Issue 99 APRIL 2022
Broker COMMERCIAL
The award-winning magazine for the National Association of Commercial Finance Brokers
18 CLOSING THE NET
28 MORE SENSITIVE ANTENNAE
Why brokers are advised to update screening procedures
How to avoid long firm fraud in asset finance
The next level? Funding in a more united kingdom
32 LEADING THE CHARGE Coherent planning can propel electric vehicle adoption
44 THE COST OF BROKING The reality for smaller commercial finance firms
Contents
In this April issue NACFB News
Special Features
4 6 8
22-23
10-11 12-14
Note from Norman Chambers Updates from the Association Note from headline sponsor, Allica Bank Industry news round-up Membership news
24-26 28 30 32 34-35
LendInvest: Measure for measure NACFB: The next level? Ultimate Finance: More sensitive antennae Reward Finance Group: And action... Paragon Bank: Leading the charge YBS Commercial Mortgages: Striking a balance
Industry Insight 36 38-39 40-41 42
Alternative Bridging Corporation: What we’ve learned Red Flag Alert: Balancing act Close Brothers Asset Finance: On the pulse Lightbulb Credit: When one door closes…
Opinion & Commentary 44
30 Patron Profile 16-17
Social Investment Business: On a mission
46 48-49 50-51 52 54
Kazlin Commercial Finance: The cost of broking Hodge: Solid foundations BVA BDRC: In the mood for growth Time Finance: Making capital work Listicle: Five ways to comply with financial promotions rules Five minutes with: Max Herman, Head of Lending, Lendhub
NACFB: Closing the net
Ask the Expert 20
NACFB: Going for green
Further Information KIERAN JONES Editor & Feature Writer
33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk JENNY BARRETT Communications Consultant
33 Eastcheap | London | EC3M 1DT Jenny.Barrett@nacfb.org.uk LAURA MILLS Graphic Designer
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Compliance Update 18
46
36
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NACFB | 3
Welcome
Norman’s Note
T
he year is 1992. A white-haired Democrat sits as President in the White House, and seismic events from Russia reverberate across the world. Look how far we’ve come?
Elsewhere in 1992, in a Birmingham pub, the NACFB was born. The Association was born of necessity, and some of the core tenets remain familiar drivers today. The NACFB was founded to help create a community of likeminded professionals, bound by common principles and united by a sole purpose, to empower UK SMEs. 2022 sees the NACFB celebrate its 30th year of empowering businesses. Now, whilst I’m not normally one for big birthday celebrations of my own, the NACFB – your trade body – deserves to have a suitable bash.
Norman Chambers Managing Director | NACFB
And that’s exactly what we’re doing. We’re hosting an exclusive summer birthday party on Friday 8th July in the grounds of the Honourable Artillery Company (HAC), near Old Street station. The event is ticketed but if you’re quick, and an NACFB Member you may just be able to secure one of the early bird tickets at an exclusively discounted rate. The occasion is the perfect one to rub shoulders with the industry’s finest, from founding Member firms and lender Patrons to VIP figures and special guests. I look forward to toasting to our collective success and raising a glass to the NACFB’s milestone birthday at the open bar. We look forward to welcoming Members from all over the country. For one, hopefully sunny, summer’s afternoon we’ll put aside talk of access to finance and levelling up (although more on that on p. 24) and instead look ahead to another 30 years of helping to fund UK business. I hope to see you there.
4 | NACFB
NACFB News
Association updates for April 2022
NACFB to mark 30th birthday with summer bash
T
he NACFB is to mark its 30th anniversary with an inaugural summer party at London’s Honourable Artillery Company (HAC).
The Association will host an exclusive event on Friday 8th July in the grounds of the HAC’s Armoury House, near Old Street station. The NACFB Summer Party forms part of a series of endeavours the trade body is undertaking in 2022 to celebrate its 30th year of empowering UK businesses. The event will welcome familiar faces from across the Association’s 30-year history, including Members and Patrons, alongside an array of industry leaders and high-profile special guests. An initial batch of 300 tickets priced at just £30 + VAT have been made available exclusively to NACFB Member brokers for 30-days (until Friday 22nd April). Tickets are inclusive of all food and drink, as well as activities and entertainment. Early booking is advised as spaces are limited. After the early bird ticket window closes, tickets will be more widely available to NACFB Patron lenders and non-Members at the following prices: 6 | NACFB
• NACFB Members – £50 + VAT per person (£30 + VAT in early bird period) • NACFB Patrons – £100 + VAT per person • Non-NACFB Members/Patrons – £130 + VAT per person Paul Goodman, Chair of the NACFB said: “Feedback from those who attended the Association’s Commercial Finance Expo 2021 indicates a desire for more informal opportunities to network with colleagues and peers. The Summer Party fulfils this need and provides a platform for us to celebrate our 30th anniversary. “I am thrilled that we have been able to secure one of London’s hidden gems to host our birthday party in style. It’s a great way to thank our Members in the most prestigious of surroundings. We’ve planned an array of traditional summer party games and activities as well as a sizzling BBQ and lots of fizz,” Paul added. To find out more, and register to attend the NACFB Summer Party, visit nacfbsummerparty.co.uk
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Note from our Sponsor
Keeping up with the pace An underwriter’s guide to getting a quick decision
Bob Buchan Head of Underwriting Allica Bank
A
fter two years of disruption, it’s pleasing to see some level of normality creep back into the lending sector. Businesses that previously were focused just on survival have been able to turn their attentions once again to growth and investment.
2. Send us all you’ve got Don’t fall into the trap of thinking that the more information you share the longer it will take for us to review it. A well-fleshed out application can save us having to come back for more information and gives us more avenues to explore to make a deal happen when something doesn’t quite fit.
3. Give some context
According to brokers I have spoken to and our own data, this has also led to a jump in applications, which is fantastic news. The question now, though, is can lenders keep up?
We advise our broker partners to submit a one-page overview of the deal along with their application. By telling the story of your client in your own words – the structure of the deal, the business’s recent performance and their ambitions for the finance – it can give us some useful context when looking at the bones of the application.
At Allica, application volumes have leapt to well over £100 million a month, and I’m pleased that we have managed to continue hitting our next-day SLA for returning a decision-in-principle.
Let’s say, for example, your client wants an interest only investment mortgage. That’s absolutely fine – but it would be useful to know why.
We’ve achieved this through a combination of innovative processes and using technology to automate elements of our decision-making. We’ve also been working hard to educate our brokers on what they can do to help speed along their applications before they even reach us. In light of this, here are my three top tips for getting a quick and positive response.
It’s fantastic to see such positive energy back in the market. I’m confident that, with communication and collaboration, brokers and lenders can be the driving force behind that recovery.
1. Stay up to date The past two years have made traditional credit assessments obsolete. More than ever before, make sure you share the most up to date financial information possible. Management information (MI) is often much more insightful for my team than outdated financial audits. 8 | NACFB
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More than ever before, make sure you share the most up to date financial information possible
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Industry News
Industry News 1. Half of SME workers have start-up ambitions
3. Consumer lending surges to £1.9 billion
5. CMA relinquishes control of open banking unit
A survey by Purbeck Personal Guarantee Insurance has found that 50% of workers employed by SMEs have ambitions to start their own business. While younger employees were most likely to hold entrepreneurial ambitions, with 66% of those between 25 and 34 saying they would like to start an enterprise, 43% of those aged 55 and over also want to create a start-up. Of the respondents, 57% of men said they wanted to start their own business compared to 43% of women.
Figures from the Bank of England show that lending to consumers rose by the most in nearly five years in February, jumping 90% compared to January. Consumer credit rose by a net £1.9 billion, driven by a record rise in credit card borrowing, which hit £1.5 billion. The Bank said the increase pushed the annual growth rate for all forms of unsecured credit from 3.2% to a two-year high of 4.4%, raising the total outstanding consumer credit balance to £199.5 billion.
The Competition and Markets Authority (CMA) has relinquished its oversight of Britain’s open banking unit to the Financial Conduct Authority, which will lead a new committee, alongside the payments’ regulator, that will be responsible for regulating open banking technology. The new committee will also oversee the Open Banking Implementation Entity’s transition to a new permanent body. The CMA will be represented on the new committee but will hand over its leading role. The Treasury will also be represented.
4. Bank of England expects 1970sʼ style energy shock
2
The increase in the price of energy and other goods and services would likely cause growth and demand to slow, Governor of the Bank of England, Andrew Bailey has said, explaining that this pressure on demand is expected to weigh down on domestically generated inflation. Analysts expect the Bank to raise interest rates to 1% in May, but Bailey said inflation could go either way, citing the pandemic followed by a European war as a difficult position to be in for policy.
6
2. FCA sees cyber incident reports jump 52%
6. Inflationary fears amid drop in UK retail sales
The Financial Conduct Authority (FCA) received 116 reports of cyber security incidents in 2021, up from 76 in 2020, analysis by Picus Security has found. This marks a year-on-year increase of 52%. Of the incidents reported, 65% were due to cyber attacks and approximately a third contained notifications where the confidentiality of company or personal data may have been compromised or breached. The analysis also discovered that one in five incidents reported to the FCA in 2021 involved ransomware.
British retail sales fell in February despite the amount spent by consumers rising. The figures highlight the effect of inflation squeezing household finances and raise concerns that surging inflation was stunting the UK’s economic recovery well before Russia invaded Ukraine. “Real household disposable income now looks set to drop by about 2.5% this year, comfortably the largest annual drop since records began in the late 1940s, due to both high inflation and government policies,” said Samuel Tombs of Pantheon Macroeconomics.
