenes to offer higher-risk (and higher interest rate) lending.

So the need for more brokers across commercial lending is obvious. Which leads to the how. ‘How’ is a concern that threatens to question the value proposition of every lender, aggregator and association across the country. 

The truth is that there are some serious challenges for all parties in upskilling.

  • Who is responsible?
  • Do we need higher qualifications?
  •  Can lenders adequately handle the enquiry levels from those new to industry or at least new to commercial lending?
  •  To what extent will someone be taught?
  • How does this work with the mentoring and training that is already delivered?
  • And the big one: who is paying for it?

From any lender’s point of view, there is a genuine need to ensure a minimal level of ability, which has in the past been more about who you know and how long you’ve been around. But the messaging is all about how easy it can be to diversify and increase revenue.

The number one reason a broker doesn’t diversify is that they don’t feel confident and don’t want to jeopardise their relationship with clients while still learning. That won’t change with any piece of paper.

The need for brokers to be commercially educated is tempered by the fact that those presenting are those prepared to pay to speak, regardless of the benefits of their product or lack thereof. This is largely the reason for the growth in unsecured cash flow lenders and private lenders among rank-and-file brokers, while their costs and terms are being normalised across the broker community.

The quickest way to an extension of the additional requirements for consumer lending into commercial lending is to get thousands of brokers with limited product knowledge to promote products that have the potential to cripple a small business owner who signs on the dotted line without looking at the fine print.

It must be acknowledged that the level of focus, training and development opportunities in the commercial space across all lenders, aggregators and associations is phenomenal compared to what it once was. But from here on, it’s up to brokers to take the next steps:

  • Do not limit your education or experience to what is free, to one aggregator, one piece of paper or one association. Invest in yourself.
  • Partner on a few transactions with someone more experienced. Whether that person writes the transaction for you or not, ensure you are across all elements to put yourself in a better position next time.
  • Engage with your BDMs! They are a great source of product knowledge and market intelligence. In particular, in trade and debtor finance you’ll be amazed at how much work they put in on your behalf.
  • A lot of the training touches on the offerings of single lenders, but it’s important to look at the product range (development fi nance, private lending, trade and debtor fi nance, equip ment finance, etc.) in more detail across multiple lenders.

 

Chris Slack is director of The Finance Consultancy. He was previously a national account manager for Platform and managed Count Financial Group’s asset finance business.