Commercial Broker (NACFB Magazine) August 2023

Broker

Exploring the history of Jewish small business lending in the UK COMMERCIAL

The award-winning magazine for the National Association of Commercial Finance Brokers

A healthy appetite?

The factors dictating lending hunger

Norman’s Note

Norman Chambers Managing Director | NACFB

The thrill of this year’s Ashes cricket series kept me on the edge of my seat. Closer to home, we too find ourselves eagerly awaiting the results of an ongoing battle – the race for the NACFB’s top honours.

Whilst this summer’s Ashes series ended all square, the NACFB itself will be announcing some definitive winners. The NACFB’s award season is now in full swing, and anticipation fills the air as we circulate the shortlist for the prestigious Commercial Broker Awards. The nominations have been outstanding, and the competition fierce –we are truly blessed to have such a vibrant and thriving community.

But that’s not all. The Commercial Lender Awards, formerly known as the NACFB Patron Awards, have undergone a makeover. They return with a fresh look and rejuvenated energy, sporting brand-new categories that capture the dynamism of our ever-evolving industry. I can’t wait to see who will rise to the challenge and claim these illustrious titles.

Beyond the excitement of awards, the NACFB is proud to remain a strong advocate for our Members and the wider community. At the time of writing, we are busy preparing to submit evidence for the MPs inquiry into SME access to finance. Rest assured that our flag will be firmly waved, championing the cause of all our Member firms and the vital role of intermediaries in the financial landscape.

It’s a remarkable time to be part of the NACFB, and I want to express my heartfelt gratitude to all of you who make this Association what it is – a vibrant, supportive, and innovative community. Your dedication and passion are what drive us forward, and together, we'll continue to make strides in the commercial broker world.

It was a thrilling Ashes series and hereʼs to an even more exhilarating journey ahead for your trade body. Just like we did at last month’s NACFB Summer Party, let’s raise our glasses to the power of collaboration, celebration, and the unwavering spirit of our broker family.

Products and services are subject to eligibility, status, terms and conditions and availability. All lending is subject to status and our lending criteria. The right to decline any application is reserved.

Association updates for August 2023

Introducing the NACFB Commercial Lender Awards

Recognition is evolving

The NACFB is thrilled to announce that submissions are now being accepted for the prestigious Commercial Lender Awards. Formerly known as the NACFB Patron Awards, the 2023 awards have been rethought, refreshed, and revitalised.

The new look awards, open to both NACFB Patron lenders and Partner suppliers, now feature several exciting new award categories alongside an enhanced judging process. The NACFB warmly invites both membership cohorts to make their submissions, free of charge, across as many pertinent categories as they deem fit.

To stand a chance of being recognised, participants are urged to succinctly present to the judging panel, in a limit of 300-words per category, their accomplishments and significant contributions to the lending industry. The deadline for all submissions is 5pm on Friday 8th September 2023.

NACFB Chair, Paul Goodman, commented: “Recognition is evolving. Though our awards now have a fresh name, look, process, and categories, our mission remains the same: to acknowledge and reward lending excellence.”

Come early October, the Commercial Lender Awards’ eagerly awaited shortlist will be unveiled, culminating in a grand award ceremony set to take place at the illustrious Westminster Park Plaza on Thursday, 30th November 2023.

The full list of categories for the Commercial Lender Awards 2023 is:

• Asset Finance Provider of the Year

• BDM Team of the Year

• Business Bank of the Year

• Buy-to-Let Lender of the Year

• Challenger Bank of the Year – NEW FOR 2023

• Commercial Mortgage Lender of the Year

• Community Lender of the Year – NEW FOR 2023

• Deal of the Year

• Development Finance Lender of the Year

• Factoring & Invoice Discounter of the Year

• Industry Supplier of the Year

• Leadership Award – NEW FOR 2023

• Rising Star of the Year

• Service Excellence Award – NEW FOR 2023

• Short-term Lending of the Year

• Specialist Lender of the Year

• Technological Innovation of the Year – NEW FOR 2023

• Underwriting Team of the Year – NEW FOR 2023

• Unsecured Funder of the Year

Early bird ticketing details, submission documents, and further information about the upcoming ceremony are all readily available at commerciallenderawards.co.uk

2023 so far

The view from our brokers

Jonathan Prince Senior Commercial Manager Allica Bank

It’s safe to say the first half of 2023 has been another challenging period for the UK economy and its small businesses.

