Navigating commercial lending: Key insights for HNWIs and families

High-net-worth individuals (HNWIs) and families often have complex financial strategies and multiple business interests.

However, they're usually time-poor, with competing priorities. While they expect high service levels, many also remain loyal to their existing banking relationships, which can sometimes work against them when it comes to commercial lending.

Key considerations for HNWIs and families in commercial lending

1. Banks change their lending appetite frequently

A key challenge in commercial lending is the ever-shifting appetite of banks. Financial institutions constantly tweak their willingness to finance certain asset classes or locations. For example, a bank might offer a higher loan-to-value ratio (LVR) on a commercial property in one suburb but take a far more conservative stance in another. Similarly, lending terms, including interest rates, can change significantly over just six months, depending on the makeup of the bank's loan book and its risk exposure.

2. It's not just about the headline interest rate

One of the biggest misconceptions in commercial lending is that the headline interest rate is the most important factor. It's common for borrowers to focus on this number because it's a talking point at dinner parties and in business circles. But a lower interest rate often comes with hidden trade-offs: higher fees, stricter disclosure requirements, and increased reporting obligations. A thorough assessment of the overall financing package is crucial to avoid nasty surprises.

3. Think carefully about asset securitisation

How you structure your loan's security can have a major impact on borrowing costs. Many borrowers prefer not to use additional assets as collateral, wanting to keep them unencumbered. However, if the overall risk to personal assets is low, providing extra security could lead to a significant reduction in interest rates and better loan terms. It's worth carefully considering the trade-offs before deciding.

4. Not all banks are experts in your industry

Despite what their marketing suggests, banks don't have the same level of expertise across all industries. The saying "apples to apples" applies here. Just because a bank promotes itself as a commercial lending expert doesn't mean they truly understand the nuances of your profession or sector. Doing your research and identifying which banks genuinely specialise in your industry can pay off in the form of better terms, faster approvals, and a smoother lending experience.

5. A good broker saves you time and money

In some instances, there is a belief among highly successful people that working with a finance broker is unnecessary or time-consuming, especially if they have a long-standing relationship with their bank. But a skilled and trustworthy broker almost always saves time and eliminates headaches. Even if you're committed to staying with your current bank, having a broker negotiate on your behalf can lead to significantly better terms. Loyalty doesn't always mean getting the best deal, and banks won't proactively offer you better terms unless they have a reason to.

Final thoughts

Commercial lending requires a deeper understanding than simply chasing the lowest interest rate. Key factors like bank lending appetite, securitisation strategies, industry expertise, and professional negotiation all play a crucial role in securing the best deal.

For HNWIs and family groups, leveraging the expertise of a finance broker can be a strategic advantage, streamlining the process and ensuring they achieve the most favourable loan terms.

A considered approach leads to greater flexibility, cost efficiency, and ultimately, better financial outcomes.

While Hewison Private Wealth focuses only on wealth management and protection, our (often) time-poor clients trust us to advice and guide them in all wealth related areas. Making specialist introductions to exceptional finance brokers is just one of those areas we can assist.