Thinking about expanding your offering? MPA takes an in-depth look at how to diversify into asset and equipment finance.
One of the biggest differences between residential and commercial clients is about tempo. While residential clients refinance properties, and property investors may buy more often, these clients are rarely involved in regular transactions multiple times a year. Commercial clients, on the other hand, may need to purchase equipment on a regular basis, providing a long-term revenue stream for brokers and a great chance to build a long-term relationship.
While residential and commercial property transactions are relatively similar, dealing with equipment, especially specialised commercial equipment, can be daunting. That’s why we’ve brought together expertise from specialist equipment and asset finance provider NLG Leasing, the commercial team at Westpac Bank, and experienced brokers at Macquarie Commercial Finance. They’ll run through the easy routes into equipment and asset finance, through supported and spot-and-refer models, to the process of making it a central part of your business.
This article is less concerned with marketing. The types of clients who might want asset finance are the same clients discussed in the other articles in this supplement: self-employed people, SMEs, and of course your existing database of residential borrowers who may need a loan for a car. We’d advise you to glance over these other articles to find out how to access equipment and asset finance clients.
Clients and assets
Equipment and asset finance is a very broad area: as NLG Leasing’s director of aggregation services Frank Crombie explains, “you could be looking at $50,000 for motor vehicle finance or $1,100,000 for a hydraulic rig – and everything in between”. It also involves several different client groups. The most obvious distinction, highlighted by Crombie, is between private and commercial clients.
While the focus of this article is primarily on commercial finance, as with the other areas discussed in this supplement there’s a great deal of crossover with business owners using brokers for private purposes. Motor vehicle finance is key here: NLG claims its portfolio indicates that 60% of people purchase a motor vehicle within six months of their home loan settlement; furthermore, motor vehicle finance makes up approximately 50% of the asset and equipment loans it writes. Crombie believes Gen Y clients are particularly interested in alternative ways of funding their purchases, and brokers should take notice because “relationships secured with first-car financing often morphed into fulfilling mortgage requirements down the track”.
John Encica and Tim Lowe started Macquarie Commercial Finance 21 years ago in Sydney as a specialised equipment finance brokerage, and since then have mainly dealt with SMEs and corporates.
“We service a wide range of industries,” they told MPA, “including earth-moving/excavation, transport trucks, hospitality and restaurant fit-outs, manufacturing, film and TV production equipment.”
As Encica and Lowe’s list indicates, equipment finance is not confined to the heavy equipment typically connected with blue-collar professions. Both Macquarie Commercial and NLG Leasing also provide finance for computers and office technology. Equipment finance appeals to a broader range of industries because it allows them to reallocate funds and avoid using more expensive forms of financing.
“It helps customers in not tying up working capital via an overdraft, line of credit, home loan, or even cash to purchase working assets,” explains Greg Pell, national manager of Westpac’s Equipment Finance and Commercial Introducers division.
In terms of the assets themselves, each of our commentators had a range of examples. At Macquarie Commercial Finance, cars, trucks, excavators, office and restaurant fit-outs, film and TV cameras and lighting equipment were all ‘on the menu’ for refinancing. NLG Leasing has funded these types of assets, as well as IT infrastructure and restaurant and hospitality goods, not to mention a range of recreational assets for private clients. The typical assets Westpac funds are cars, light commercial vehicles and ‘yellow goods’: earth-moving equipment, material handling equipment (forklifts, etc) and tractors.
.JPG)
CASE STUDY: PLUMBER NEEDS SOME TOOLS
A broker approached NLG Leasing about their client – an established sole contractor plumber in South Melbourne. He wanted to purchase trade materials and hire an apprentice but was struggling with prioritising between the two due to cash flow.
By structuring the acquisition of materials through a lease – at a value of $18,000 – the plumber was able to both purchase the goods needed to expand his business and redirect funds to hire to a new apprentice.
The turnaround was three business days. As the deal was under $55,000, and the owner was asset-backed with clear credit and had been in business for more than two years, no financials were required.
Acquisition of tools enabled business expansion – quickly. The reallocation of cash flow increased the business’s workforce and capabilities. The lease was structured to enable ownership of the assets at the end of the five-year term.