However, while the strains can’t be minimised, it was pleasing to see some more positive trends emerging in our latest survey of Allica’s broker community. Capturing opinions about what 201 of our broker panel have seen in the market, it revealed that:

• 60% saw more applications in Q2-23 compared to Q4-22. Of those, a third reported a rise of 25% or more.

• Around 50% said they’d seen additional application numbers thanks to businesses wanting to buy their premises, invest in property, or raise capital for investing in their business. Just 20% saw more applications from businesses needing finance to stay afloat.

• 54% of brokers have seen a growing number of clients seeking funding for sustainability initiatives. A quarter said it was a ‘large increase’.

As for those brokers that saw fewer applications, 70% understandably cited interest rates as the reason why – a concern I imagine will only

have become more acute since the survey took place. 50% said the drop in applications was due to business owners delaying investment plans thanks to rising costs.

Building back

It’s encouraging that, while many tough challenges remain, the commercial finance sector appears to have brushed off at least some of the chaos from the end of 2022. SMEs are continuing to be resilient and find opportunities to grow, even with the ongoing rising cost crisis. It is especially pleasing that so many businesses are looking to invest in green initiatives.

That’s not to be complacent, of course. With five Base Rate hikes already this year, businesses will continue to think harder about whether they take on extra debt, even if inflation reportedly slowed down in June.

But Allica Bank is doing what we can to help. We have recently made a number of changes to our proposition, simplifying our product offering and adjusting our credit appetite to help us fund even more businesses. We are also continuing to enhance our Recovery Loan Scheme offering, allowing us to support businesses with loans that would otherwise sit outside our credit appetite.

We’d like to thank all our brokers for sharing their insight with us, and look forward to working together at this difficult time to help Britain’s businesses stay resilient and even continue to grow.

Industry News

1. Brokers value ‘human side’ of underwriting

New research from Asset Advantage shows brokers overwhelmingly value the human side of underwriting. When asked about their decision-making process in choosing a funder, 96% of brokers surveyed said it was important to have a funder who was open-minded and looked outside the box, while 98% of brokers wanted a funder to look beyond the balance sheet and consider the full picture of a business. Katie Dowse at Asset Advantage said: “It is good to see that brokers are putting the credit decision as top priority.”

2. Mortgage rates fall for first time in two months

Mortgage rates fell for the first time in two months, with this coming after inflation fell from 8.7% to 7.9%. The average two-year fixed residential mortgage rate dipped to 6.79% on 20th July from 6.81%, according to Moneyfacts, while the average five-year fixed residential mortgage rate edged down to 6.31% from 6.33%. This marks the first dip in average rates since a 0.01 percentage point fall seen at the end of May. The rates at which banks lend to each has also dipped following the release of June’s inflation data.

3. Two-thirds of P2P firms fail new risk warning

The Financial Conduct Authority (FCA) has found that almost two thirds of peer-to-peer lending and crowdfunding firms had failed to comply with its new risk warning in the month that the rules came into force. The FCA reviewed 67 firms and discovered that 60% had not met the new standards. The FCA expressed concern over this lack of compliance and took immediate action. P2P platforms are now required to display a specific risk warning on their websites.

4. Ofgem to clampdown on rogue energy brokers

Ofgem is to put forward proposals for new rules aimed at stopping small firms being ripped off by rogue energy brokers. The changes could see energy suppliers forced to reveal the billions in secret broker commissions they load on to business contracts and new legislation bringing brokers under Ofgem’s regulatory remit. The proposals come after eight small-business bodies wrote to the regulator to warn that if it continued to “...fail the business community by allowing this exploitation to continue,” they would raise their concerns directly with the Government.

5. Chancellor reminds big firms of their social contract

Jeremy Hunt has urged Britain’s biggest businesses to do more to help with the cost of living. In an article for the Times, the Chancellor says that banks must improve “measly” interest paid to savers and oil companies ensure that falls in price are passed on swiftly at the petrol pump. Food producers need to show what they are doing to pass on falling wholesale costs to shoppers. He said that profits for these firms would increase significantly but hoped they would share what they were doing for customers.

