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How to Choose the Best Commercial Loan in 2020 – Five Crucial Factors for Consideration

The big four banks in Australia. Westpac, Commonwealth, ANZ, NAB.

With a new decade, comes new business opportunities. With commercial lending in Australia undergoing significant fintech disruption and breakthroughs, 2020 looks likely to be the best year yet to secure a loan. However, amidst this boom, stricter regulations are making it tougher for borrowers to apply for commercial mortgages from the Big Four banks, the Tier 1 lenders. That’s where other options like private lending, which Acumen Finance specialises in, present themselves as great alternatives. 

Tier 1 loans can have many advantages. However, it’s a common misconception that they are always the best. There are many things to consider when choosing a commercial loan. Understanding the effects of the five crucial factors discussed below can help you make a more well-informed choice.

1.   Interest Rates

When taking a loan, the first (and sometimes only) factor borrowers tend to look at is interest rates. This is typical especially of first-timers, as the interest rate is one of the most obvious borrowing costs. Tier 1 lenders, with their superior financial power, can offer pretty attractive rates. However, if you are in a difficult financial situation, you don’t know their competitors’ offers, or you are a long-time customer with multiple accounts and seem unlikely to leave – Tier 1 banks may use these as excuses to overcharge you. 

Hence, to ensure you get the best rates, whichever tier they are from, it can be worthwhile partnering with a loan broker who negotiates on your behalf. At Acumen Finance, our brokers have excellent credit skills and relationships with lenders so they can see who’s in the best position to offer the lowest rates. Showing lenders where their current offer sits in comparison with their competitors may even lead to further rate reductions.

2.   Credibility

Due to their bigger size, preeminent scale and undeniable presence, Tier 1 lenders are often deemed more reliable. Borrowers can feel safer relying on these lenders’ long-standing and renowned brand names. Other lenders, though, can be less well-known and seem more susceptible to volatile economic conditions.

However, Tier 2’s smaller financial institutions and Tier 3’s “peer to peer” (P2P)/private lenders can boast industry expertise that Tier 1 organisations don’t always have. Smaller lenders tend to specialise and focus on specific industries, allowing them to provide exclusive insight and advice to borrowers. Such lenders, having more nimble organisational structures, are leading the way in harnessing fintech power for their operations. If lenders’ transparency and accountability give you immense assurance, fintech is on a mission to provide that.

3.   Flexibility

Once loan research begins, one glaring differentiating factor becomes apparent —flexibility. Due to industry regulations mentioned earlier, Tier 1 lenders now have more stringent security and pre-sales conditions, require comprehensive proof of ‘income, expenses and creditworthiness’, and tend only to fund high-income-generating projects, pulling out of markets like land finance and construction funding. 

Tier 2 lenders, while also tightly regulated, have a higher risk tolerance, and are more open to diversity in security types. Having more flexibility still, Tier 3’s private or P2P lending sector is willing to look at businesses that others deem slightly riskier. Some even offer unsecured funding, with loans provided without collateral. For most borrowers, decent creditworthiness, some sales numbers and evidence of cash flow are sufficient. These two tiers open up enormous possibilities for small businesses amid the big banks’ withdrawal of capital

4.   Speed

Tier 2 lenders, while also tightly regulated, have a higher risk tolerance, and are more open to diversity in security types. Having more flexibility still, Tier 3’s private or P2P lending sector is willing to look at businesses that others deem slightly riskier. Some even offer unsecured funding, with loans provided without collateral. For most borrowers, decent creditworthiness, some sales numbers and evidence of cash flow are sufficient. These two tiers open up enormous possibilities for small businesses amid the big banks’ withdrawal of capital

5.   Long-Term Goals

Possibly the most overlooked factor when choosing commercial loans is the borrower’s long-term goals. Notwithstanding the fact that bigger banks tend to have less personal loan processes, their loan products are also naturally designed in their favour. That’s why it’s of utmost importance for you to know exactly what you want to achieve from this loan. That way, you can look for the best match for your desired outcome.

The next step would be to draw up a comprehensive credit proposal to pitch to potential lenders. Commercial lending experts like Acumen Finance are highly experienced at this, and they have access to and deep understanding of numerous lenders with diverse funding sources and risk appetites. Knowing your individual needs, our broker helps you to analyse the advantages and risks of different options, then tailors your proposal to cater to lender preferences and get you the best deal. We not only commit to your long-term financial wellbeing but also put a significant emphasis on nurturing relationships with lenders. These efforts have secured continuous commercial mortgages for our past borrowers’ multiple projects, and can for you too.

Should you or your business need a commercial loan in 2020, P2P lending/private lending may actually be a better option, depending on your circumstances. Considering the above crucial loan factors will help you make a better choice. Whatever your most important considerations are, partnering with a reliable broker will help ensure that they are met, despite the banking industry’s tighter regulations regarding commercial lending in Australia. With the strong backing of their progressive, fintech-inspired loan facilitation platform, and an extensive network of bank, financial institution and P2P/private lenders, the highly-experienced team at Acumen Finance promises a streamlined, customer-focused experience to secure the best commercial loan for you. Get in touch and start funding your business today.