(Kindly supplied by NLG Leasing)
The application process
Chances are you’re not an expert in tractors or forklifts, let alone lighting equipment. Without industry experience it’s near impossible for the broker to initially understand all the various types of commercial equipment out there. That’s why many brokers take their first steps into commercial finance through a spot-and-refer model. NLG Leasing offers a spot-and-refer model whereby brokers simply need to get permission from their customers to supply a name and phone number, and receive a ‘spot fee’. The advantage of this approach, notes Crombie, is that the customer will be serviced by “experienced and fully qualified finance specialists who understand the issues that can arise and what’s at stake for the broker – customer retention and satisfaction”.
Of course the best way to guarantee your customers excellent service is to control more of the process yourself. If you’re looking to go beyond the spot-and-refer approach, both NLG Leasing and Westpac have partially supported online portals. Pell talked MPA through Westpac’s DriveOnline platform, which allows brokers to get quotes and submit documents required for an equipment finance option. The broker is assisted in their application by smart technology, Pell explains. “DriveOnline also has the capability to pre-populate ABN/ACN customer information from ASIC, an electronic privacy function, and communication with Veda to provide a much quicker turnaround for the customer,” he says.
NLG Leasing’s online system provides an overview of lenders who might suit a particular deal. “This online portal and quoting tool filters products and lenders based on the loan structure, term, age and type of goods sought,” Crombie explains. “The broker remains the customer point of contact and is supported throughout the process by a team of experienced specialists that provide the vetting, lodgement, document generation and settlement functions.”
Some brokers want to “earn as they learn”, as Crombie puts it, and so NLG can keep those brokers updated through every stage of a deal. As with many other lenders featured in this supplement, NLG encourages brokers to call them and run through a scenario prior to starting an application, so they can advise on feasibility and conditions that will need to be met before the broker embarks on the application process.
While assisted application systems have enormous benefits for brokers, they can’t be used for all deals. According to Westpac’s Pell, DriveOnline “enables brokers to do loans up to $250k for cars, light commercials and other eligible wheeled assets, and conditions and eligibility criteria apply”. The advantage of these criteria is a quick turnaround. Westpac says it undertakes approvals within two hours and settlements “also within two hours”.
Turnaround times certainly vary in this sector: when we talked to Encica and Lowe at Macquarie Commercial Finance they told us that “normal turnaround times are 24–48 hours”. This increases as the value of the loan rises, and also depends on the nature of the assets themselves. “For deals over $200–500k, turnaround times can be three to five days, depending on the deal complexity,” they say. “Over $500k can take longer as they are assessed at a higher credit level and more people are involved in the process.”
What you need to know
As with all types of finance, having the right conversations upfront with the customer can help speed things up at the back end. “We expect brokers to know as much [as possible] about the customer and the transaction,” explains Westpac equipment finance boss Pell. Much of this information will be familiar to brokers: “Do they have a good credit history? What is their record like with financial institutions? Does the transaction make sense in terms your knowledge of clients’ ability to pay commitments?”
However, like other areas of commercial finance, an understanding of the client’s business model – ie why they’ll be able to pay back the money – is vital when making their case to lenders. In the case of equipment purchases, it also helps to know where the client is purchasing and whether, as Pell notes, the supplier is a licensed dealer or recognised supplier in the space. The client will have done much of this thinking prior to seeing a broker, but it’s still important to run through the goods being purchased, the price, options, supplier and age (if applicable). NGL Leasing’s Crombie advises brokers to also take a long-term view and ask the client “how long they intend to hold the goods, about early repayment options, budget, etc, which will all determine the appropriate product and lender”.
Brokers also need to consider regulation in the equipment and asset finance space. The nature of regulation depends on whether the client is a business or private customer. In the latter case, Crombie explains, “there are no regulatory or procedural differences between asset finance and residential mortgages; the
.JPG)
CASE STUDY: FINANCING A FORKLIFT
Brokers also need to consider regulation in the equipment and asset finance space. The nature of regulation depends on whether the client is a business or private customer. In the latter case, Crombie explains, “there are no regulatory or procedural differences between asset finance and residential mortgages; the same NCCP requirements apply to asset finance for consumer loans. Similarly, responsible lending, suitability and servicing are all standard requirements for residential home loans and for motor and recreational vehicles”.
