Don’t bank on it

SMEs are turning away from traditional banks as lending to small businesses becomes big business for a slew of innovative new lenders.

Traditional methods of getting a business loan involve patience, piles of paperwork and a few trips to the bank and your accountant.

These days, SMEs can apply online and get loans approved within 24 hours, with a host of new players disrupting the small business lending market.

The boom in non-bank lending is great news for business owners, according to AFG Commercial General Manager Keiran Evans.

“It’s become a much more competitive market and that means more choice for borrowers looking for fast approvals and flexibility, particularly around how their loans are secured, and the terms and conditions attached,” Mr Evans said.

For example, SMEs could access loans up to $250,000 through non-bank lenders without necessarily having to put their family home on the line as security.

“While Australia’s big banks are tightly regulated by APRA, non-bank lenders are currently monitored, but not regulated, which allow them more flexibility”, Mr Evans said.

“Awareness among business owners about alternative finance options is still relatively low, but this is where good broker advice can be invaluable.”

Non-bank finance is available for anything from cash flow or asset finance to multi-million-dollar loans to buy premises.

Peter Vala, Head of Sales and Distribution with non-bank lender Thinktank, said his company found broker channels the most effective way to reach clients.

Founded in 2006, Thinktank is a specialist commercial property lender that has written more than $1 billion in loans over the past decade to SMEs and investors.

In recent years, Mr Vala has seen considerable growth in the non-bank lending sector thanks to a combination of money markets freeing up and lower interest rates. Tighter regulations on big bank lending has also allowed non-bank lenders to step in and fill gaps in the market.

“Access to reliable and cost-effective funding has allowed lenders outside the banks to innovate with products to better suit evolving borrower demands,” Mr Vala said. “This is where the non-banks have been at their most agile and where the banks, as regulated by APRA, have pulled back in certain areas, allowing the non-banks to step in very effectively with products that are often superior with respect
to conditions, terms and structure.”

Thinktank, for example, will fund up to 75 per cent loan to value ratio (LVR), offer up to five years interest only, and did not require annual revaluations or loan reviews.

“A good example in our case is the roll out and ongoing enhancement of our SMSF-LRBA (self-managed super fund-limited recourse borrowing arrangement) product, which now accounts for around 20 per cent of all new loans. Another area of development for us is in catering for slightly more specialised areas such as child care, student/backpacker accommodation and hotels/motels,” Mr Vala said.

Along with established institutions such as Thinktank, non-bank lending has also been revolutionised by the emergence of new ‘fintech’ lenders such as Prospa, Spot Cap and Get Capital to name a few.

“The way the fintechs have hit the ground running and are leveraging technology to offer cash flow and working capital finance solutions to Australian businesses has been a revelation in a segment long-acknowledged as under serviced by traditional lenders,” he said.

Fintech-enabled lenders, as the name suggests, use financial technology and multiple data sources
to quickly assess small business loan applications. This allows them to leverage two major advantages over the big banks:

  • Speedy application and approvals.
  • They can offer unsecured loans to businesses with strong performance indicators.

Growth of fintech lending in Australia has been so rapid, Australia’s Small Business and Family Enterprise Ombudsman Kate Carnell joined forces last year with FinTech Australia and The Bank Doctor’s Neil Slonim to work on a report aimed at helping SMEs better understand non-bank lending.

“With rapid growth in the number of lenders and the variation of fintech products, it becomes more difficult for SMEs to make informed decisions about which products and lenders best suit their circumstances,” Ms Carnell said. A final report is due to be published in February, which is expected to include a self-regulatory regime.

Show me the money

“Flipping” might be the new word on the block but Australians have long been part of the reno revolution. Some are looking for fast returns (the flip), while others are upgrading after being in a home for several years. Whichever your strategy, chances are the goal remains the same: to renovate for profit. Here are AFG’s tips to ramp up your returns.

Start with the end

What’s the micro-market in which you’re selling? Each suburb, and even a neighbourhood, has a price ceiling. Knowing that ceiling, and working within it, will help you avoid over-capitalising. Pay attention to local sales and visit open houses to check the quality of what’s on offer, the type of buyers the market is attracting, and what they’re prepared to pay.