10 | NACFB
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7. Business investment could rise 20% with right relief The Confederation of British Industry (CBI) has predicted that business investment would soar by 20% if Chancellor Rishi Sunak opts to slash business taxes permanently following the end of the super-deduction relief next year. The super-deduction takes 130% of investment off taxable income. CBI director-general Tony Danker said that “allowing companies to write off 100% of their investments against tax straightaway… could see a 20% rise in business investment so that is I think the best prize.”
8. Britain and Canada begin talks on new FTA The UK and Canada have begun negotiations on a multi-billion-pound, post-Brexit trade deal with International Trade Secretary Anne-Marie Trevelyan declaring a pact could “strengthen and grow trade” between the two countries.
The new Free Trade Agreement will benefit more than 10,000 UK SMEs. Martin McTague, Federation of Small Businesses national chair, said: “A dedicated SME chapter should be placed at the heart of any future agreement to ensure that small businesses can make best use of the FTA’s provisions.”
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9. Lenders pass on higher rates to customers Homeowners have been hit with higher borrowing costs as lenders pass on the Bank of England’s interest rate rise. Halifax, Santander, Lloyds, Nationwide, and Skipton Building Society all added 0.25 percentage points to their standard variable rate deals just days after Threadneedle Street increased the Bank Rate to 0.75%. The lowest mortgage rates have doubled in the past six months and borrowers are now paying £840 a year more for the average loan than they did in October last year, analysis shows.
10. Sunak’s Spring Statement: What went down? Rishi Sunak has raised the national insurance threshold by £3,000 and announced a cut in fuel duty tax by 5p a litre. The chancellor announced that he is increasing the rate at which workers start paying national insurance to £12,570. The national insurance threshold will now be in line with income tax from July this year. Unexpectedly, Mr Sunak also announced he would cut the basic rate of income tax from 20p to 19p in the pound starting 2024.
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Membership News
Membership News Older households in privately rented homes to soar by 2035
Funding Circle lends over £1bn through introducer community
Homes headed by a person over the age of 45 will account for at least half of all privately renting households by 2035, analysis conducted on behalf of Paragon Bank has found.
Funding Circle’s full year results were announced on 10th March and the NACFB Patron was keen to take the time to recognise the success of the introducer community, including the Association’s Members.
A report by the Social Market Foundation (SMF), ‘Where next for the private rented sector?’, found that 35% of households currently private renting are headed by somebody aged 45 or over. This will rise to half of households by 2035 according to the SMF’s projections, equating to an additional 1.14 million households, bringing the total number of 45+ households to 2.7 million.
In 2021, Funding Circle lent over £1 billion through more than 1,000 active UK introducers for the second year in a row. During another difficult year, the funding went to support more than 6,500 small to medium sized businesses around the UK, helping them get the finance they needed to grow and thrive after the impacts of the coronavirus pandemic.
Conversely, the proportion of households in the sector where the head is aged 34 or under will fall from 39% today to 35%. Those in the 35-44 age group will experience the greatest decline, falling from 25% of households today to 15% in 2035.
Thanking brokers for their ongoing support, Jeremy Crinall, head of UK introducer partnerships, said: “These figures demonstrate the huge value that the introducer community brings to SMEs, and is testimony to their passion and commitment towards Funding Circle’s goals.”
Richard Rowntree, NACFB Patron Paragon Bank’s managing director of mortgages, said: “The SMF tenant research shows that more mature tenants want greater security in the form of longer tenancies and control over their property, such as the freedom to make cosmetic changes. They also want to have pets in their homes, and these are all things landlords need to consider.”
The introducer team has formed strong relationships with its brokers over the years, and the results are evidence of the journey the NACFB Patron has taken to support as many SMEs as possible.
12 | NACFB
Funding Circle has lent in excess of £14 billion to more than 120,000 businesses so far and anticipates over the coming years both figures will continue to grow.
Membership News
Membership News MFS secures £300m funding as it targets £1bn loan book
Business Enterprise Fund launches £5m hospitality recovery loan
Market Financial Solutions (MFS) has announced more than £300 million of new funding, which will be used to greatly accelerate the growth of its loan book across both existing bridging products and buy-to-let mortgages.
Hospitality businesses were presented with new recovery funding in March as Business Enterprise Fund (BEF) launched its £5 million hospitality recovery loan. An event at Spark:York, hosted by the NACFB Patron, welcomed several hospitality company owners and introduced them to the funding, which has been designed to deliver additional support to hospitality, food, retail and supply chain businesses across Yorkshire, The Humber and Tees Valley.
The funding comes from multiple global financial institutions following a period of due diligence, demonstrating the strength of the NACFB Patron’s products, platform, team, and client base. Now with multiple dedicated funding lines, MFS will use the additional funding capacity to grow its loan book to £1 billion in the next 12 months. Large bridging loans and buy-to-let mortgages will be two key areas of growth. Along with the new funding, in the coming weeks MFS will be adding new personnel to its team, which has doubled in size in the last year. It will be recruiting across a range of bridging and buy-to-let roles, including experienced underwriters, business development managers and marketers, to help accelerate the deployment of its specialist lending solutions. Describing the funding as a hugely exciting development, Paresh Raja, chief executive officer of MFS, said: “We’re delighted to have secured this new funding from some very highly regarded global financial institutions. It will greatly accelerate growth across all our product lines.” 14 | NACFB
According to trade body UK Hospitality, the British hospitality sector lost £114.8 billion in sales in 2020/21 due to COVID-19. Businesses that have not faced closure have been left with loss of income, depleted cash reserves and staff shortages. With the recent lifting of restrictions, the sector now faces the challenge of returning to pre-pandemic trading levels. Steve Waud, CEO at BEF said: “Recovery and growth is vital for this sector, which has suffered more than most over the last two years. We look forward to funding many other hospitality companies.” Guest speaker, Kevin Hollinrake MP, spoke passionately about the importance of SMEs and hospitality to the regional and UK economy, highlighting the current funding gaps they face. He said: “Community development financial institutions like BEF play an important role in addressing this funding gap.”
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Patron Profile
On a mission How brokers are helping to create fairer communities Rob Benfield Director of Investments Social Investment Business
O
vercoming an aversion to taking on debt is a big ask for charities and social enterprises which have traditionally used grants and other channels to access the funding they need to operate and grow. But COVID-19 changed their outlook. Almost forced into exploring alternative sources, many took advantage of the Bounce Back Loan Scheme (BBLS) and other government initiatives designed to support businesses and organisations with finance which would help them survive the unchartered waters brought about by the pandemic. Now, this enhanced awareness and understanding of the utilisation of debt is driving greater demand across the third sector. And that’s where Social Investment Business (SIB) comes in. With a mission to provide finance to help create fairer communities, we specialise in helping organisations become more resilient and sustainable, so they are in the best place to grow and increase their impact. SIB has a 20-year track record in social investment, grants and business support programmes, and in data analysis, having invested and distributed almost £0.5 billion in finance to well over 3,000 charities, social enterprises, and community businesses across the UK. Like many other lenders, the past couple of years have been 16 | NACFB
exceptionally busy for SIB, as we mobilised at pace to respond to the impact of the pandemic. Now, we have more than £100 million under management across grants and loans, including £39 million disbursed in the year just gone.
Building resilience to support the recovery We are acutely aware that the pandemic has exacerbated inequalities with some places and communities having been hit harder than others. As social investors, we need to ensure that our funding is reaching the areas of greatest need. So, in 2020, SIB launched the Recovery Loan Fund making over £21 million in repayable finance available to charities and social enterprises alongside groups and communities that have previously been unable to access funding.
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SIB’s average loan size is around £250,000 although we will lend up to a maximum of £1.5 million with the loan being unsecured or ‘lightly’ secured
This fund aims to make the government’s Recovery Loan Scheme (RLS), more accessible to charities and social enterprises which have been impacted by COVID-19 and need funds to aid recovery, adapt and grow – allowing them to continue to serve their communities in need. This fund builds on the successes of our previous offering, the Resilience and Recovery Loan Fund (RRLF) which closed in March 2021. RRLF approved £28 million in total funding to 77 charities and social enterprises across the UK, with £24 million worth of loans and over £3.9 million worth of grants approved. Through our own data and learning, we have found that black and minority-led social enterprises in particular face structural barriers in accessing finance. We are therefore expanding the Recovery Loan Fund with a forthcoming initiative that will change eligibility criteria and deploy significant grant blends, work with expert partners, and provide tailored support. This will help to widen accessibility and prioritise groups that have been historically and systemically excluded from social investment.
How SIB works with brokers Although historically SIB generated new funding opportunities solely through referrals from social sector membership bodies and its own networks within the sector, more recently we have witnessed an increasing number of commercial finance brokers requesting to work with us. Through engagement, we have discovered that brokers are looking to enable funding to charities and enterprises in order to help deliver critical services in their local communities.
To meet this demand, SIB became Patrons of the NACFB and launched a broker proposition that pays commission on all loans that are advanced and where each commercial finance broker has direct access to a dedicated SIB account manager.
How a typical funding deal works SIB’s average loan size is around £250,000 although we will lend up to a maximum of £1.5 million with the loan being unsecured or ‘lightly’ secured. Applications are assessed by a specialist relationship manager and loan approvals are then made by the investment committee which meets monthly. Once approved, full loan documentation goes out to the customer using DocuSign ready for them to execute. All due diligence, AML and KYC checks are undertaken electronically. Funds are generally paid out in a single lump sum.