Commercial clients don’t come under the NCCP Act, but brokers will still need to be accredited with the lender. Pell told MPA about Westpac’s conditions for accreditation: “Westpac’s accreditation and processes are governed very similar to that of mortgage brokers; an example of this is that accredited brokers must be associated with MFAA, FBAA or CAFBA, have a satisfactory police report and be covered by professional indemnity insurance.”
Gaining a broader understanding
With spot-and-refer models, assisted application processes, and ‘easy’ asset finance options such as for cars, the barriers to entry to this sector are relatively low. However, beyond the easy options there is a long learning curve for brokers in the asset finance space, and brokers will need to learn about the industries they’re dealing with.
“Industry knowledge is essential to be able to prepare better credit proposals,” Macquarie’s Encica and Lowe told MPA. “The more the bank understands the nature and cycles of the business and industry it is lending to, the greater comfort they have.”
The best way to learn about an industry is to work with it over several transactions, but there are ways that brokers can speed up this process. Most industries will have some sort of association – an equivalent of the MFAA or FBAA – which will often have reports about the industry freely available on its website. Local business associations also provide the opportunity to meet professionals from other industries who could be potential clients.
An increasing amount of dedicated asset and equipment finance training is also available to brokers. In late 2015 the MFAA, in conjunction with ANZ and FAST, launched a program for brokers who wanted to ‘future-proof’ their businesses through asset and equipment finance. It has two modules for beginners and intermediates, and is taught through online courses covering the market, products and services, and business practices. A ‘masterclass’ event is set to be launched this year, which will enable brokers to learn from top performers in the commercial lending space. FAST has also unveiled a scholarship program as part of its sponsorship of the course.
Next steps
For those brokers who want to make equipment and asset finance a regular source of business, we’ll defer to the advice of Macquarie Commercial Finance brokers Encica and Lowe. “Take your time to understand the nature of equipment finance, do your homework, ask questions and get trained,” they say. “Partner with an experienced broker and start off referring deals to understand the process. Don’t try to do everything; just do one thing really well, ie cars, then build off that. Look at your client base and ask existing clients what their equipment finance needs might be in the next 12 months, and get prepared to meet those as best you can.”
While residential and commercial property transactions are relatively similar, dealing with equipment, especially specialised commercial equipment, can be daunting. That’s why we’ve brought together expertise from specialist equipment and asset finance provider NLG Leasing, the commercial team at Westpac Bank, and experienced brokers at Macquarie Commercial Finance. They’ll run through the easy routes into equipment and asset finance, through supported and spot-and-refer models, to the process of making it a central part of your business.
This article is less concerned with marketing. The types of clients who might want asset finance are the same clients discussed in the other articles in this supplement: self-employed people, SMEs, and of course your existing database of residential borrowers who may need a loan for a car. We’d advise you to glance over these other articles to find out how to access equipment and asset finance clients.
Clients and assets
Equipment and asset finance is a very broad area: as NLG Leasing’s director of aggregation services Frank Crombie explains, “you could be looking at $50,000 for motor vehicle finance or $1,100,000 for a hydraulic rig – and everything in between”. It also involves several different client groups. The most obvious distinction, highlighted by Crombie, is between private and commercial clients.
While the focus of this article is primarily on commercial finance, as with the other areas discussed in this supplement there’s a great deal of crossover with business owners using brokers for private purposes. Motor vehicle finance is key here: NLG claims its portfolio indicates that 60% of people purchase a motor vehicle within six months of their home loan settlement; furthermore, motor vehicle finance makes up approximately 50% of the asset and equipment loans it writes. Crombie believes Gen Y clients are particularly interested in alternative ways of funding their purchases, and brokers should take notice because “relationships secured with first-car financing often morphed into fulfilling mortgage requirements down the track”.
John Encica and Tim Lowe started Macquarie Commercial Finance 21 years ago in Sydney as a specialised equipment finance brokerage, and since then have mainly dealt with SMEs and corporates.