6. IMF confirms forecast for UK growth

The UK economy will grow by 0.4% this year, the International Monetary Fund has predicted, confirming a forecast made in May and marking a significant upgrade on the 0.3% contraction it predicted in April. The IMF said the UK’s improvement reflected “...stronger-than-expected consumption and investment from the confidence effects of falling energy prices”. The Fund said that the Windsor Framework had improved trade between Northern Ireland and Great Britain while the financial sector proved resilient in the wake of the collapse of Silicon Valley Bank and Credit Suisse.

7. Rise in manufacturing output in Q2

Output in the UK’s manufacturing sector has increased for the first time this year, raising hopes of a gradual recovery. The latest survey from the CBI shows a slowdown in declining orders and an overall rise in activity between April and June. This comes after a PMI survey revealed output in the sector fell to a three-year low last month. While energy prices have fallen and supply chain disruption has been repaired, weak global conditions and trade barriers have impacted UK companies.

8. FCA launches permanent Digital Sandbox

Firms from various sectors can now apply for the FCA’s Digital Sandbox, a testing environment that supports early-stage product development. The platform, previously available only temporarily, will be open permanently from August. Firms can apply under different themes, including banking, investment, lending, payments, insurance, and pensions. The Digital Sandbox aims to facilitate the development of solutions that can support financial institutions in responding to regulatory requirements while maximising operations.

9. Increase in average salaries sped up again in June

The average salary advertised by employers rose by an annual 3.6% to £37,807 last month, up from a 3.3% increase in May and 2.9% in April, according to the jobs search engine Adzuna. Tony Wilson, director at the Institute for Employment Studies, said: “These figures show that despite the recent small rises in unemployment, the labour market is still incredibly tight.” While this poses risks for future inflation, it’s also a reminder that the economy is still creating a lot of opportunities and many of them well paid.

10. FCA blocks 30% more firms from operating

The Financial Conduct Authority (FCA) has blocked nearly 30% more companies from operating over the past 12 months than in the previous year. The watchdog said it had cancelled the authorisation of 627 firms in the year to the end of March. The proportion of firms it did not authorise in 2022/23 was one in four – a rise from one in five in 2021/22 and one in 14 in 2020/21. The report also shows that the regulator handed out £216 million in financial penalties.

Membership News

Research highlights the reality of rent rises

Almost two out of 10 buy-to-let landlords (18%) said they would not raise rents for their tenants if their own mortgage rate increases when they come to remortgage, research from Landbay has revealed. Two out of 10 landlords (21%) were unsure what to do and 61% said they would raise the rent.

Over the past year, three quarters (76%) of landlords said they have raised the rent with the main reason, cited by half of them (51%), being to cover higher mortgage costs. A quarter of landlords (24%) said they raised rents on the advice of their letting agent. The most likely rent increase, according to 38% of respondents, is between 6% and 10%, while 27% said they would only increase the rent by up to a maximum of 5%.

The survey also revealed, that those landlords who have not raised their rents at the moment, did not need to as their rental income covers their mortgage and other outgoings. However, some said they are out of pocket but have taken the hit because they don’t want to lose good tenants. Meanwhile, others are delaying the rental increase for as long as they can.

Paul Brett, managing director, intermediaries at the NACFB Patron, said: “Mortgage costs obviously play a big part in landlords’ expenditure and there is a lot of remortgage activity this year.”

Help for SMEs to take control of energy costs

Funding Circle has partnered with Rainbow Energy to help small businesses get the infrastructure in place to make the switch to clean energy. The partnership will enable small businesses to put a Funding Circle loan towards installing high-quality solar panels and battery storage systems through Rainbow. By making the switch to clean energy, small businesses will minimise ongoing energy costs, while contributing towards meeting societal net zero.

Rainbow is empowering customers to take control of their energy supply and become their own provider. The plummeting prices of solar panels, down by over 60% since 2010 (GOV.UK data), combined with the surge in energy bills, make solar installations cost-effective typically within seven years.

Alexander Allen, UK managing director at the NACFB Patron said: “This partnership is an exciting opportunity for Rainbow small business customers to apply quickly and easily for a Funding Circle business loan in order to make the switch to solar energy.”