Next steps Social investment has an important role to play in supporting people and places through the post-COVID recovery and beyond. We have an opportunity to create a more inclusive economy, underpinned by impact-led organisations and social businesses that provide good jobs, improve living standards, and ultimately create a more equal society. We stand ready to work with government, you the NACFB membership, and the wider social enterprise movement to unlock the transformational impact that we can have on the economy and society together.
NACFB | 17
Compliance
Closing the net Why brokers are advised to update screening procedures
James Hinch Head of Compliance NACFB
P
art of the UK governmentʼs response to the Russian invasion of Ukraine has been to coordinate with partners on sanctions aimed at starving the Russian government of funds. As well as upholding existing measures, wide-ranging new sanctions have been introduced on Russian businesses, banks, and individuals. Sanctions and embargoes are restrictions applied by a government or other body against a country, entity or individual. They may be imposed for a variety of political, financial, economic, social, or military reasons. In the case of Russia, all these may currently apply.
have access to this list via Red Flag Alert as well as other business intelligence, including PEPs and UBO (Ultimate Beneficial Owner) checks, alongside Companies House documentation. For existing clients, it is up to the broker to decide how often sanctions checks should be performed but regardless of whether a client is new or longstanding, brokers must keep accurate records. Members who use the NACFB’s template documents to steer their policies, processes and procedures will know that guidance is provided on when to perform the checks and on record keeping. Having carried out the checks, should a broker discover that the client is subject to sanctions, they should decline to transact with the client and, if appropriate, inform the lender.
Next steps
For commercial finance brokers, the Russian war against Ukraine highlights the importance of implementing sanctions checks on new and existing clients and ensuring that they are an integral part of the Know Your Customer (KYC) and Anti-Money Laundering (AML) due diligence processes.
With UK, EU, and US sanctions set to intensify, now may be a good time for NACFB Members to brush up on the latest in embargoes and sanctions regulation via the Association’s exclusive online training platform which boasts several relevant courses including ‘Embargoes and Sanctions’, ‘Economic Sanctions’, and ‘Money Laundering and Terrorist Financing Risks of Virtual Assets’. These courses, alongside dozens of others, can be found in the ‘Essentials Training’ folder.
Breaching any embargo or sanction is a criminal offence which is punishable by heavy fines for individuals and companies, or even, for the individual, imprisonment. As such, sanctions searches are seen by many as an essential element of good governance for firms in the financial services industry, including brokers.
The ‘Embargoes and Sanctions’ module takes about an hour to complete and includes a short assessment at the end. The course helps brokers to identify the steps and actions to take to comply with the rules and explains how to report matches and suspect transactions. All courses can be found under the CPD tab of your NACFB account.
However, from our regular Minimum Standards Reviews (MSRs) with NACFB Members, we know that some brokers do not perform sanctions checks on clients as part of their KYC and AML due diligence processes – and they are not actually obliged to do so. Either the broker deems it unnecessary, or they consider that the responsibility lies with the lender.
Members who do not use the NACFB’s template documents to help steer their business policies, processes, procedures, and practices, may wish to use them as a benchmarking tool to assess whether their own systems comply with the current regulations. When reviewing AML and KYC due diligence processes, we recommend paying extra regard to our Anti-Money Laundering Policy and Compliance Plan.
Deciding whether to carry out sanctions checking depends on a broker’s appetite for risk. If the checks are left to the lender and they go on to discover that a client is subject to sanctions, this could damage the broker’s reputation. It could also lead to the lender choosing not to transact with the broker in future.
The documents – and there are currently more than 70 – can be accessed by logging into your NACFB account. They are available in Word format so that Members can add their business details and edit fonts and layout to fit their brand.
From an NACFB perspective, sanctions checking demonstrates best practice. They can also help to speed up an application, although the lender will always carry out their own checks too. Brokers should also be mindful of the conditions in any lender-broker agreement, as some lenders require that brokers undertake sanctions checks to introduce business. We recommend that Members conduct their due diligence on clients, including screening for sanctions and PEPs (Politically Exposed Persons), prior to any formal engagement with a lender. Screening for sanctions should be carried out against the current UK Financial Sanctions List published by HM Treasury. Remember, Members
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Should a broker discover that the client is subject to sanctions, they should decline to transact with the client and, if appropriate, inform the lender NACFB | 19
Ask the Expert
Going for green
Q
The race for more sustainable commercial finance
Mike Deacon Board Director NACFB
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ollowing COP26, the United Nationsʼ conference on climate change hosted in Glasgow last November, the government committed to reducing the UKʼs greenhouse gas emissions to net zero by 2050. Financial institutions will play a key role and NACFB Members are well-placed to help borrowers understand how lenders plan to meet the target. We asked Mike Deacon, NACFB Board Director to explain more and share how the Association will guide its Members along the path to a more sustainable future.
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Have any of the targets been reflected by financial institutions, and in particular, commercial finance lending activity?
criteria which will require radical changes in the way they assess risk and reward.
In the 2021 NACFB survey of brokers, 79% of respondents said that they had not seen any increase in clients seeking green funding solutions. Why do you think this is?
A
Not yet. There is a lot of work to do, and the scale of the task is huge. In the UK, there are some signs that lenders are gearing up for niche lending sectors that are ‘green’, but the actions taken are yet to be co-ordinated strategically. Lenders still appear to be working in silos.
What constitutes a green loan? Is there an actual definition?
Education. Borrower lethargy on green finance will continue until there is a clear government strategy and a common set of guiding principles for financial institutions – including brokers. It could also require legislation.
Currently, there is no standard definition of a green loan, but there is a lending aspiration towards a greener future.
What can NACFB Members do to make their clients more aware of green funding solutions?
Following COP26, what environmental targets have been set by the UK government?
In the world of commercial finance lending, what might be considered ‘greenwashingʼ?
Brokers can take the initiative and start to educate themselves about the changes that lie ahead in the commercial finance space.
According to the UK government’s ‘Building a Private Finance System for Net Zero’ paper the key is building “a virtuous cycle of innovation and investment for net zero”. This will require modifications to the ways lenders deal with reporting, risk management, returns, and mobilisation (making funds available across a range of sectors through government and public-private partnerships). It’s a lofty set of ambitions which will require much work to bring them into the business and lending world.
Very simply, something that appears to be carbon-reducing but is not carbon-reducing. Governments around the globe have been ‘trading’ carbon credits for decades, i.e., rich countries using poorer countries’ credits in exchange for goods, services, and funding. This is not sustainable. In the UK the Green Technical Advisory Group was established to tackle this issue for a range of investment and other commercial finance funds. Many commercial lenders will need to ensure that their lending meets the government’s
What role do you believe the NACFB can play in pushing forward the green finance agenda?
20 | NACFB
The NACFB is already seeking to influence government, regulators, and lenders by providing them with insight on the issue from the broker’s perspective. Our fast-growing relationships with these key stakeholders will also ensure that messaging and new developments regarding green finance are shared with our Members.
Asset Finance
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“ The portal is very simple and easy to use. It allows us more control and greater visibility of where individual proposals are in the process. The predictive feature to search for companies within the system is a time saver.” Paul Bedi Director at Central Asset Finance
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Measure for measure Regulated bridging made simpler Leanne Smith Sales Director LendInvest
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emand for regulated bridging finance is increasing. The uptick gained momentum during the pandemic when the government reduced Stamp Duty rates in an effort to get the UK residential property market moving. This led to buyers choosing to bridge to ensure that their purchases were completed before the scheme ended. Since then, we have witnessed the demand for regulated bridging continue despite changes to broader economic conditions. This is being driven by the housing market which remains fiery. The ongoing lack of sufficient housing for the UK’s growing population is fanning the flames as brokers and buyers race to get purchases over the line. And it is not a problem that will go away any time soon. According to the Office for National Statistics (ONS), the population, which was estimated to be 67.1 million in mid-2020, is projected to rise by 2.1 million to 69.2 million over the decade to mid-2030 which is an increase of 3.2%. For those who are new to broking or short-term property finance, a bridging loan is regulated if the security (the property) will be occupied by the borrower or an immediate family member. The bridge can be either a first or second charge loan, and typically, the loan term is for a period of 12 months or less – hence ‘short-term’. From a practical standpoint, regulated bridging loans are often used where there is a slow-moving chain of properties being sold. The bridge helps the entire chain to stay on track and reduces the 22 | NACFB
risk of breakdown. Fortunately for the broker, here at LendInvest, the loan application process is similar to non-regulated deals. Also, the opportunities to offer this type of finance are not just limited to homeowner transactions, as we saw recently when working with a broker and their property investor client in Watford. The broker approached us because his client wanted to release some of the capital in his home to complete on an investment opportunity purchased at auction. The client had already planned to leave his current residence and remortgage it onto a buy-to-let mortgage in six months’ time. We backed the deal worth £660,000 at 66% LTV. Because the client was making an auction purchase, the deal needed to complete within 28 days, so speed was of the essence. Fortunately, our intermediary portal now accepts regulated bridging applications and so the broker was able to submit the deal this way. In fact, using our portal has been a gamechanger for brokers as it offers the fastest route to processing LendInvest applications. The portal’s design has inbuilt process efficiencies including online document management and e-signatures. For example, brokers can get instant quotes as well as an European Standardised Information Sheet (ESIS) for clients in minutes – that’s the document which provides all the important information borrowers need to help them decide if the loan is suitable and enables them to make a comparison with other lenders. The portal also allows brokers to manage all their deals with LendInvest in one place, as well as access expert support. The live dashboard shows the status of every case, and the application process saves information for repeat customers, meaning the more times brokers use it, the quicker and simpler it becomes for them to
continue using it. Additionally, the portal provides brokers with a review of potential earnings from deals. We are delighted that our broker partners have been keen to embrace this technology across our bridging range, with around 80% of applications submitted through the portal since the start of the year and more than 1,000 brokers activated to use it. This take-up demonstrates the value good technology has to offer and shows that with the right tools, brokers feel confident that they can deliver quickly for their clients when the need arises.