“We service a wide range of industries,” they told MPA, “including earth-moving/excavation, transport trucks, hospitality and restaurant fit-outs, manufacturing, film and TV production equipment.”
As Encica and Lowe’s list indicates, equipment finance is not confined to the heavy equipment typically connected with blue-collar professions. Both Macquarie Commercial and NLG Leasing also provide finance for computers and office technology. Equipment finance appeals to a broader range of industries because it allows them to reallocate funds and avoid using more expensive forms of financing.
“It helps customers in not tying up working capital via an overdraft, line of credit, home loan, or even cash to purchase working assets,” explains Greg Pell, national manager of Westpac’s Equipment Finance and Commercial Introducers division.
In terms of the assets themselves, each of our commentators had a range of examples. At Macquarie Commercial Finance, cars, trucks, excavators, office and restaurant fit-outs, film and TV cameras and lighting equipment were all ‘on the menu’ for refinancing. NLG Leasing has funded these types of assets, as well as IT infrastructure and restaurant and hospitality goods, not to mention a range of recreational assets for private clients. The typical assets Westpac funds are cars, light commercial vehicles and ‘yellow goods’: earth-moving equipment, material handling equipment (forklifts, etc) and tractors.
CASE STUDY: PLUMBER NEEDS SOME TOOLS
A broker approached NLG Leasing about their client – an established sole contractor plumber in South Melbourne. He wanted to purchase trade materials and hire an apprentice but was struggling with prioritising between the two due to cash flow.
By structuring the acquisition of materials through a lease – at a value of $18,000 – the plumber was able to both purchase the goods needed to expand his business and redirect funds to hire to a new apprentice.
The turnaround was three business days. As the deal was under $55,000, and the owner was asset-backed with clear credit and had been in business for more than two years, no financials were required.
Acquisition of tools enabled business expansion – quickly. The reallocation of cash flow increased the business’s workforce and capabilities. The lease was structured to enable ownership of the assets at the end of the five-year term.
(Kindly supplied by NLG Leasing)
The application process
Chances are you’re not an expert in tractors or forklifts, let alone lighting equipment. Without industry experience it’s near impossible for the broker to initially understand all the various types of commercial equipment out there. That’s why many brokers take their first steps into commercial finance through a spot-and-refer model. NLG Leasing offers a spot-and-refer model whereby brokers simply need to get permission from their customers to supply a name and phone number, and receive a ‘spot fee’. The advantage of this approach, notes Crombie, is that the customer will be serviced by “experienced and fully qualified finance specialists who understand the issues that can arise and what’s at stake for the broker – customer retention and satisfaction”.
Of course the best way to guarantee your customers excellent service is to control more of the process yourself. If you’re looking to go beyond the spot-and-refer approach, both NLG Leasing and Westpac have partially supported online portals. Pell talked MPA through Westpac’s DriveOnline platform, which allows brokers to get quotes and submit documents required for an equipment finance option. The broker is assisted in their application by smart technology, Pell explains. “DriveOnline also has the capability to pre-populate ABN/ACN customer information from ASIC, an electronic privacy function, and communication with Veda to provide a much quicker turnaround for the customer,” he says.
NLG Leasing’s online system provides an overview of lenders who might suit a particular deal. “This online portal and quoting tool filters products and lenders based on the loan structure, term, age and type of goods sought,” Crombie explains. “The broker remains the customer point of contact and is supported throughout the process by a team of experienced specialists that provide the vetting, lodgement, document generation and settlement functions.”
Some brokers want to “earn as they learn”, as Crombie puts it, and so NLG can keep those brokers updated through every stage of a deal. As with many other lenders featured in this supplement, NLG encourages brokers to call them and run through a scenario prior to starting an application, so they can advise on feasibility and conditions that will need to be met before the broker embarks on the application process.
While assisted application systems have enormous benefits for brokers, they can’t be used for all deals. According to Westpac’s Pell, DriveOnline “enables brokers to do loans up to $250k for cars, light commercials and other eligible wheeled assets, and conditions and eligibility criteria apply”. The advantage of these criteria is a quick turnaround. Westpac says it undertakes approvals within two hours and settlements “also within two hours”.
