Brokers urged to guide SMEs in lending world

Commercial interest rates vary widely

Brokers urged to guide SMEs in lending world

News

By Jayden Fennell

Commercial interest rate rises are continuing to rise so small business owners and brokers are being encouraged to work together to understand a complex rate environment.

Melbourne commercial brokerage Duo Finance director Eamonn Keogh (pictured) said commercial brokers were in the perfect position to help SMEs given commercial interest rates varied widely among lenders.

“At the moment, the major banks are sitting somewhere around the 3% to 5% mark, the non-banks starting in the 5% and upwards and private banks or specialist lenders typically starting around the 7% range,” Keogh said. “With lenders offering so many different rates, as brokers we need educate our clients on this as it can be quite complex.

“We try and educate our clients on the risk profile around rates which depends on how much they want to borrow over what timeframe.

“Not to mention the purpose for funding. If the client is seeking funding to buy or invest in a business, it might be a higher risk which can influence the interest rate.”

Keogh said industrial property had performed very well in the last couple of years despite COVID-19 challenges.

“There has been an uptick from investors who have jumped into the industrial property space and people have been paying a premium price for the right property too,” he said. “We have seen a lot of interest in industrial warehouses from our client database along with business owners choosing to buy their own premises. This safeguards them and provides certainty around longevity of their business.”

Keogh said it was more favourable to lend to commercial clients in current market conditions.

A 65% LVR was standard gearing from lenders, however appetite has shifted to 80% for these owner-occupier transactions, he said.

“The added 15% makes it more viable for business owners which is driven by a lower interest rate market,” he said.

Keogh said in his own brokerage, which focuses on the SME market in Melbourne, he had seen an increase in commercial property transactions since the start of the year and more recently business investment or restructure debt requirements.

“This is an optimistic sign for the commercial market, however, it will be tested with current economic and interest rate challenges,” he said. “It is a sign that good businesses that have come out of a tough period want to get back to what they were doing well before.”

Keogh said commercial customers and business owners tended to be more sophisticated and have a better understanding of how interest rates worked, compared to residential buyers.

“Commercial clients have the knowledge and ability of moving swiftly through what can be a volatile market,” he said. “The latest rises do not appear to have spooked them too much, but it depends on how far these rates continue to move.”

Keogh said he was seeing good activity with property development.

“There is still movement despite the increase in manufacturing costs with supply chains creating challenges for developers and builders,” he said. “In the current environment, lenders are heavily focused on the financial capacity of the builder in any project – whether it is an owner builder or third-party.”

Keogh said with the continued support of bank and non-bank lenders which had appetite for commercial transactions, he was optimistic about the rest of the year.

“However, if the lenders become more conservative in this space, then this will obviously have an impact on the market,” he said. “We had a strong first six months of 2022, so let’s hope the second half is just as strong too.”

 

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