Looking ahead, we anticipate that regulated bridging products will remain a handy option for brokers as landlords continue to invest and homebuyers go on downsizing and upgrading. Here at LendInvest, we stand ready to help and will continue to make improvements to both our products and the portal.
Issued by LendInvest Loans Limited, which is authorised and regulated by the Financial Conduct Authority (ref: 737073) in the UK to enter into (as lender) and administer regulated mortgage contracts.
For intermediaries only
Log in to regulated bridging Online calculators, online enquiries and online applications: submit and manage your regulated bridging deals in one place. Rates from 0.48%.
Property finance made simple. lendinvest.com/intermediaries LendInvest Loans Limited is a company registered in England & Wales with Company No. 09971600. LendInvest Loans Limited is authorised and regulated by the Financial Conduct Authority (FRN:737073). LendInvest Loans Limited is a wholly owned subsidiary of Lendinvest plc. Borrowing through LendInvest involves entering into a mortgage contract secured against property. Your property may be repossessed if you do not repay your mortgage in full.
Special Feature
The next level? Funding a more united kingdom
Norman Chambers Managing Director NACFB
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n late March, the NACFB team and I met for a short workshop, part of which was titled, ‘What makes an NACFB Member?’. The purpose of the task was to identify greater membership commonality, highlight the unifying threads that bind brokers, and to shine a light on the shared drivers that motivate our Members to succeed. I’d be betraying no confidences to reveal that the task was incredibly difficult. For you see, as obvious as it may sound, no two NACFB Members are alike. And therein lies the strength of the trade body, demographically speaking, the membership is as diverse as the businesses it funds. From property brokers based in London and farming machinery brokers in Derry, to Oxford-based medical equipment specialists and working capital experts in Cardiff, the NACFB remains proudly a broad church. Delving a little deeper though, beyond locations and product specialisms, the personalities that sit behind brokerages do however share common traits. From the hundreds of firms I’ve spoken with I’ve gained a clearer understanding of what drives commercial finance brokers. I can say with confidence that core values of fairness and moral fibre combined with an unwavering belief in a level playing field lie at the very heart of successful Members. Such values are complemented by faith in the substantive; a substance of transaction, substance in partnerships and, above all, substance of character. Which is why when the government announced it was to finally publish its Levelling Up white paper, our membership quite rightly expected to be met at least halfway in their efforts to empower UK SMEs. Brokers the length and breadth of the country have shared with me the need for well thought out policy measures that help to level the funding playing field, aid free market enterprise, and provide genuine substance. Has the white paper delivered on those expectations? Let’s find out.
Scaling red walls In the aftermath of the Brexit referendum and the 2019 general election, the regions outside of London and the South East, and particularly in the North of England, have turned into political battlefields. ‘Levelling up’ the condition of these areas has duly become an urgent challenge for the government. But the concern is far wider than this. These areas also contain much social deprivation, especially in health and education. There is indeed a moral imperative to level up: it is appalling that the economic divide between north and south in today’s Britain draws comparisons with that between East and West Germany before the fall of the Berlin Wall, with its 18-year gap in healthy life expectancy. Above all, the UK has exceptionally large gaps in regional productivity. Raising the productivity of less productive regions could deliver big national gains.
Boris Johnson and Michael Gove have described levelling up as a moral, social, and economic programme across the whole of government. It is within this context that Gove’s white paper on ‘Levelling Up the United Kingdom’ enters the picture. In short it contains some thorough analysis, clear aims, and sensible policy steps. The bad news is that many of the goals are likely to be unachievable and the plan, however well intentioned, is financially under-resourced. Gove’s proposals are wrapped in quite an extensive document, providing history and analysis of the causes of economic and social disparities across the UK. Plans to address and narrow these differences are introduced, covering numerous areas of government structures and public policy. Some elements are new, while others are existing policies. The paper also sets out areas on which further policies will be announced. The white paper argues that a “fundamental rewiring” of the system of decision-making, locally and nationally, is required to address geographical disparities. To do that, the government is introducing a new approach based on five ‘pillars’. This includes 12 medium-term ‘missions’ reforming central and local government decision making and improving local data. The intention is for this “long-lived programme of change” to “embed levelling up across all areas of the UK government, local and national”, in partnership with the private sector and broader society. The white paper’s 12 missions have been considered by some to be little more than a propaganda exercise. They range from achieving more first-time buyers in every area, to nationwide 4G coverage, to the somewhat loftier promise that every area will have a globally competitive city by 2030. With little new money, the Institute for Fiscal Studies has criticised the 12 missions as too broad and unlikely to succeed. But Gove’s decision to make them legally binding targets, overseen by an independent council, are an important device to focus Whitehall’s attention.
The baby and the bathwater It’s an unpopular statement to make, so I’ll whisper it quietly: levelling up the UK should not mean levelling down London. Last
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I can say with confidence that core values of fairness and moral fibre combined with an unwavering belief in a level playing field lie at the very heart of successful Members
NACFB | 25
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Boris Johnson and Michael Gove have described levelling up as a moral, social, and economic programme across the whole of government
month, EY published findings that said the government will fail in its ambition to narrow regional inequalities by pushing to stimulate economic activity across the UK at London’s expense. The capital’s output shrank 3.6% during the pandemic, a steeper fall compared to other regions. However, by 2025, London’s economy is forecast to be 8.9% larger than it was before the pandemic. It is also predicted to regain or exceed its share of the country’s entire output by the same year. EY’s report warned the government’s levelling up plans will not succeed if they choke the capital by shifting activity to other regions. The idea of levelling up is bedevilled by fears that it will simply shift taxpayer money from south to north. Already, the National Audit Office is warning that billions of pounds could be wasted by the new towns and levelling up funds. The acid test will be whether areas which are a net drain on the exchequer can become net contributors.
On our doorstep There’s nothing new in politicians pointing to the north-south divide, but the UK has not always led the way in this inequality between 26 | NACFB
places. Most countries had higher regional gaps than the UK for the majority of the 20th century. Indeed, the UK’s productivity gaps actually fell post-war and their surge is only a relatively modern phenomenon. We also know countries can perform very differently. Since reunification of the wealthy West and poorer East Germany, a closing of huge regional gaps has been a national priority. Partly as a result, such gaps have come down since 1990, as Britain’s have increased. So, the lessons of history are that we can do better. But no one should pretend this will be easy – Germany has invested about €2 trillion in the east over the past three decades. The government’s vaulting ambition should be applauded, but I am reminded of earlier lessons on what NACFB Members are seeking. Our old friend substance. However noble the intention, a plan without sincere will or sufficient funds to implement will remain forever that, a plan. Truly levelling up the United Kingdom is the task of decades, not soundbites. Plans must be substantive and tethered to genuine reality because that’s what NACFB Members and UK SMEs deserve, regardless of where they’re from.
Bridging finance
Special Feature
More sensitive antennae Learning how to avoid ‘long firm fraud’ in asset finance Andrew Ribbins Group Sales Director & MD Asset Finance Ultimate Finance
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raud has existed since mankind developed the ability to form intent and deceive their fellow man. Surprisingly, until 2006 there was no definition or specific offence of fraud; it existed in a myriad of other offences which were repealed then and replaced with the Fraud Act. Commonplace among frauds that have been perpetrated both before and since the changes include what is commonly referred to as ‘long firm fraud’. A recent example includes the case of Arena Television suspected of this type of fraud. It is reported that more than 55 lenders were caught up in this alleged scam. Arena were suspected of inventing thousands of fake assets and obtaining multiple asset finance facilities across multiple providers on assets that didn’t exist. The more finance they obtained, the more creditworthy they appeared. It is alleged this culminated in more than £282 million of loans on assets that likely don’t exist. UK Finance reported that in the first half of 2021, criminals stole a total of £753.9 million through fraud, an increase of 30% compared to H1 2020. A further indication of the issue is the estimated 4,000+ suspicious phoenix businesses formed since government support commenced in April 2020. The impact upon lenders and brokers is considerable. Financial loss for both; bad debts and write-offs for the lenders, commission debit backs for the brokers. And then there is the potential for reputational damage, the fraudsters having no qualms about the collateral damage. Whilst there has been no sign of any lender removing themselves from the market on the back of the current Arena Television 28 | NACFB
situation, that’s not to say it won’t happen as seen before. For sure though, lenders affected will naturally revise their outlook in underwriting, inevitably leading to a restriction in appetite. Across the industry we are employing a raft of tech-based systems and processes in an ongoing attempt to combat the fraudsters. A robust and systematic approach has been developed to detect, manage, and share information through the co-operation of lenders as members of Cifas for example. One of the goals in the last few years has been to deliver faster turnarounds on finance. The race to provide a quick acceptance potentially comes at a cost though as the level of information provided becomes one of the casualties of the concept. This line of least resistance in credit decisions becomes a fault line that fraudsters can exploit. Asking the difficult questions and requesting documents to back up answers should not be shied away from – by lenders or brokers. Sharing information with brokers is essential. In many cases they are the front line of defence, and we should do all we can to equip them to fulfil this role. At Ultimate Finance we develop long term relationships with our introducers, so they can gain more insight and knowledge of how we can help them to combat fraud in their own business as well as the business they introduce to us.