Head over heart

This is a numbers game so renovate rationally, not emotionally. It’s easy to get carried away with the latest trends but adding value means making budgets and sticking to them. Renovators tackling lick-and-flicks often determine budgets based on final sales estimates. One rule of thumb is to spend no more than two to six per cent of the property’s value on refurbing the kitchen and no more than two to three per cent on the bathroom. If you’re aiming to sell for $600,000, then cap your kitchen spend at $12,000 and your bathroom at $9,000.

Add an extra room

You only have to scan real estate markets to see room count still matters. In other words, three-bedroom properties are usually in a price bracket above those with two. Talk to a local agent to find out how much you could fetch if you extended up or out for an extra bedroom or two. If the maths stacks up, see what other spaces you can bundle in – an ensuite or a family room – to maximise your return on investment.

Paint lift

A fresh coat of paint – inside and out – can give you the biggest bang for your buck. Most of us can manage a brush and roller and paint transforms in an instant. Buyers will bring their own décor style so keep colour schemes smart, but safe. Any soft neutral pops against crisp white or cream trim, creating a clean canvas for art and accessories.

Update doors

Doors are another great value-add. Repaint or replace daggy doors, including wardrobes, and replace old handles. Your front door makes or breaks a first impression, so invest in one that makes the right statement. And don’t forget your garage doors. If you have old manual levers or rollers, replace them with new automatic or remote doors.

Super-size your space

Storage sells, especially if renovating for a family market.

  • Install floor-to-ceiling closets in bedrooms that have none, and re-organise existing wardrobes with shelves, shoe racks and extra hanging rods.
  • Sort your garage with racks and hanging hooks for bikes, camp gear and tools.
  • Create a storage nook in your ceiling – don’t forget pull-down stairs for easy access.
  • Build a carport – buyers then have the option to use the garage for storage, or as a rumpus or entertainment area.

Let there be light

Natural light wins out over darkness every time, so look for ways to let more in, especially if the living areas are a little dim. Can you knock out a wall to let light through? If privacy is an issue, consider a skylight over stairs or wall-length windows above eye level to brighten things up.

Keep it simple

In our time-poor society, low maintenance sells. Replace dust-collecting light fittings with energy-efficient downlights, minimise lawn areas to reduce mowing, opt for dark tile grout over white, and rip up carpets to reveal timber floors or replace with tile, bamboo or timber-look laminate.

Be entertaining

We love to bring the outdoors in, or is it take the indoors out? Either way, opening your living room onto an outdoor entertaining area with floor-to-ceiling bi-fold doors is a winning renovation. So too, is adding or extending a deck and transforming a tired patio into a more contemporary alfresco zone.

Plant for profit

Trees can lift the look of your home and its value. They create privacy and shade, help attract birds, and create a sense of tranquillity and establishment. Consider fast growers like lilly pilly, photinia robusta and clumping bamboo to screen your backyard.

And don’t forget your streetscape. Planning research1?indicates some focus foliage out front can add thousands to a home’s value. Give your property a leafy lift with a crepe myrtle, Japanese maple, frangipani or an evergreen ash.


The new Facebook algorithm update and what it means for your business

Earlier this month, Mark Zuckerburg, co-founder and CEO of Facebook, announced the latest update to Facebook’s algorithm, which will result in changes to the content that users are presented with on their news feed.

Originally intended to be a social platform whereby users can interact and communicate with their friends and family, Facebook more recently has become an effective advertising platform for many businesses, with business Pages and sponsored ads becoming increasingly apparent in our new feeds.

In this latest update, Facebook will begin to “prioritise posts that spark conversations and meaningful interactions between people.” Posts from friends and family will take the spotlight, appearing higher in your news feed. Facebook will be using their data to predict posts that will generate interactions between friends and display this content as a priority over business content.


How will this effect content from businesses?

