Last Updated: 31st May, 2021


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Should I use a commercial broker or a debt advisory?

Debt advisory services have really only become prevalent in the past few years in Australia but they’ve been known to help larger companies raise capital and negotiate strong finance terms.

If you’re in the market for a business loan, the question whether you should turn to a debt advisory or a commercial broker for help.

Although they may seem to offer the same services, they operate on completely different ends of the business finance spectrum.

What is a debt advisory?

Large corporates, medium-sized businesses, and ultra-high-net-worth individuals tend to seek out the services of a debt advisory to provide advice on key funding decisions for the business such as raising and managing capital and debt restructuring.

The main aim is to decrease your financial risk while protecting business profitability. However, debt advisors have also been known to take advantage of desperate business owners, particularly those facing liquidation or bankruptcy.

Debt advisory vs commercial mortgage broker

Hiring a debt advisory really only makes sense if you’re a high-end business turning over $10-20 million a year.

Debt advisory fees can be quite significant and there’s also the fact that they tend not to bother with businesses turning over less than $10 million a year.

If you’re in this boat and you’re going to be using a residential property as security for the finance you’re after, a commercial broker is a much cheaper option.

They also offer much of the same services although a broker would not be able to provide as much of a comprehensive review of your company’s long-term financial needs as a debt advisory would.

For this, it’s best to seek independent advice from a business accountant and financial planner.

So if you’re in need of a commercial property loan or a business loan under $10 million, give us a call on 1300 889 743 or complete our free assessment form to speak with one of our commercial mortgage brokers.

A number of our senior brokers have extensive experience in commercial credit and know exactly how to present your loan application so you can get approved the first time around.

They can also perform a health check of the debt facilities that your business currently has to ensure that you’re still on a good interest rate with fair loan terms.

What does a debt advisory do?

Like a commercial broker, a debt advisory will assess the financial needs of the company and source and negotiate this finance on your behalf.

Instead of one professional, you would have a team of advisers working with you and your company.

Essentially, they would undertake a health check of the business to identify where you need more funding and whether your current debt facilities may need to be restructured or refinanced with another lender so you’re in a more financially stable position.

They generally offer the following:

  • They analyse the company’s overall position to ensure that you have the capital to reach long-term goals.
  • Negotiating finance terms and interest rates with financial providers.
  • Advice in structuring current debt facilities.
  • Recommending finance options such as invoice discounting, term debt, equipment finance or business overdrafts.
  • Building strategies for mergers and acquisitions and significant capital expenditure.
  • Plans for raising capital through shareholders.
  • Negotiating financial covenants and annual reviews with the financial provider.
  • Building on current cash flow projections in order to reduce your credit rating and interest margins.

What does “restructuring” mean?

A debt advisory will typically go down the path of restructuring a business’ current debt facilities if the owner isn’t happy with the interest rate and terms.

For instance, the debt advisory team may negotiate with the lender for you to pay more interest, a one-off fee or to extend the loan term in order to avoid an impending default.

Alternatively, they may be able to refinance your loans with another lender or funder who is willing to take on the debt.

In some cases, the advisor may work with your current lender to convert some of your debts into equity, otherwise known as a refloat or debt-for-equity.

This is usually the case with businesses that are not primarily “bricks and mortar”, that is, businesses whose main asset is not the commercial property in which they operate.

They either don’t own the freehold or the inherent value in the other business assets and goodwill is more than the value in the freehold.

Again, restructuring debt is usually only an option available to companies that are generating significant turnover, not so much the majority of business operating in the SME space (small and medium enterprises).

What are the benefits of a debt advisory?

Firstly, debt advisory professionals understand business and can assess your needs with thorough financial modeling.

That’s because many of the people that work in debt advisory have business experience.

One of the big benefits though is that they actually have access to more sources of funding than your average commercial mortgage broker.

These relationships extend beyond the major four banks, lenders and non-banks in Australia to international financial providers including bond marks, mezzanine finance, hybrids and even superannuation fund money.

Some debt advisories have upwards of 200 fund providers to choose from!

On paper, this means they have much greater choice in finding a funder that will offer you the most competitive terms and rates for not only new finance but also for restructuring, refinancing or capitalising current business debt facilities.

However, it’s important to keep in mind that debt advisory services generally don’t fall under the same strict requirements as a mortgage broker.

What are the drawbacks?

In many cases, business owners seek out debt advisors if the company is in significant financial strife, specifically if it’s facing the appointment of an administrator, liquidator or bankruptcy trustee.

Essentially, debt advisors tend to work with companies that are desperate. Although debt advisors tend to have a wide selection of funders and private equity firms, you have to really ask whether they stand to make a substantial commission by choosing one funder over another.

If so, they may not have the best interests of your company in mind.

Another thing to keep in mind is that although they are bound by the Corporations Act 2001 and the Bankruptcy Act 1996, many service providers are unregulated and don’t have professional qualifications.

This is very different to the rigorous initial and ongoing credit training that mortgage brokers must undergo in order to qualify for an Australian Credit Licence (ACL).

How do I choose a debt advisory?

There are simple steps and rules you can follow to reduce the risks of hiring a dodgy debt advisor:

  • Get advice from an account or solicitor before signing up to a debt advisory.
  • Don’t be pressured into signing anything particularly if your business is in financial stress.
  • Find out what qualifications and licences the advisor holds.
  • Be wary of advisors that refuse to tell the commission or “kick back” they stand to make when recommending to a particular lender or third-party funder.
  • Negotiate the fee with the help of your solicitor including payments made on a pro bono basis.

Want to speak to a commercial broker instead?

Call us on 1300 889 743 or fill in our online enquiry form so one of our experienced mortgage brokers can properly assess your situation and business needs.

Our aim is to find you a lender that will offer you business finance that best suits your needs.