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Asking the difficult questions and requesting documents to back up answers should not be shied away from – by lenders or brokers
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And action… Why it’s important for all of us to meet our ESG requirements Nick Smith Group Managing Director Reward Finance Group
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t is encouraging that many companies are now including ESG – Environmental, Social, and Governance – as part of their credentials.
These non-financial factors are increasingly being used by third parties to recognise the principles upon which a company is built. They also provide a powerful reason why they should be working with or supplying those adopting these working practices, as opposed to ones that don’t. However, it is one thing to give a nod to ESG but putting it into practice is the important thing. That’s why ESG is high on the agenda at Reward. Increasingly employees, customers, and investors will expect every organisation to have something to say on ESG and they will expect that message to be authentic and for management’s commitment to be sincere.
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It is one thing to give a nod to ESG but putting it into practice is the important thing
With this in mind, I thought it would be useful to outline the various plans we have put into practice, not in an attempt at virtue-signalling but rather to show that it is possible to make a difference through a series of simple steps, many of which I am sure most NACFB Members are already taking. At COP26, which took place in Glasgow towards the end of last year, the conference highlighted that extreme weather events, rising global temperatures and the depletion of both natural resources and animal species are now irrefutable. The UK Government has therefore signed up to binding legal commitments to eliminate carbon from the UK economy by 2050. Legislation to support the targets is already apparent, with lots more to come. Those businesses that do not adapt and change their business model to a carbon neutral one won’t have a future. Beyond the commercial imperative for respecting the environment, is the larger truism that it is just the right thing to do. At Reward we have adopted an ESG framework where the E of Environment is seen as the area where we can make the biggest immediate impact. We have committed to achieve net zero by 2030 and will bring this forward if we possibly can. We will ensure that none of our waste product goes to landfill and that all our energy is from renewable sources. We are also looking critically at our travel to work practices. What has been particularly motivating so far, when considering ESG, has been the initiative and enthusiasm with which our team has embraced this agenda. There have been some brilliant suggestions already about reducing our carbon footprint, giving back to the community and about how we interact as a team. The generation entering the workforce now, and in the future, quite rightly have different hopes and expectations of what their employer can provide for them, which is where the S (Social) of ESG comes in, with regards to our people.
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Those businesses that do not adapt and change their business model to a carbon neutral one won’t have a future
As we head further into 2022, those companies hoping to attract and retain the best talent need to have a positive, nurturing culture. Colleagues now expect their employer to care about the environment, have progressive, flexible policies towards the team as rounded individuals and have a sincere interest in learning and development. At Reward we are keen to ensure that the team feels involved and invested in what the company is doing and that we positively reflect their input in shaping the business for the future. In Social matters, Reward has included community in addition to our people initiatives. For a long time we have maintained an active programme of support for our two chosen charity partners. Energy goes into organising fundraising events, and we get a lot of satisfaction from our team’s commitment to the causes. We also recognise the importance of the community around us, and we take pride in supporting local employment through the SME businesses we fund. Maintaining high standards of Governance and ethical behaviour takes both effort and commitment and is a very powerful asset for any company. At Reward from day one, we have prided ourselves on being a responsible lender and on treating customers fairly. This involves us continually maintaining close contact with our customers and, should something not go according to plan, working with them to achieve the best outcome for all parties. NACFB | 31
Special Feature
Leading the charge Only coherent planning can propel electric vehicle adoption Julian Rance Managing Director of Motor Finance Paragon Bank
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he uptake of electric and hybrid vehicles in the UK is finally starting to gain pace. Until recent years, the momentum has been more akin to a steamroller than a Tesla-esque torque burst, but the segment is heading in the right direction.
The latest Society of Motor Manufacturers and Traders (SMMT) figures showed that 21,977 electrified cars were registered in February, up 123% on last year, earning a market share of over 37%. In the first two months of the year, the strongest growth was recorded in battery electric vehicles, up 154% compared to 2021 at 24,850. With the new ‘22 plate now available, I would expect those figures to continue to grow. But any change in consumer behaviour never comes without teething pains and the perennial ‘chicken and egg’ debate around electric vehicle adoption and infrastructure still rages. As technology has advanced, fears over battery range have largely abated. Most electric vehicles now have a range in excess of what you’d get on a full tank of petrol. However, concerns over the charging network persist. Most electric vehicle owners charge at home and use their vehicle to make short journeys. When it comes to making longer trips, the majority of owners will have some form of horror story about trying to find a charging point, waiting for one to become available and then being charged through the nose to use it. The SMMT has urged the government to take action on upscaling the charging infrastructure to facilitate further take-up of electric cars and has published a seven-point plan to turbocharge the UK’s infrastructure. According to the SMMT, plug-in cars on the road grew by a phenomenal 32 | NACFB
280% between 2019 and 2021, but standard chargepoints increased by just 70% in the same period. Meanwhile, battery electric cars rose by a staggering 587%, whereas rapid/ultra-rapid charger stock grew by only 82%. Amongst its requests, the SMMT wants the government to deliver a national plan to align charger provision with demand and to establish a new regulator, ‘Ofcharge’, to ensure charging is affordable, accessible, and as easy as refuelling with petrol or diesel. Other points include setting binding targets to ensure adequate public chargepoint provision and ensuring electricity networks are future-proofed and fit for purpose for zero emission mobility. It’s a welcome move by the SMMT, which recognises the benefits of developing an electric automotive industry to the UK economy and continues to lobby government in that regard. The issue for the providers of electric charging points is do they invest millions of pounds into infrastructure now when technology could soon overtake today’s offering? That could be holding back further infrastructure investment and I would like to see the government offering further support in this space. The barriers to the adoption of electric vehicles are falling away and we are seeing motorists increasingly turning to electric alternatives. I believe fixing the charging infrastructure will help accelerate adoption.
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Plug-in cars on the road grew by a phenomenal 280% between 2019 and 2021, but standard chargepoints increased by just 70% in the same period
Go on. Make their day. Our competitive range of regulated and unregulated Bridging loans have become renowned for their speed, ease and flexibility. With thousands of them under our belts over the years, there’s practically nothing we haven’t seen before.
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Striking a balance Recognising the benefits technology can bring, but with a note of caution Tom Simpson Managing Director YBS Commercial Mortgages
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ere at YBS Commercial, we’ve recently started the process of rolling out our broker portal. This is something we are very excited about because it will give brokers more control over their applications and free up their precious time. The portal has been designed with efficiency and effectiveness in mind, allowing brokers to see, at a glance, what’s outstanding and enabling them to easily request more information if and when the need arises. In addition, the secure document sharing facility allows brokers to upload and download all the paperwork. Essentially, the portal provides all the information brokers need about an application without them having to contact us directly.
It’s all about balance All of this is great – as we know technology offers many benefits and opportunities. However, we are also mindful that we need to maintain a balance between the introduction of technology and preserving the high level of service that both our brokers and customers have come to expect. The broker portal isn’t meant to do absolutely everything – and this is quite a deliberate move for us. What I mean is, we are taking a great deal of care to ensure that our offering is not just about technology but people and relationships too. For lenders, it is vital to try to strike a balance between recognising the importance of human interaction and the benefits of technology. 34 | NACFB
We know some lenders have moved to offering a service where speaking to a person is by exception only. This isn’t what we are about, or will ever be. Our brokers and their clients have the choice and that can only be a good thing. We have all experienced frustration or anxiety when a process uses too much technology. Sometimes, the only way forward is to speak to a human, especially when brokers need clarity on a complex application. We get that, and the risk of negative feedback and potential loss of customers or brokers, isn’t one we’re willing to take.
A good start So far, we have had a great response to the portal. Most of the feedback shows that brokers can really see the benefits. However, we recognise there will always be those who are more cautious, and perhaps even those who believe the introduction of new technology – like the portal – implies less heavy-lifting work for us and more for them. This isn’t the case. Yes, technology can help us to process things more quickly and smoothly, freeing up our internal teams to focus on complex tasks, but the portal is designed to make the process easier, more efficient, and more effective for everyone.
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Sometimes, the only way forward is to speak to a human, especially when brokers need clarity on a complex application
When we started development, we took the time to get the interface right and build something bespoke which met our needs and more importantly, met the needs of our brokers. That is why the portal asks for around a third less information than required using our paper application process – a huge benefit not only to us, but to our brokers too.
We’re all catching up As we all know, the pandemic accelerated the use of technology in society as a whole. But it is fair to say we already had the broker portal on our radar. Perhaps the pandemic has encouraged more
openness to the changes it might bring, following in the footsteps of the wave of technological advancements which were forced upon us, as we were all sent home to use Microsoft Teams or Zoom.
What’s next? There is no doubt that the direction of change is being driven by technology – for lenders, brokers, and customers. Here at YBS Commercial, we firmly believe that technology will complement our offering. It is not something to fear as long as we take care to ensure that relationships stay front and centre of transactions. And that strikes the right balance.
