Specialist lenders are more important than ever for getting finance into the hands of deserving borrowers, yet not all brokers are aware of the options that are out there
Scott makes a killer bagel. So good, in fact, that demand for his doughy delicacies led Scott to realise the untapped potential of his weekend bagel-making hobby. What else to do then but get a business loan and have a go at opening his own bakery, where he could turn his passion into a career?
Unfortunately, Scott is one of many aspiring small-business owners who find it near impossible to secure a loan through the traditional banking channel.
This is where specialist lending comes in. It addresses a genuine issue in the home loan and asset finance spaces: the big banks tend to avoid customers who don’t fit the perfect mould of what they think a borrower should be. This is usually because these customers have unique financial situations, such as being self-employed or lacking a robust credit history.
But this creates opportunities for alternative and non-bank lenders to fill the void by offering products and services to these deserving borrowers.
“In simple terms, specialist lending caters for borrowers who may not meet the strict lending criteria of mainstream lenders and banks,” says Aaron Taylor, head of non-standard lending at Bluestone Home Loans.
“There’s a broad range of borrowers that specialist lenders, like Bluestone Home Loans, cater for, including those who are self-employed or have varied income sources, have an imperfect credit history, need to consolidate debt or are looking to invest using their SMSF.”
It’s true that specialist loans can come with comparatively higher interest rates, but as Taylor points out, specialist lenders also provide access to lending that a mainstream lender such as one of the big four will not. “This means that borrowers don’t need to wait years or miss out on opportunities to purchase the property they want, and if they maintain their mortgage, they can qualify for prime lending in the future,” Taylor says.
Specialist deals are often unique, complex or both, which is why a traditional lender is likely to avoid them. Taylor highlights one case where a borrower, despite having a decent income, was unable to secure a loan due to being self-employed. They also had a mix of debt and complex financial circumstances, making matters worse.
“Our flexible, merit-based approach to lending meant that by focusing on their current situation, strengths and future earning potential, we were able to find a specialist lending solution,” says Taylor. “The result was that the borrower was able to secure the loan they needed, paving the way for them to achieve their property goals.”
Barry Saoud, general manager, mortgage and commercial lending at Pepper Money, believes non-bank lenders are in a unique situation to help these borrowers.
“Unlike banks, non-bank lenders with ‘specialist’ loan options use a more flexible underwriting process to assess each borrower’s unique circumstances, offering tailored loan products that meet their specific needs,” Saoud says.
“Whether you call it non-conforming, alternative or specialist lending, these are all just different ways to describe borrowers’ circumstances that don’t tick the bank’s boxes.”
Making dreams happen
In Scott’s case, he managed to secure funding for his bagel business through non-bank lender Prospa.
Roberto Sanz, Prospa’s general manager of sales and partnerships, tells MPA how, with Prospa’s financial backing, Scott “managed the hospitality industry’s seasonal peaks and troughs and turned his passion into a flourishing business”.
Sanz teed Scott up with a Prospa Small Business Loan and a Prospa Line of Credit, which solved Scott’s cash flow problems and allowed him to secure:
- new equipment to legitimately commercialise his business
- additional staff to scale the business and match demand
- security in the form of additional product to manage seasonal peaks and troughs
“Through flexible, fast finance solutions, Scott has gotten his business off the ground and adapted to meet the evolving demand,” says Sanz. Today, Scott is hawking what he reckons are “the best bagels this side of New York” out of the Black Market Bagels bakery in Port Macquarie.
Saoud describes another situation where a customer was in arrears on her mortgage. Mia had recently opened her own business, and to cover start-up costs she used a business overdraft secured by her home. She was also waiting for an insurance claim to clear due to a car accident, which caused a loss of income.
“While she experienced a real-life event that impacted her income, Mia has turned things around and is back on the road.”
The human touch
Regardless of the customer, “every situation is unique”, says Grant Smith, deputy chief lending officer at ORDE Financial. “We take the time to understand the lived, human story behind each individual application, which can be complex and is always distinct.” To illustrate this, Smith describes a situation where the borrowers were a married couple, with no dependants, who were looking for a solution to help them refinance their current home loan and consolidate 10 other personal debts, all with varying conduct issues. Both applicants had been working at the same restaurant, which closed its doors in late 2019, leading to a loss of their long-term employment.