Turnaround times certainly vary in this sector: when we talked to Encica and Lowe at Macquarie Commercial Finance they told us that “normal turnaround times are 24–48 hours”. This increases as the value of the loan rises, and also depends on the nature of the assets themselves. “For deals over $200–500k, turnaround times can be three to five days, depending on the deal complexity,” they say. “Over $500k can take longer as they are assessed at a higher credit level and more people are involved in the process.”
What you need to know
As with all types of finance, having the right conversations upfront with the customer can help speed things up at the back end. “We expect brokers to know as much [as possible] about the customer and the transaction,” explains Westpac equipment finance boss Pell. Much of this information will be familiar to brokers: “Do they have a good credit history? What is their record like with financial institutions? Does the transaction make sense in terms your knowledge of clients’ ability to pay commitments?”
However, like other areas of commercial finance, an understanding of the client’s business model – ie why they’ll be able to pay back the money – is vital when making their case to lenders. In the case of equipment purchases, it also helps to know where the client is purchasing and whether, as Pell notes, the supplier is a licensed dealer or recognised supplier in the space. The client will have done much of this thinking prior to seeing a broker, but it’s still important to run through the goods being purchased, the price, options, supplier and age (if applicable). NGL Leasing’s Crombie advises brokers to also take a long-term view and ask the client “how long they intend to hold the goods, about early repayment options, budget, etc, which will all determine the appropriate product and lender”.
Brokers also need to consider regulation in the equipment and asset finance space. The nature of regulation depends on whether the client is a business or private customer. In the latter case, Crombie explains, “there are no regulatory or procedural differences between asset finance and residential mortgages; the
CASE STUDY: FINANCING A FORKLIFT
Brokers also need to consider regulation in the equipment and asset finance space. The nature of regulation depends on whether the client is a business or private customer. In the latter case, Crombie explains, “there are no regulatory or procedural differences between asset finance and residential mortgages; the same NCCP requirements apply to asset finance for consumer loans. Similarly, responsible lending, suitability and servicing are all standard requirements for residential home loans and for motor and recreational vehicles”.
Commercial clients don’t come under the NCCP Act, but brokers will still need to be accredited with the lender. Pell told MPA about Westpac’s conditions for accreditation: “Westpac’s accreditation and processes are governed very similar to that of mortgage brokers; an example of this is that accredited brokers must be associated with MFAA, FBAA or CAFBA, have a satisfactory police report and be covered by professional indemnity insurance.”
Gaining a broader understanding
With spot-and-refer models, assisted application processes, and ‘easy’ asset finance options such as for cars, the barriers to entry to this sector are relatively low. However, beyond the easy options there is a long learning curve for brokers in the asset finance space, and brokers will need to learn about the industries they’re dealing with.
“Industry knowledge is essential to be able to prepare better credit proposals,” Macquarie’s Encica and Lowe told MPA. “The more the bank understands the nature and cycles of the business and industry it is lending to, the greater comfort they have.”
The best way to learn about an industry is to work with it over several transactions, but there are ways that brokers can speed up this process. Most industries will have some sort of association – an equivalent of the MFAA or FBAA – which will often have reports about the industry freely available on its website. Local business associations also provide the opportunity to meet professionals from other industries who could be potential clients.
An increasing amount of dedicated asset and equipment finance training is also available to brokers. In late 2015 the MFAA, in conjunction with ANZ and FAST, launched a program for brokers who wanted to ‘future-proof’ their businesses through asset and equipment finance. It has two modules for beginners and intermediates, and is taught through online courses covering the market, products and services, and business practices. A ‘masterclass’ event is set to be launched this year, which will enable brokers to learn from top performers in the commercial lending space. FAST has also unveiled a scholarship program as part of its sponsorship of the course.
Next steps
For those brokers who want to make equipment and asset finance a regular source of business, we’ll defer to the advice of Macquarie Commercial Finance brokers Encica and Lowe. “Take your time to understand the nature of equipment finance, do your homework, ask questions and get trained,” they say. “Partner with an experienced broker and start off referring deals to understand the process. Don’t try to do everything; just do one thing really well, ie cars, then build off that. Look at your client base and ask existing clients what their equipment finance needs might be in the next 12 months, and get prepared to meet those as best you can.”