NACFB | 35
Industry Insight
What we’ve learnt A long-term presence in short-term lending Brian Rubins Executive Chairperson Alternative Bridging Corporation
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ike the NACFB, we’re also celebrating 30 years in business at Alternative Bridging Corporation this year, which by anyone’s book is a long time in short-term lending. Unsurprisingly, a lot has changed over that period, but at the same time, some things have steadfastly remained the same. When we first started in bridging in 1992, it was a different beast to that of today. It generally provided a sticking plaster for the borrower who had been let down by a mainstream lender. The process was pretty similar to the high street lenders as well – we just did things a little quicker and of course, we had to charge a bit more because our cost of funds was greater. Thirty years on and we still do step in to save the day, but we have greatly diversified as well. We now also lend for property development, provide overdrafts and term loans. We are now an alternative source of property finance for both regulated and non-regulated business. And our funding costs are much lower due to our diversified funding lines and so we have significantly reduced the interest rates we charge. The market has changed drastically as well. When we launched, there were very few lenders operating, and they generally specialised, carving out their own niches. In addition, the number of specialist finance brokers was a lot less than now. Thankfully for the borrower, greater opportunity for funding and increased competition means that they have an unprecedented number of brokers they can talk to, who in turn have access to a wide range of lenders offering rates at record low levels. Acceptable security has widened greatly too. In the beginning, 36 | NACFB
the market provided loans secured on private homes, some residential investments, the occasional commercial property and, for Alternative, development sites, because we were active in residential development finance. Nowadays, there are very few property assets against which short-term lenders will not make loans – including mixed property portfolios, HMOs, student housing, residential and commercial developments, retail parks and shopping centres. So what hasn’t changed? First, the need to have a good look at every case and a viable exit is as great today as it was in 1992. The fundamental approach to lending is the same 30 years on: a bad case is still a bad case and one to avoid. All that said, there have been significant challenges over the past three decades and I’m sure there will be hitherto unforeseen bumps in the road in the future. The financial crash and subsequent credit crunch of 2009 was undoubtedly the most challenging period we’ve faced. In a way, however, as it was unprecedented, we just carried on lending, albeit in a more considered and cautious manner. While others were losing their heads, we came out of it stronger and ready and able to grow the business. Who knows what the bridging market will look like in 30 years’ time, but as long as it remains service-driven by experienced lenders, it will be healthy for the broker, borrower, and lender.
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The fundamental approach to lending is the same 30 years on: a bad case is still a bad case and one to avoid
Lending decisions made by real people We don’t just look at credit scores when making a decision, the overall health and plans for a business are just as important. Our straightforward finance solutions help real businesses fund new equipment purchases or unlock the value held in existing assets to ease cashflow. Speak to us today, we’re here to help. 0330 057 3848
www.closebusinessfinance.co.uk
Close Brothers Business Finance is a trading style of Close Brothers Limited. Close Brothers Limited is registered in England and Wales (Company Number 00195626) and its registered office is 10 Crown Place, London, EC2A 4FT.
Industry Insight
Balancing act How to assess risk using a company’s annual accounts Mark Halstead Deputy Chairperson Red Flag Alert
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or brokers with clients who operate using a private limited company, annual accounts are an interesting and necessary piece of the due diligence jigsaw. By law, companies are required to publish a summary of their finances every year. These annual accounts reveal more about a company’s finances than any other public source. Copies of company accounts can be obtained online from Companies House. For many companies, the accounts held will be abbreviated accounts and whilst these may provide some useful information, they are likely to limit the amount of digging that can be done. Before you start reading the actual accounts in any detail, take a look at whether they have been filed on time. Late filing is well known to be correlated with later insolvency. You should also look for any changes in directorship as this can show instability within the business. However, as with all measures they should be viewed as part of a wider picture. When reading the accounts, focus on the balance sheet and the company’s profit and loss (P&L). The balance sheet will help you to understand the company’s cashflow and leverage.
Cashflow You can get an idea of the company’s ability to pay their short-term debts using what’s known as the current ratio. This is calculated by dividing the company’s current assets by its current liabilities. 38 | NACFB
Current assets and liabilities are those items which the company expects to sell/dispose of or pay off within a year. The higher the number the greater the liquidity of the company. Cash is the best current asset, followed by the strength of debtors and stock, although this will depend on the industry in which the company operates. For example, debtors in the construction industry are notoriously unreliable so take this into consideration. Also, the value of stock can also be misleading, as some stock is worth less than recorded on the balance sheet or can be very hard to sell. Again, remember to consider the wider picture.
Leverage Financial leverage is the use of debt to acquire additional assets or fund projects and will be the reason that the client has approached you. The balance sheet will help you to understand the company’s long-term liabilities, i.e., how it is funded. Looking at whether the company is funded by debt or equity allows you to see whether they
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When reading the accounts, your primary focus should be the balance sheet where you can understand the company’s cashflow, leverage. Also look at the company’s profit and loss
are tied into repayments which can put a strain on the business – such as mortgages. In abbreviated accounts it’s not always clear what everything is but it’s a good starting point.
Profit & Loss The P&L account shows transactions made in the course of a company’s everyday operations, i.e., the total amount of sales and expenses ‘turned over’. The difference between the two is the company’s profit or loss for the year. The P&L does not include money a company has borrowed or that shareholders have invested as this is classed as capital not revenue.
Looking at the P&L can help you to spot trends over time. What is happening to revenue is important: steadily growing or stable revenue over many years indicates the safest proposition. Variable, declining or spikes in revenue can mean the company is inconsistent, struggling or expanding quickly. Expansion sounds good but a lot of companies can run into problems by overtrading and getting into financial difficulties trying to grow too fast. Looking at accounts is one part of the picture which should feature in your due diligence. Remember, don’t take the numbers at face value – contextualise them with the type of business you are assessing.
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Industry Insight
On the pulse SME optimism dips as inflation and cost rises bite Anton Nebbe Head of PR and Communications Close Brothers Asset Finance
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very quarter Close Brothers Asset Finance surveys around 1,000 of the UK’s SMEs, many of which use broker services to access financial support and advice. Collating their views in the Business Sentiment Index (BSI) is an important way for us to keep our finger on the pulse of business owner confidence at a given moment in time. It also helps our business finance teams and our broker partners gain valuable insights into the thoughts and opinions of SMEs. The index tracks business at a macro (UK) and a ‘key’ sector level, namely: • • • •
Transport and haulage Construction Manufacturing and engineering Services
Working with a statistician, the score we use is calculated using four key metrics that chart respondents’: appetite for investment in their business in the coming 12 months; access to finance and whether they’ve missed a business opportunity through lack of available finance; views about the UK’s economic outlook; and thoughts on their likely business performance in the coming 12 months. 40 | NACFB
Latest results The latest results found that business confidence reached record levels in late 2021 across all sectors, except construction, but has since fallen back. The downturn in sentiment is by no means as severe as it was after the first lockdown was announced, but it is clear the rise in both inflation and the consequent uplift in the costs of doing business, including fuel and energy, are having an impact. According to our figures, the other primary growth inhibitors were supply, driver, skills, and material shortages alongside the influence of Brexit. With many respondents facing an uplift in the cost of living – 78% admit to this being the case – it is not surprising costs are being passed onto their customers. Four in 10 respondents have chosen to pass the full cost increases onto customers while a further 24% have done so ‘partially’; 36% have chosen instead to absorb the cost increases.
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Despite the fall, figures are still very positive, notably in engineering and manufacturing where there is clear ambition
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It is important for brokers to note that some sectors are more exposed to cost rises and shortages than others, and this is reflected in the scale of the fall in the BSI score
In turn, this has caused wage inflation in the last six months for 43% of firms, most notably in the engineering sector, where the figure rises to 60%.
How the sectors have fared It is important for brokers to note that some sectors are more exposed to cost rises and shortages than others, and this is reflected in the scale of the fall in the BSI score. The UK averaged 27.9, down 3.85. Transport and haulage fared worst, down 6.76 to 27.1, followed by services which fell by 6.1 to 20.7. Elsewhere, manufacturing and engineering fell 2.43 to 38.1. Construction was the least affected, down only 1.45 to 31.5.
Missed opportunities Once again, over a third (36.9%) of companies surveyed (UK average) have missed a business opportunity because of a lack of available finance. Many businesses now require additional finance to enable them to invest in growth and continue their recovery. A government report recently stated that a shortage of credit for SMEs is one of the causes preventing the UK from ‘levelling up’. Like our business customers we have offices across the UK where we are actively working to address this imbalance helping business owners to secure the funds they need to grow.
Appetite for investment
Economic outlook
Overall, firms’ appetite to invest remained relatively solid, but still fell across all sectors and is more in line with results from April 2021. Despite the fall, figures are still very positive, notably in engineering and manufacturing where there is clear ambition.
Positivity about the economic outlook is the one indicator that improved since the last BSI with around 40% of UK SMEs expecting the economy to continue growing while a further third anticipates a ‘slow path to prosperity’. NACFB | 41
Industry Insight
When one door closes… Exploring the options when funding is declined James Piper Founder & Managing Director Lightbulb Credit
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here are no two ways about it, being declined for funding hurts. Not just the applicant either, the broker also loses out on a potential deal. Ordinarily, those declines would end up in the bin and that would be the end of that customer interaction, but credit repair is aiming to change that. Improving a company credit score can have an immediate positive impact on funding applications. It can also make a significant difference to brokers in completing those difficult or more complex funding deals.
