Commercial lending comes of age

by Donelle Brooks10 May 2021

Commercial broking is becoming more confident and sophisticated, argues Lend’s head of third party, Donelle Brooks. As the alternative finance sector grows, commercial brokers are finding more nuanced solutions to their clients’ needs, such as compounded products.

The alternative finance sector is evolving at an accelerated rate, perpetuated by the constricting risk profile of traditional lenders and their appetite for applicants other than ‘vanilla’. And understandably so, as there are many borrowers who fi t the traditional lenders’ mould and are subsequently benefiting from a time when money is cheap and competition is fierce. Though, conversely, the upswell of ‘anything but vanilla’ clients continues to drive demand for specialist finance, particularly in the world of business borrowing, in which entrepreneurialism and ‘off -piste’ concepts, operations and solutions have become the accepted state of play versus the exception.

Alternative lenders scoop up overflow

Alternative commercial lenders continue to provide a home to the overflow of clients that don’t meet traditional lenders’ strict credit criteria. Perhaps 20 years ago, this overflow was met with the emergence of non-bank lenders, which primarily provided bad credit clients with the stepping stone to ultimately refinance back to a traditional lender. The non-bank sector therefore started to rival traditional lenders’ incumbent position as the only place then available for business credit and thus established the landscape, and acceptance of, alternative finance. With the gateway now open to specialist funding, the commercial finance sector has evolved at an increasingly rapid rate, mirroring the opportunities and fallouts from the GFC, the mass decentralisation of industry with a perpetual flow of mergers and acquisitions across multiple sectors, and now the COVID-19 pandemic.

With each phase of economic turbulence, alternative commercial finance lenders have responded with more and more niche offerings that provide highly customised solutions to specific business challenges. Consequently, business borrowers are now in the enviable position of being able to access all sorts of commercial finance, from secured to unsecured short-term and term loans, to asset finance, lines of credit, supply chain finance, invoice factoring, and so forth. Interestingly, not only have the types of available lenders and product areas changed, but so has the profile and financial maturity of business borrowers.

The commercial lending landscape is being affected by two concurrent forces: the rise in customised funding solutions driven by businesses’ current and emerging requirements.

Businesses embracing opportunity

It appears that the more extreme the disruption, the more opportunistic people become. Why? Because disruption of any description forces people to take stock, personally and professionally. And the bigger the disruption, the more pressing the re-evaluation tends to become. The most recent disruption, COVID-19, has universally prompted people to reassess their lifestyle, review finances and reconsider priorities. For some, this process is self-motivated. For others, it is necessitated by pandemic-related redundancies, wage cuts and restructures.

In the wake of this, people are demonstrating fundamental psychological shifts. There is a far greater openness to thinking, acting, and considering life differently. And this has a material effect on business and, in particular, business practices. In traditional operations, attitudes towards overheads (such as office space), remote or hybrid environments and the role of IT have been revolutionary. Similarly, there’s a substantially more progressive approach to different business ventures and structures.

The net effect is the movement towards a more astute business borrower who is open to alternative commercial finance to support new ventures and/or operational structures. And they are turning to brokers for the solution.

This dramatic shift towards starting new businesses has been substantiated by a staggering 250% year-on-year increase in Lend’s platform as borrowers use funds to start or acquire new businesses.

Compounded products the new flavour

Commercial broking is reaching a new level of sophistication and confidence that correlates with the sector’s growth and maturity. There’s a significant attitudinal shift towards commercial finance and its benefits in the context of a business’s overall operations. In particular, the cost of the opportunity versus rate alone is being more carefully considered.

Similarly, brokers are more proactively educating their clients about the products available and their respective uses. In stark contrast to the traditional one-size-fi ts-all approach, this change is materialising in the rise in brokers providing ‘compounded product’ solutions – meaning multiple products and/or multiple lenders are being considered to meet a business’s holistic requirements. For instance, a company may require asset finance, but because it has a low monthly turnover, with income held in debtor ledgers with invoice lags, they may benefit from debtor finance that’s backed by a line of credit facility. is well aligned to support brokers at all levels of commercial maturity with its sophisticated AI product/lender-matching technology that does the heavy lifting, which fast-tracks the aligned solution.