Picking up another broker’s bad deal is a challenge in itself, but when the self-employed client is also about to change jobs, the situation becomes far more complicated. Launch Finance director and finance manager Steve Milligan explains
It’s an increasingly common situation: a client who requires a broker with residential and commercial lending experience is referred to a broker with only residential experience.
In terms of customer outcomes, these situations cause poor results, potential delays and additional costs for the client, not to mention an even bigger headache for the broker who is eventually drafted in to fix things – in this instance, me.
These particular clients emigrated to Australia 20 years ago and have been self-employed since they arrived. Clear self-starters with respectable earning capacity, they were looking to buy their “forever house”, the place they could really lay down roots and prepare for the next phase of their lives down under.
The male applicant was a partner in a firm and responsible for bringing in far more income than his shareholding percentage was returning. As a result, he decided to sell his stake in the business and go out alone. However, he was going to be dealing with mostly the same clients and referrers in the same industry he had always worked in.
Despite the continuity, this is where the problems began. Because the applicant had gone out alone and started a new company for the new business venture, he was considered a start-up.
The client was referred to a broker with no commercial experience who submitted the first application through a normal residential lender. Inevitably, the application was declined. The broker then came up with another option that was going to cost $9,000 in fees and would land the couple with an interest rate of 9.24%. Regardless of the figures, the clients were on the verge of accepting.
During the process of assessing who to lodge the next application with, it was suggested the client get a second opinion, which was when one of their friends referred them to Launch Finance.
We had initial discussions about their situation and requirements, during which it became clear that these had to be assessed through a commercial lender. We then did an extensive fact-find, including cash flow forecasts, business planning and liaising with the client’s accountant on interim figures to date.
Residential lenders look at historic income for self-employed applicants, but commercial lenders can sometimes fund a loan based on forecast income – this was clearly their strongest and lowest-cost option.
The new business meant the clients had additional finance requirements that they had been funding through their personal cash flow, so we also managed to build this into the deal.
The key thing to remember in a situation like this is that brokers need to know lending policies inside out. It often isn’t enough to simply stick with the same major lenders or the same types of deals – it’s bad for customers and it’s bad for business.
To get this deal over the line I drew on years of knowledge, as well as my experiences of similar deals, to be able to get the result we were all hoping for.
That said, it wasn’t all easy. New developments in lending policies and bank scrutiny made it a fairly long process, a trend that’s here to stay given the increasing complexity of the lending environment currently.
However, with perseverance and specialist knowledge of the market, we got the desired outcome in the end and the clients now live – and work – in their dream home.
Director and finance manager, Launch Financegoing