The business builders

by Melanie Mingas08 Oct 2019

Supporting mortgage brokers to reach beyond resi, FAST has added a new alternative lender to its panel, OnDeck Australia. CEOs Brendan Wright and Cameron Poolman explain why it’s a match made in heaven for SME clients

If one buzzword has dominated 2019, it’s diversification.

From customer bases to team composition and the range of services offered, business is anything but usual. But it isn’t just brokers stepping into new territory – lenders and aggregators are hot on their heels, too.

In a roundabout way, the trend can be linked to the royal commission and the large number of mortgage brokers wanting to diversify their specialisation – and income.

This has led to a rise in brokeroriginated commercial lending, non-bank lending and specialist finance options for businesses. It has seen traditional banks become second choice and buoyed the alternative finance sector to the point where it can almost be considered mainstream.

“Each client business is looking to do different things. They could be looking to purchase inventory, refurbish their store or hire more staff. Accessing finance conveniently and quickly is important,” says OnDeck Australia CEO Cameron Poolman.

Capitalising on this demand, in July FAST recruited OnDeck to its panel of more than 30 lenders. Adding to an already-diversified and extensive panel, the partnership arose from the need for the aggregator’s 1,254-strong network of brokers to get ahead on new marketplace dynamics, says FAST CEO Brendan Wright.

“We spent a number of years working through what a partnership would look like, and what sealed it was the need to deliver to brokers a short- and mid-term funding product,” says Wright.

“One of the things that has been core to FAST’s strategy and value proposition is providing brokers with diverse options to meet more of their clients’ needs. Alternative finance businesses like OnDeck obviously provide that and are highly important in delivering access to finance in an efficient way for SMEs.”

Client needs are complicated and varied, especially in business lending. They range from the size of the loan to the speed of its delivery, the things it can fund and the flexibility of terms.

However, for Wright there was another element of this partnership that took equal precedence: OnDeck’s approach to clear communication when informing the broker of exactly how its clients’ needs are being met.

“OnDeck is very good in its processes and systems. They respect that the primacy of the relationship sits with the broker, so they ensure that communication is with the client via the broker during application and importantly at renewal,” Wright says.

Supporting the process from start to finish is a sophisticated tech system.

OnDeck underwrites small business loans using its proprietary credit-scoring methodology, the OnDeck Score. The model that sits behind OnDeck Score uses thousands of data points to identify the financial fitness of potential borrowers, specifically looking at things like cash flow, credit history and various other business attributes. This allows brokers to provide appropriate offers to borrowers that it knows are within their repayment capacity.

“[A client business] could be looking to purchase inventory, refurbish their store or hire more staff. Accessing finance conveniently and quickly is important” Cameron Poolman, CEO, OnDeck Australia

Growth ideas
Brokers who are yet to diversify from mainstream and resi lending could benefit from looking at the latest statistics.

Figures from the Australian Small Business and Family Enterprise Ombudsman confirm that small businesses – those with 19 employees or less – account for 97% of all Australian businesses by employee count. Medium-sized businesses account for 2.4%, and 0.2% can be classed as large businesses.

That means a broker can expect that anywhere between 20% and 25% of their resi-mortgage clients will also be SME owners.

“Talk to them; ask them how their business is going and the challenges they face,” says Poolman.

“I speak with SMEs every week, and it’s the highlight of my week. Whether they’re running a cafe, a restaurant, a retail shop or a smash repair, there are always interesting things happening. SME owners love to talk about their business, so having that conversation builds a fantastic rapport between broker and customer.”

While SME owners may love their work, they don’t always love their bank.

In a research exercise conducted in 2019, OnDeck discovered that 40% of SME owners have sought business finance in the past, with varying degrees of success. In fact, 23% of those questioned were rejected by a bank and, unsure of where to turn next, sourced funds through family and friends (33%) or a credit card (32%).

It paints a clear picture of demand for both funds and support.

“Traditional funders aren’t focusing on small businesses. They are looking at prime business, but not the general population of SMEs. There is a gap there in the market for online lenders such as OnDeck to provide finance for these customers,” says Poolman.

Additional research saw OnDeck engage with brokers through a series of focus groups, during which they explained what they look for when pairing a client with a lender.

“Brokers are looking for speed of funds, flexibility in the models and policies, and the ability to meet the specific needs of their clients. They are also looking for competitive rates and broader lending requirements; they want open communication and they want transparency with the business developer,” says Poolman.

“It has been phenomenally successful and appropriate that lenders like OnDeck keep the more traditional funders on their toes” Brendan Wright, CEO, FAST

Building capability
As one of the most prominent commercial aggregators, FAST already delivers $7bn in business lending solutions, and that figure will no doubt rise following its latest partnership.

However, despite having several non-bank and alternative business lenders on its panel already, the aggregator will continue to educate its network, with OnDeck on hand at future FAST PD days.

“We are already seeing a large uptake from a number of brokers to offer these services, and our role is to educate and support all brokers through that,” says Poolman.

We have invested a lot in getting our business developers to walk brokers through what’s required for these types of loans and the process you go through – really assisting the brokers and their customers.”

Hand in hand with education, Wright advises brokers to approach their own business expansion in the same way as they would with a client business – assess, research and respond.

“It’s about having capability to diversify. You can be a broker business with a growth idea, but you need to look at what must change in the business in order to enable that to happen,” he adds. 

Diversification isn’t the only buzzword of 2019 – competition has also been a hot topic. With more lenders on the market than ever before, Wright says the emergence of non-traditional and non-bank alternatives presents a win-win for all parties.

“It has been phenomenally successful and appropriate that lenders like OnDeck keep the more traditional funders on their toes. Competition creates opportunity, options, and, more importantly, innovation and growth,” he says.