The COVID effect The pandemic has had a negative financial impact on many UK companies, with the resulting decline in revenue creating issues like reduced net worth, lower cash holding and deteriorating payment performance. All of these drag credit ratings down, reduce the chances of getting funding, and hurt businesses at a time when they need help the most. Alongside that, more credit checks are being run than ever before and lenders are also applying tighter criteria to their offers, making it even more challenging for businesses to get the support they need. Nearly all funding providers use a credit score in their decision making, creating a direct correlation between ratings, and borrowing. Meeting the minimum hurdle rating is a simple go/no-go decision for most applications, so it’s beneficial to be aware of a client’s score early on. Having a rating of over 45/100 should enable a funding transaction to take place but moving that nearer towards 100/100 will improve 42 | NACFB
the rates and terms offered by the lender, as the perceived risk is reduced in the funder scoring methodology.
Not all rating agencies are equal For brokers it’s useful to know that although there are six rating agencies in the UK, two have traditionally dominated the funding approval market. The key to gaining the best funding for a client is to focus on scores with these specific agencies and take direct action when needed to improve them. Brokers can add real value to their clients by sharing insight on the credit rating process and how it can impact their funding application before it is made. Brokers can benefit from credit repair as much as their clients. Turning a decline into a fundable deal maximises every opportunity, keeps that customer journey going and potentially paves the way for a more positive outcome. For clients, being offered a solution in a decline situation really enhances their experience, and they can also gain valuable insight into how their company is viewed externally. Recovery and growth are the primary objectives for many businesses this year and the lending market will be busier than ever as a result. Building credit repair into the funding process could make the biggest difference to the hardest hit and could help to unlock more deals for brokers overall.
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Turning a decline into a fundable deal maximises every opportunity, keeps that customer journey going and potentially paves the way for a more positive outcome
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Broker Voice Opinion
The cost of broking The reality for smaller firms C
Peter Robinson Founder Kazlin Commercial Finance
told this will increase considerably from next year. Before I’ve even completed a deal or drawn a penny in salary my brokerage has cost £3,000. I will have to balance the cost of maintaining those permissions with the cost of not remaining on the panels of some lenders.
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Y
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MY
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he cost-of-living crisis is being felt by Britons from all walks of life. Although not unconnected, the cost of doing business is also rocketing, and there is a risk small brokerages will be priced out of the market. I have been a fully regulated commercial finance broker for 19 years and a qualified accountant for nearly 50 years, with an exemplary record throughout. So why then is maintaining a small brokerage harder now than ever before? Allow me to explain. In the early days, Consumer Credit Licences were granted to those who could demonstrate proven experience. It was at a cost of about £250 for a five or seven-year term and regulated by exception reporting from the public who could make complaints to the Office of Fair Trading. It was far easier to arrange commercial finance than it is today, it took less time, and all licence holders could cover the whole market as the priority was to service what businesses required. A minority of brokers were undoubtedly exceeding acceptable fee levels and there were cavalier lenders, but in my opinion the good brokers far outweighed the bad ones. From 2013, and with the FCA’s oversight, new permissions were granted to those who could again demonstrate proven experience. An initial lump sum was to be paid, in addition to the costs of legal advice and a recurring annual fee. My current fee is £820, and we have been 44 | NACFB
For brokers, complications have arisen through an increasing number of lenders who are now insisting that brokers must be regulated to not only complete regulated transactions but also unregulated transactions via limited companies. If all lenders adopt this stance of regulation by the back door there will be no place for unregulated brokers. They will be forced to either accept the high regulatory fees and apply to be regulated (currently £1,500 plus an annual fee), become Appointed Representatives of regulated firms, or forced to leave the industry altogether. In my opinion there remains a lack of regulatory clarity and much is left to interpretation. Most commercial mortgages are unregulated but if you are completing them for an individual, sole trader, or partnership of less than three, the broker must obtain permissions. The FCA’s blanket approach to our industry cannot continue, one size does not fit all, and some areas are better controlled than others. If businesses do not have the required funding they do not grow, and the economy does not grow but this meaningless regulation and compliance the FCA is churning out defeats the object and is harming the whole financial process. Ironically, those who the FCA is trying to protect currently may be disadvantaged by not receiving the benefit of a full market appraisal and ultimately pay a higher price for their commercial finance owing to higher regulatory costs. These are tough times for us all. I hope that changes and flexibility are introduced with calmer regulatory heads so that small brokerages like mine can continue to do what we do best, funding UK businesses.
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Opinion
Solid foundations In an uncertain world, a trusted lender is essential Kevin Beevers Managing Director of Commercial Lending Hodge
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fter two years of using the word ‘unprecedented’ an unprecedented amount, it was starting to feel like we were heading back to steadier ground. But, with conflict in Ukraine, interest rates on the rise and inflation at a 30-year high, that steady ground is looking a little shaky. When you’ve been in this industry as long as I have, times like these are certainly not unprecedented. History has a way of repeating itself – wars rage, rates rise, and 30-year highs come and go. But just because it’s happened before, doesn’t make planning for it or operating in it any easier. Dealing with the pandemic was a different kettle of fish. With restrictions changing week-to-week and different rules applying to each part of the UK, there was a stretch of time where it felt like everything had ground to a halt. Of course, this wasn’t really the case and for many businesses – lenders, brokers, and clients alike – that pause gave space to reflect on where they’d been, plan for where they were going and evaluate what was needed to make positive gains when the play button was pushed. That was certainly true for us at Hodge. Over the past few years we’ve continued to work with brokers as well as clients old and new, supporting them in the way we’ve always done, by looking for simple solutions to sometimes complex cases. It’s also given us time to evaluate the markets we operate in to ensure the products we offer are right for the clients who need them. 46 | NACFB
We’ve been able to spend more time listening than ever before, which has enabled us to adapt our product set in line with feedback from both clients and brokers. To my mind, difficult and uncertain times make having a strong funder relationship more important than ever. The word trust is thrown around a lot these days, and rightly so. With trust comes open lines of communication, honesty and the opportunity to really understand what each party wants from the relationship. When those lines of communication are open, we can react to unforeseen bumps in the road and pivot if needed. Hodge has been in the commercial and residential investment and development markets for more than 30 years, so we’ve seen a lot. Despite my youthful appearance, I’ve been in banking just as long and can confidently say, when the communication between lenders, brokers and clients is good, then all parties will prosper. Things are unpredictable right now. Whatever path we were all on this time two years ago has undoubtedly changed. But even if the ground seems a little shakier than we’d all like, building a lender relationship with solid foundations will certainly stand you in good stead.
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To my mind, difficult and uncertain times make having a strong funder relationship more important than ever
What is an LDS Sales Guarantee? LDS Sales Guarantees unlock access to development finance by guaranteeing to acquire any unsold homes on an SME housebuilder site and releasing 10% deposit on exchange into development cashflow.
Benefits Lenders
Development lenders benefit from a guaranteed exit from sites, which improves their risk profile and allows them to lend more to both new and existing SME clients.
Housebuilders
Better access to lending, plus the LDS cash deposit release allows SMEs to spread their upfront equity further, bringing forward more new projects and new homes than would have otherwise been possible.
Brokers
To find out how LDS Sales Guarantees transform the financial viability of development sites visit www.LDSyoursite.com
Brokers can increase conversion rates and increase fees by presenting their SME clients with a more competitive, lower risk, and smoothly executed finance package, that combines development finance with an LDS Sales Guarantee.
Opinion
In the mood for growth SME Finance Monitor results Q4 2021 Shiona Davies Director BVA BDRC
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n the final three months of last year, SMEs saw increasing costs as just as much of a barrier as the pandemic and an increasing minority considered the new trading arrangements with the EU to have had a negative impact on their business. Whilst the effects of COVID-19 had started to wane, it remained a key issue especially for those in the hotel and restaurant and transport sectors. These are the headline findings of the BVA BDRC’s Q4 2021 SME Finance Monitor which records a variety of metrics, such as mood, optimism about the future and growth plans, as well as appetite for, and access to, finance. Overall, the mood of SME owners about their businesses continued to improve and many recognised the array of resources available to help them deal with any challenges. More saw opportunities rather than threats in future and it was good to discover that levels of innovation remained above pre-pandemic levels and that an increasing minority of SMEs had a business mentor. Pre-pandemic, 35% of SMEs reported having been innovative and this had increased to 41% in 2021 across all size bands as SMEs 48 | NACFB
found ways to improve business processes (38%) and/or launch a new product or service (20%). 17% of SMEs had a business mentor, a small but steady increase from the 12% that had one in 2016. Of particular interest to those in the commercial finance industry, the report observed that one in five SMEs were using more finance than before the pandemic although there were some concerns about ability to repay facilities. 11% had started borrowing, 7% had taken on additional facilities and 3% were making more use of existing facilities. Those with 1-9 (30%) or 10-49 (33%) employees were more likely to be borrowing (more),
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More than a quarter (27%) of SMEs also plan to take action to reduce their carbon footprint although this was more likely amongst larger SMEs
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The mood of SME owners about their businesses continued to improve and many recognised the array of resources available to help them deal with any challenges
as were those in the hotel and restaurant (29%) or transport (27%) sectors, compared to 17-24% elsewhere. Just over a third (33%) of new borrowers were worried about repaying their facilities, as were 32% of those who had taken on additional facilities. Overall, the equivalent of 8% of all SMEs expressed concern about repayments.
