To say that commercial has become the new black is very much an understatement. Commercial finance has enjoyed a significant rise in popularity over the past couple of years with more and more introducers taking advantage of a whole new area of growth for their business. Introducers who a year ago wouldn’t even entertain a client looking for commercial business have seen the potential in the new products and services offered by both commercial brokers and lenders. After all, if you can’t offer a client a solution to their commercial needs somebody else will.
Register for 'adviser finder' here
But, what if you don’t take advantage of this new growth area for your business? In today’s market cross selling seems to be the norm, so if you do turn away commercial business and send your client off to the bank or worse another broker how long do you think it will be before they start to sell your client their products? So, by offering commercial you are not only helping them get the right commercial finance but you are safe guarding your client from the perils of cross selling.
Many introducers may be surprised at how the commercial finance market has changed. It’s not that long ago that when you talked about commercial it usually meant a 50 per cent – 60 per cent LTV, rates 5 per cent above bank base, full accounts, business plans, projections, a charge on the main residence and a blood sample. But thanks to some forward thinking lenders, all that has changed.
Rates are competitive, flexible, and with a specialist commercial broker on hand to help with this new area there has never been a better time to take another look at commercial. Your client’s don’t even have to have accounts or a business plan, even if they have credit problems you can still get them a commercial mortgage.
get the daily news delivered to your inbox
To my mind, today’s commercial market is what the residential adverse market was some 10 years ago, a new frontier with more and more lenders coming into the market offering more choice of products and competitive interest rates. Last month alone saw the arrival of CHL into the market. With the arrival of new lenders, existing lenders are being forced to improve products and rates to meet the competition. After all, you can’t stand still for too long. All of these improvements lead to products with more versatility, competitive rates, open minded underwriting which in turn means more clients than ever can qualify for a commercial loan and all of this equals growth.
However, as with all things new it can sometimes seem as if everyone knows something you don’t, ie where do you get commercial clients from? It’s not as difficult as you may think. Every week I will get phone calls from brokers asking me how to get more commercial business? I have heard every conceivable plan and saved people from spending a small fortune, after all it’s easy to get tempted into spending money on advertising, buying leads in or even paying a third party introducer to generate new commercial clients. But does this always work?
Let’s just go back to the basics. Ask yourself a few simple questions. Who needs commercial mortgages? What other services would those same clients use? Who has a lot of self employed clients on their books? Below is a list of useful contacts:
1. Accountants
One of the most obvious areas to get more commercial business from is accountants. Who is the first person commercial clients talk to when they are thinking about buying business premises, their accountant. After all, the accountant looks after their books and will be the one person who can tell them and you for that matter, if they can afford to invest in premises.
Download our news ticker
But caution needs to be applied as many accountants only want to introduce their clients to companies who offer a whole of market proposition – after all they don’t want any come back from a client who has been missold to.
You could even talk to your own accountant?
2. Bank managers
Yep, you heard me. Your local bank manager will have a variety of clients who have approached the bank for finance but for one reason or another been declined. Many bank managers want to be able to offer clients an alternative finance.
Non-conforming commercial finance is on the increase and not as expensive as you may think. Clients who have been turned down by the bank due to no accounts, business plans and only trading for a year can be helped. The bank may have simply turned down the client due to the LTV.
3. Your own client bank
It’s the old adage; if you don’t tell people what you do, how will they know?
register for next forum
It’s true to say we all have a tendency to pigeonhole people and the chances are your clients have pigeonholed you into one area of financial services. Just think of all the self-employed clients you have helped over the years. Do they currently rent their business premises? Do they have existing commercial finance in place which needs to be reviewed? Are they planning a new business venture? Now is the time to tell them you can help.
You may decide to have an extra section added to your website or even just a simple mail shot to clients to tell them of your new service.
Don’t forget your buy-to-let clients, as we know rental yields on buy-to-let properties have dwindled over the years. I myself have seen a growing number of existing buy-to-let landlords look to diversify into new investments opportunities and the favourites seem to be property development/refurbishment and commercial property investments.
However, caution needs to be used as these are the clients to whom introducers need to offer special help. Many buy-to-let landlords need their expectations of these new investment opportunities to be managed. Everyday I find myself having to explain to clients that this is an entirely different market with very different rules, so the money isn’t as cheap as their current borrowing and that they must ensure they don’t over stretch themselves. Only last week I had to explain to an introducers existing buy-to-let client that he couldn’t raise a buy-to-let mortgage on a warehouse that one day he hoped to get planning permission on. The client found it difficult, at first, to understand that there was a difference and that his days of paying interest rates in the region of 5.75 per cent were long gone and no surveyor would be fooled into thinking that a warehouse with industrial use could pass as a buy to let property, even if he did put in a kitchen.
Get the altest equity release news here
So, going back to basics could be the most effective way of generating commercial business and the key to unlocking a new income stream. Also, choosing the right packager is important, after all if you are new to this market you need a company with experience in all areas of commercial mortgages. Furthermore they must have staff who are capable of talking directly with the clients and understanding general commercial and legal issues. Staff who last week were focused on residential business and who are used to quoting you rates and criteria off a computer screen, will not be able to offer you sufficient support on complex commercial cases.
But, a word of warning. Don’t be fooled into thinking that just because commercial falls outside the FSA that there aren’t regulations to be followed. Our own governing body, the NACFB is doing the preparatory work in setting regulation and procedures which will prepare the ground for coming statutory regulation of which will be of a sufficiently high standard to make this unnecessary. The client’s best interest must be paramount at all times.
Download our news ticker
Another myth of commercial is the money earned. Yes there is money to be made but don’t think you will be ordering your Ferrari any time soon. The conversion ratio is far less than in residential, and deals take longer to go through to completion. And if you think a client looking for a loan of £10,000,000 is going to come knocking on your door, forget it – he has his bank for that.
All that said, I do urge you to take a look at commercial as there is more on offer than you may think.