With content from family and friends taking the top spot, this leaves less room for business content, therefore Page owners may see a decline in their post reach and fewer referral traffic to websites. Page admins who post content that encourages engagement may experience less of an effect compared to those who see little interaction on their posts.

So how can you protect your Page from diminishing exposure? As Zuckerburg has outlined, posts that invite interaction are safe, so focus on content that your followers are interested in, and want to share with their friends. As a broker, put yourself in your clients’ shoes and brainstorm what type of content they won’t want to miss out on. At AFG, we monitor our social platforms continuously, reporting on content that is most engaging, and create more of this type of content going forward. Content that we’ve found to be effective include the following:

  • Information for first home buyers. Things like our real estate cheat sheet is always a big hit, with shares and likes higher than our average post, as well as information on the home loan process. Consider writing articles similar to these, and sharing them on your social platforms.
  • Office award wins, birthdays or other celebrations. These are a great way of adding a personal touch to your business, and allows potential clients to put a face to a name. Award wins help to show that you’re a reputable company, and they often receive good levels of engagement from existing clients who wish to congratulate you.
  • Settlement congratulation posts. Have you considered taking a quick snap of your clients outside their new home once their loan has settled?

This type of content is quick and easy to do, and attracts likes and shares from your happy clients, their friends and family, and potential clients who are looking for a home loan. Why not send a small gift as a congratulations, and tag the company supplying the gift in the post too? It’s another way to further extend potential reach and engagement, which could keep you visible in Facebook’s news feed.

So the final takeaway from the update; ensure you post content that encourages interaction and it will minimise the effect of the updated algorithm. Spend some time revising your social media strategy, and pay close attention to the performance of your posts over the next few months, analysing what type of content is working most effectively. Check out our social media guide for a simple schedule to keep you on top of your social platforms.

Victorians paying more: Mortgage Index – December 2017

AFG (ASX: AFG) has today released the AFG Mortgage Index figures for the final quarter of 2017.

As the year drew to a close, Victoria stands out as the state to watch with an increase in average loan size over the past 12 months nearly double the size of the increase in New South Wales.

“There has been a lot of focus on Sydney house prices, and therefore mortgage sizes, but homebuyers in Victoria are seeing the biggest increases,” explained AFG CEO David Bailey. “In Victoria, the average mortgage size has jumped 3.2% in the final quarter of 2017 to now be sitting at $496,815.”

The increase in the last 12 months for Victoria was $20,385 compared to $10,662 for NSW. With the average NSW mortgage already substantially higher than in Victoria, the increase over the last 12 months was 4.3% for Victorians compared to 1.8% for those buyers in NSW.

“The average loan size in New South Wales is now $613,084. Queensland has increased by 3.4% to now be sitting at $416,921. South Australia is up 3.4% to $390,706. The Northern Territory is up 22% to $469,502, albeit from a low volume. Reflecting the challenges being encountered by the WA economy, the state’s average loan size is down 1.1% to $439,944.

Overall, the national average loan size is up 2.8% over the past 12 months.

“Fixed rate products have dropped back to 21.9% of the market after a high of 26.5% last quarter and First Home Buyers are sitting steady at 13% for the second consecutive quarter.

“What is noticeable is that the majors are continuing to lose ground to the non-majors, as borrowers increasingly look at alternatives to the major bank owned brands. The majors have 64.2% of the market compared to the non-majors sitting at 35.8%,” said Mr Bailey.

“Whilst tightened lending criteria continues to impact the market, particularly with respect to refinancers, our overall volumes compared to prior year remain strong. Refinancers now represent just 22% of the market. Investors have also been caught in the cross-hairs and have dropped to 28%.”

As they turn away from Investors, the majors are proving competitive for First Home Buyers (69.6%). Overall, Upgraders are proving attractive to lenders and now represent 44% of the market.

“Interest rate and lending policy changes have meant many clients are turning to their mortgage broker for help to understand what the changes may mean for them,” said Mr Bailey.

“Individual circumstances are assessed differently by lenders, so having the insight into which lender may be the right fit for your needs is vital to a consumer looking for finance. A mortgage broker is uniquely placed to have that information.