Opportunities in commercial finance could create new revenue streams for brokers

Brokers can benefit if they understand the opportunity and what they can offer clients

Opportunities in commercial finance could create new revenue streams for brokers

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Opportunities in commercial finance are growing, and could create additional revenue streams for brokers. 

In the 12 months leading up to December 2024, commercial finance increased 8.5%, year-over-year, according to a recent report by the APRA. Similar findings by the Reserve Bank of Australia (RBA) found that business lending rose to 8.9% of the market in December, up from 8.6% the month before. 

"The demand for private credit has certainly increased, especially over the past two years," Matthew Porch (pictured), head of distribution at Aquamore Finance, told Australian Broker. "Private credit funds have a wider appetite, more flexibility and an ability to write transactions that the bank just can't get comfortable with."

Commercial finance, as Porch explained it, is lending to small and medium-sized businesses. At private lender Aquamore, that's up to $7.5 million. "We wouldn't lend to an ASX-listed company," he said. 

While both banks and private lenders play in the space, commercial lending has been gaining traction among non-banks as traditional banks increasingly pulled back. 

"At the moment, a lot of that is probably driven by commercial properties in themselves becoming a bit more risky," said Porch, whose firm was recently appointed to the Yellow Brick Road (YBR) aggregator panel. He added that Australia's higher-for-longer official cash rate is also helping non-banks pick up speed in commercial finance. 

"Interest rates have been stagnant for a while," he said. "They've been relatively high, which is starting to squeeze yields. There's a lot of private credit funds popping up in order to try and obtain those yields. 

"I think the banks are starting to pivot towards safer residential loans that carry a lower cost of capital, especially in the eastern seaboard – Sydney, Melbourne [and] Brisbane – where house prices are stable," Porch said. "So why should they take additional risk in commercial lending when they can make their return on equity on residential, cookie-cutter home loans?"

Cameron Poolman, chief executive officer of non-bank lender OnDeck, said the growth in business loans can also be attributed to the increase of small businesses nationwide. 

"One in four Australians actually run a small business," said the CEO, whose Sydney-based firm lends to small businesses in Australia.

Data from Commonwealth Bank confirms that 25% of the population, or about 5 million people, have started a small business or side hustle since the start of the pandemic in March 2020. That's reflected in increased loan activity. 

At OnDeck, loan volume, or the amount given to customers, grew 39% in 2024's fourth quarter, year-over-year, according to Poolman. And the CEO is anticipating even more growth. 

"So it's a lot of small businesses essentially wanting to grow," Poolman said of business lending. "The business might want to add staff; they might want to do some marketing. They might want to purchase some extra stock because it's on sale. For all of those types of things they'd come to us if they needed access to funds quickly."

Opportunities for brokers

The opportunities in commercial finance aren't reserved for lenders. Brokers can benefit too if they understand the opportunity that exists beyond writing residential home loans and what they can offer clients. 

"The rage has been diversification away from residential lending into commercial lending," Porch said. "Over the past two to three years, you've probably seen a lot of training courses and things like that, that these brokers are going under to increase their skill set and increase their revenue, as a result.

"It's all about understanding your customer," he said. "A lot of these brokers will probably already have self-employed customers. They've probably written their home loan or their car loan somewhere down the track. But simple things like looking at a statement of position or understanding their business and their cash flow income can really reveal opportunities in the commercial space. Using self-employed as an example, self-employed clients will need business finance of some sort along the line, and if brokers ask the right questions, and do that to uncover opportunities, then their diversification is already halfway there."

Jason Arnold, group executive of origination at non-bank lender Pallas Capital, agreed that commercial finance is a big area of growth for brokers who are willing to take advantage of the opportunity. 

"There are more home-loan brokers who are trying to diversify their business and look at getting into commercial finance, to open up more clients to their business and give them a different revenue source, instead of just doing home loans, home loans, home loans," he said. "Their aggregators are encouraging them and providing some level of training to diversify into the commercial finance space."

In addition, OnDeck's Poolman said brokers need to be aware of all the options in commercial lending, in order to offer the most value to their customers, which will in turn help grow their businesses. He said non-bank lenders, such as OnDeck, offer faster turnaround times with less paperwork. 

"There's a lot more information required at a bank," he said. "Banks generally want security. It can take a long time. Whereas small businesses, particularly at the moment, are a very volatile, agile environment. So to be successful, they need to move quickly. 

"The brokers are able to use [non-banks] and get their decisions quickly," Poolman said. "OnDeck's fastest decision time, for under $175,000, was a bit over two hours in the latest quarter. It's very easy to use our services. It's just accessing the bank statements and then getting approval for credit, the authority to use the credit. So their customers will benefit from it too." 

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