“From this moment, they were stretched thin, taking out multiple loans to help them get by,” Smith says. “Both applicants struggled to find new employment over this time – understandable when we consider the timing with COVID-19 and the industry of both applicants. “Today, both applicants are full-time PAYG employed. ORDE was able to help them consolidate all their debts in one manageable repayment that was lower than their previous monthly repayments.”
Common challenges for brokers
Taylor highlights two prominent challenges brokers face when dealing with specialist lending scenarios. The first, “and maybe the most important for the success of their own business”, is that brokers are often unaware of the alternatives that are out there.
“It’s important for the broker to make sure they’re providing all of the info required up front for fast assessment. At Bluestone Home Loans, deals that are well prepared can be assessed in as little as one business day.”
Sanz says, “The biggest challenge we’ve observed is often for brokers to take that initial step into the alternative lending space. When you possess strong expertise in a specific area where demand is high, it can feel like a step back when diversifying into alternative lending options.”
For this reason, Prospa has invested significant resources into Prospa IQ, a tool that helps brokers quickly answer questions regarding approvals, interest rates and document accreditation.
“If brokers are willing to engage in a bit of upskilling and utilise tools like IQ, they will not only unlock the SME business market but also build trust with their existing clients,” says Sanz.
Saoud warns brokers of common misconceptions in the specialist lending space.
Firstly, they often see non-bank specialist loans as just a short-term fix. “It’s just not the case,” he says. “We can and do work with brokers to reassess their clients’ rate and overall position as their situation changes to give them options across a lifetime of lending needs.”
Secondly, Saoud says brokers often think specialist lending is too difficult. “Our research tells us that some brokers put non-conforming and specialist lending in the ‘too-hard basket’. But as soon as they give it a try, they realise how big an opportunity it is. And the reality is that we have made it easier than ever.
“If you haven’t done it, try us. Don’t assume you know where the non-bank boundaries are either – we are constantly evolving our poli- cies to adapt with the market and your clients’ changing needs.”
Smith warns that specialist lending “is not a tick-box exercise”. Rather, “it often requires going much deeper into a customer’s situa- tion and additional support to structure an application”. He says you need “a skilled and empathetic team” to deliver the right answers and gain the customer’s trust.
A challenge for brokers is that it can often be difficult to speak to a credit assessor who understands this space well and can have a commercial conversation about a solution,” Smith adds.
A broker-led evolution
Speaking to these specialist lending experts, one thing becomes clear: brokers play a crit- ical role in the evolution of the sector.
“The biggest opportunity in the space is for the wider broker community,” says Sanz, who believes that brokers are “uniquely positioned to help SMEs and sole traders navigate challenges by providing strategies to build financial resilience and seize growth opportunities”. More than just an opportunity, it’s also an expectation of brokers, “as we are seeing more clients expect consultation from their brokers”, adds Sanz. “And we think the broker industry is ready to meet that expectation in 2025.”
“If there’s one word that sums up why brokers should include specialist lending in their customer offering, it’s ‘flexibility’,” says Saoud. “This flexibility is even more important now as Australians face a major squeeze on their household budgets.”
Saoud warns that, following a bruising period of inflation and high interest rates (which mercifully began ticking lower in February), borrowers could face missing payments across the next six to 12 months.
“This presents a massive opportunity for brokers to get familiar with non-bank options, particularly across the near prime and specialist options that we have to offer.
From the growing self-employed market to people with different types of income. It can be as broad as those recovering after a life event to customers building a property portfolio; the need for alternative and specialist lending will continue to grow and build momentum.”
“We have seen an increase in ATO debt consolidation,” says Taylor. “ATO debt can have a massive impact on serviceability, and again these can be really worthy borrowers who don’t need to be missing out on real estate opportunities.”
To make matters even worse for atypical borrowers, the unstoppable rise of artificial intelligence in the finance space will only result in more banks rejecting deserving customers.
The increasing use of AI in credit assessment is leading to a model where everyone’s history is a data point,” says Smith. “It takes time and skill to be able to navigate the in-between areas and discover the true human story.
“However, it also takes a lot of time to build the skilled credit team capable of making that assessment.”
