'The type of person you're dealing with is usually the type of business that you're dealing with'
Filling in the gaps is of paramount concern for Brent Starrenburg (pictured), head Connective Asset Finance.
As consumer trends evolve and become more sophisticated, major aggregators like Connective must continually take stock of their lender panels to make sure brokers’ needs are being met.
Holding true to that ethos, Connective recently added private lender Aquamore to the panel with the explicit intent of bolstering brokers’ access to commercial finance.
The addition of Aquamore, a rising star in private lending, was particularly beneficial to brokers working in the fields of commercial property acquisitions, debt consolidation and rapid refinancing.
Speaking with MPA, Starrenburg said that change is often led by brokers constantly bringing new ideas to the table that require unique funding solutions.
“We'll support and try to help you find a solution to (these scenarios), and if we can't find a solution, then that’s identifying a gap,” said Starrenburg. “Each aggregator would do this differently, but for me it's looking at what's currently serviced on your panel with the existing lenders and looking at where the gaps are.”
Given its pedigree within the mortgage finance sector, Connective is hardly lacking in eager prospective lenders seeking panel admission.
“You get your door knocked every five seconds by a new one that wants to get on the panel,” said Starrenburg. “It’s a volume game, after all, and lenders want to get distribution – precisely what the aggregator is there for. But you’ve got to make sure that they fit that gap and service that need.”
Starrenburg explained that it is essential to determine if the lender can support the broker network given the influx of new business that comes with being a Connective panellist.
“If you're a boutique aggregator, you might not have a huge member base,” he said. “But if you're as big as the likes of Connective or some of the other big players out there, you open that floodgates.
“So can they ensure that there's a service proposition at the other end of it? Can they ensure that they're going to be around for the long term, not the short term?”
Stepping stones
When it comes to making panel appointments, “we try to ensure that they are an ethical lender, that they are doing things the right way, that they come to the party with the right mindset”, said Starrenburg.
For want of a better word, it’s imperative that the lender is not going to “shaft to the customer in some ways”.
Not unlike any other profession, having a good eye for character in mortgage finance goes a long way too, “as the type of person you're dealing with is usually the type of business that you're dealing with”.
Aquamore’s addition to the Connective panel spoke to the rising prominence of private lenders in the commercial finance space, itself a result of the Big Four banks tightening their credit policies.
“With the ebbs and flows of rates and cost of goods and cost of living and everything else, it's getting harder for some of these people that want to do developments or land banking or whatever else it might be in the commercial space, to get it through some of the Big Four, or big five if you include Macquarie,” Starrenburg said.
However, Starrenburg made the point that private credit should be seen as a “solution lend”. In other words, private credit is a stepping stone to one of the banking majors for borrowers who don’t quite fit the mould yet.
“Private capital is more expensive typically than institutional funding (but) they will still fill the gap and they'll do what they need to do to get yourself off and running,” said Starrenburg. “At the end of two or three years, you can then move to a Big Four, and that's where I see the need for private capital – it isn't the end solution, it is the stepping stone to the end solution.”
But is that how private lenders see themselves? “I think the smart ones do, yes,” Starrenburg said. “Because if you're a private capital fund, it's all about the ROI (return on investment). You've got investors at the other end of that that want their money and they don't want to be sitting on it for 30-odd years.”
Doing your DD
When discussing the benefits of private credit, flexibility and easier access to funding invariably emerge as the killer apps.
As for the downsides, while higher interest is a generally accepted trade off, brokers should also be cognizant of the deeper risks associated with unregulated, private lending.
With potentially more than 200 private funders out there (by Starrenburg’s estimates) and no regulatory recourse when things go south, it pays to be sceptical.
“Not all private capital funders are created equally. So you've got to do your due diligence if you are going to use one that isn't on an aggregation panel,” said Starrenburg.
“We’re here to ensure to the best of our ability that that lender is here for the long term, not short term, does everything in a proper ethical way, isn't trying to try and pull the wool over anyone's eyes, and does what you expect of a private capital lender.
“And if you are going to run the gauntlet and go outside that, that's fine. But then understand the term sheets, understand the contract. Make sure that that private funder isn't actually setting the client up for failure because there is still the risk, unfortunately, of predatory lending.”
For Starrenburg, a private lender with at least six or seven years of a track record is a good place to start. “You don't get to be around that long by doing the wrong thing by people.”