Use of trade credit The use of trade credit was stable, and a larger number of SMEs held £10,000 or more of credit balances, but the period did record an increase in ‘forced’ injections of personal funds. Pre-pandemic the proportion of SMEs holding £10,000 or more in credit balances increased from 16% in 2012 to 23% in 2019. During 2020 and 2021 the proportion continued to rise, reaching 35% in Q4 2021 and 33% for the year as a whole. Around a quarter of SMEs reported an injection of funds pre-pandemic, but during 2020 and 2021 this proportion grew, reaching 37% for 2021 as a whole, with most (26% of all SMEs) saying that this was something they felt they ‘had’ to do, up from 11% in 2019.
External finance The use of external finance returned to pre-pandemic levels (43%), with more SMEs taking up business loans and grants. During 2020 and 2021, need for funding, especially for cash flow, increased and government-backed schemes appear to have resulted in both more loan applications overall and higher success rates for those applications. This was due to a rise in success
rates for bank loans (from around six in 10 to eight in 10), however success rates for overdraft applications declined somewhat from three quarters to two thirds of applications. Those who sought pandemic funding specifically, almost all from their main bank, were very likely to have been successful and over half had now spent all or most of the funds received.
Future funding for growth Looking forward, 44% of SMEs are expecting to grow and 26% are planning to take on staff; however, 18% of employers saw the recruitment and retention of staff as a major barrier (up from 11% in 2020). More than a quarter (27%) of SMEs also plan to take action to reduce their carbon footprint although this was more likely amongst larger SMEs, with four in 10 of those with 10-49 or 50-249 employees planning to tackle the issue. 20% of all SMEs were planning to invest in plant/machinery or premises and 19% were looking to develop a new product or service. Future appetite for finance declined slightly over 2021, back to pre-pandemic levels, with more of those planning to apply looking for funding for business development. Whilst success rates remained high, confidence that a future application would be successful remained at the lower levels seen in 2020. The full report and analysis can be read on the BVA BDRC website. NACFB | 49
Opinion
Making capital work Balancing cashflow and growth Phil Chesham Head of Invoice Finance Time Finance
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ver the next six months, we’re expecting to see more and more SMEs turning to finance to support their cashflow. The current economic challenges will only amplify this need with global supply chain issues, rising interest rates, soaring inflation, fuel costs and upcoming tax hikes all posing as threats to the good progress businesses have made over the last 12 months. Our research continues to reveal that a lack of working capital is one of the greatest barriers to growth that a business can face. In fact, more than one in three UK business owners believe that access to finance will help them to take on and overcome the economic challenges 2022 continues to throw at them. In our recent poll, over 50% of the financial advisers and accountants we spoke to spotlighted invoice finance as a solution their B2B 50 | NACFB
clients would likely turn to this year to release working capital, overcome challenges, and grasp hold of new opportunities. But what makes invoice finance such a staple and popular solution in a time of economic turbulence? According to our existing client base, 73% turn to invoice finance solutions to not only improve cashflow but to ensure that their employees, suppliers, HMRC and other financial commitments are paid on time. More than two in three told us that their invoice finance facility provides them with peace of mind and more financial freedom. Over half find this to be a more flexible solution than a bank facility,
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91% of clients rank a relationship-driven approach as the most important thing they look for in a funder
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73% turn to invoice finance solutions to not only improve cashflow but to ensure that their employees, suppliers, HMRC and other financial commitments are paid on time
with the ability to increase or lower funding limits depending on their current and future plans. The benefits don’t just stop there. A good funder and financial adviser will ensure that their clients have a finance strategy in place to support their business when times get tough. Finance strategies need to take a holistic view – taking into consideration the firm’s history, current financial commitments as well as future growth plans. The burden of paying back loans taken out during the pandemic is a reality many businesses are facing, but this seems to be shadowed by current market challenges. It was only two months ago when 35% of businesses said one of their greatest concerns was the ability to pay these funds back. One in five of our existing client base said that working with an invoice finance provider has made financial forecasting easier, and 73% said that as a result they feel confident that their lender has a good understanding of their business and the challenges they will face through 2022. But it’s not all about preparing for bumps in the road and building up cash reserves. A cautious approach might be sensible, but it can also risk leaving businesses trailing behind the competition. In fact, more than one in three clients tell us that they take advantage of invoice finance to support their investment and expansion plans. Over the next six months and with financial support in place, 45%
will look to invest in sustainable systems, operations, equipment, and practices that strengthen their green agenda, whilst one in three will look to invest in fresh talent. Invoice finance continues to grow in popularity because of its personal approach to providing finance. Benefiting from a dedicated relationship manager and access to decision makers means business owners can ensure that money-making opportunities aren’t missed, and decisions can be made swiftly. So much so, that 91% of clients rank a relationship-driven approach as the most important thing they look for in a funder, compared with just 64% who rank affordability high up in their wish list. There’s no doubt that those clients who already benefit from invoice finance do so because it relieves the pressure on their cashflow and gives them the financial freedom to grow and thrive, even when things get tough. But when it comes to supporting a business, of course, there are a number of other financial solutions out there that might be more appropriate to their circumstances. It’s key that those options are considered and presented to clients so that they are able to receive the right funding support from the outset. This is one of the core reasons why we offer a broad portfolio of solutions – from asset finance, to invoice finance, commercial loans, property finance and vehicle finance. It means that despite the challenges or opportunities lying ahead, we can help. NACFB | 51
Listicle
ways to comply with financial promotions rules
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he Financial Conduct Authority (FCA) has rules for firms wishing to promote products and services. The rules apply to brokers as well as lenders and other firms operating within the financial services industry. Whilst there is specific guidance for the different high-level product areas, the overarching message is that the presentation and substance of any promotion should be clear, fair, balanced, and not false or misleading regardless of media. Here are five things to consider when checking that your promotions comply with the rules.
1. Be clear It can be hard to include much information especially in say, a small advert, but do make sure that you cover off the necessities. For example, for asset finance, make clear whether the financial promotion is for a credit product, a hire product or both. When promoting a mortgage make it clear that interest will be charged. Also, if you use a trading name, make certain to include the registered business name – and the registered address too.
2. Be fair
5. Don’t be misleading
Consider the audience. Would the target demographic reasonably expect to understand the information provided? Advertisements which target customers with regulated credit agreements may be unsuitable and not fair, by virtue of a client’s indebtedness, poor credit history, age, health, disability, or any other reason. Don’t use complex wording or jargon.
When promoting a product or your services, it is important to not make any statements that are inaccurate or cannot be substantiated. For example, do not say that your firm or product is the most experienced and knowledgeable if there is no real way of confirming the validity of such a statement.
3. Be balanced In addition to promoting the benefits of a product make certain to give equal weight to and articulate the risks. For example, you can say if a product has a low interest rate and fast access funds, but if it also has a higher interest rate for late or missed payments, you must state that too. The risks must be as prominent as the benefits and not hidden away in small print. Do bear in mind that the extent of any analysis and due diligence needed to be able to confirm that a promotion adheres to the rules will vary from case-to-case and will largely depend on both the form and content of the promotion.
4. Be true Do not state anything which isn’t 100% true. For example, do not display the NACFB logo unless you are a full Member of the Association. Whilst you might be registered with the FCA, never use their logo as this is not permitted. 52 | NACFB
As part of NACFB membership, brokers have access to documents and training to help them with their financial promotions. There is a policy document which explains the requirements placed on firms when developing and publishing financial promotions. To assist with day-to-day operations, a checklist and a log template are also available. The online training courses can be used as refreshers or an introduction for new staff. To access both the documents and the training, simply log in to your account via nacfb.org
Five Minutes With
ive F Minutes with: Max Herman Max Herman Head of Lending Lendhub Describe your role in ten words or less? I help to make the lending machine run efficiently and productively.
What is your favourite SME success story?
How do you make a difference?
Lendhub, of course. I’ve been here since the beginning and I’m immensely proud of how quickly we’ve grown and the success we’ve had. Watch this space!
That’s assuming I do! Hard work and creativity usually help.
In your view what are the key elements to a successful deal? Teamwork and collaboration between all stakeholders, from origination to credit, and between underwriters and professional partners such as lawyers, valuers, and monitoring surveyors.
What’s the most common reason for turning away a deal? Typically, a borrower related reason. Insufficient experience or financial standing are the main ones.
What advice do you have for the modern commercial finance broker? Focus on understanding your clients and their businesses and integrate within their operations to become an extension of their business and offer true advice, as opposed to giving introductions. Positive referrals will follow!
What is your favourite piece of management/leadership advice? Pain + reflection = progress.
If you were to start your own small business, what would it sell?
Which person has inspired you the most?
Toilet paper!
A shout out to my old bosses from Mint
54 | NACFB
Bridging, Sinead and Andrew!
What was the last great book you read? Principles by Ray Dalio. I am currently reading Guns, Germs and Steel whilst writing this on the plane.
What law would you pass if you were Prime Minister for the day? Some sort of additional income tax to be solely used for philanthropic purposes.
Where is your favourite place in the world? The office on a Monday morning… just kidding. Anywhere by a beach or pool with a cold drink!
If you could have dinner with anyone from history, who would it be and why? Marcus Aurelius (and a translator) – he was a great leader and wise philosopher.
BRIDGING FINANCE
THE SPECIALIST EFFECT P U R C H A S E | C A P I TA L R A I S E | C O N V E R S I O N & R E F U R B I S H M E N T | D E V E L O P E R E X I T
Partner with a specialist When specialist knowledge, flexible lending and strong broker relationships combine, you get a special effect! Refurbishment lending is one of a number of short-term funding specialisms in which UTB excel. • Conversions and refurbishments • Light (internal) & heavy (structural) works acceptable. • 100% of works costs available • Funding in stages available
U T B A N K . C O. U K