“This collaboration makes it easier than ever for businesses to improve their energy efficiency, reduce costs and pave the way for a sustainable energy future,” added Andrew Mullinger, CEO at Rainbow Energy.

Professions Finance Professionally speaking

Whether your client is a legal or medical professional looking to spread the cost of their VAT bills, company and partner taxes or insurances or they require funding for refurbishments or business acquisitions, speak to our specialist Professions Finance team today.

Ian Humphreys Founder & CEO Brickflow

Bedding in

Embedded finance is driving significant and positive transformation in the finance industry, yet commercial real estate (CRE) transactions are still segmented and cumbersome. Whilst most businesses are future-proofing by embracing fintech, the CRE industry’s reluctance to evolve leaves it lagging behind.

Playing catch-up

According to our calculations based on data from a variety of reliable sources, commercial property funding is a £77 billion UK industry, very little of which is technology-enabled – unlike residential. Historically there have been no comparison platforms, despite the fact that, research in 2022 by LoopNet found that 90% of CRE searches start online on sites including their own and Rightmove.

However, various proptech solutions are now beginning to drag the CRE sector into the 21st century, albeit slowly. Rightmove offers mortgage calculators, for example, and property data software like Nimbus Maps and SearchLand enhance the search for a site, whilst virtual tours are now de rigueur.

Commercial property finance brokers now also have the technology to search the lending market in minutes and apply directly online in one place, using the Brickflow platform.

But what else can brokers and the rest of the CRE industry do to speed up the digitisation process, which is now essential to remain competitive?

Embedded finance

Embedded finance is when financial services are integrated into a non-financial customer experience, journey or platform. It’s a concept

that we now expect in daily life; think e-wallets like PayPal or Klarna, Shopify or purchasing insurance alongside products or services.

While embedded finance seems alien to the CRE industry, it’s not new for UK consumers or businesses, and growth predictions are colossal: Forbes highlighted embedded finance as ‘the dominant trend in fintech in 2023’ and OpenPayed predicts that the global market will be worth $7.2 trillion by 2030.

When it comes to purchasing commercial real estate, having finance available at the point of land or property search, is the next logical step and brokers can play an integral role.

Benefits for brokers

Accessing the commercial property finance market is undoubtedly a hurdle for borrowers. Embedded finance enables brokers to meet borrowers wherever they are searching for finance; be that on their own website, an agent’s or even an auction house.

Brokers can embed Brickflow Enterprise, our embedded finance solution, in any of these places or across any marketing channel, providing clients with a quick and easy way to compare specialist property finance from over 80 lenders.

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Commercial finance brokers who adopt embedded finance early will, ultimately, win the race for borrowers and deals

Why embedded finance is the future of CRE

By introducing embedded finance to the CRE industry, we are at last able to make securing funding more accessible for everyone by connecting the dots between specialist lenders, brokers, agents and borrowers, in a single digital platform.

Embedded finance can also help brokers take their business digital overnight, expanding their reach significantly, whilst generating qualified leads with every borrower search. Efficient lead delivery, married with a market search and application system that takes minutes, means brokers have the freedom to spend less time on administrative tasks and more time servicing clients.

Having a digital footprint for borrower searches also enhances the compliance trail, as brokers are able to prove they have conducted a comprehensive search of the market, reducing a process that normally takes considerable time and knowledge of the lenders’ offerings, to a few minutes. Information can also be safely stored and used for future applications.

According to OpenPayed, a whopping 92% of brands across Europe are looking to implement embedded finance in the next five years. Whilst other firms going digital might not be affecting your brokerage today, fast forward two or three years and the market becomes much smaller for brokers who are not tech-enabled.

Industry-wide benefits

Likewise, the benefits for lenders are compelling. Questioning the lenders on our platform, we found that a staggering 96% of enquiries don’t convert to loan completion. Using a digital platform can positively transform those conversion rates – 95% of Brickflow applications receive terms from lenders. Also, a standardised digital application form means brokers use one form to apply to all lenders, and lenders can issue and amend terms in minutes.

Embedded finance can eradicate the time and revenue lost on dead-end enquiries for both broker and lender, as well as whittle down the search and application journey to one online process.

The benefits to borrowers are also evident, with seamless integration and customised journeys meaning time and cost savings, as well as increased access to potential funding solutions.

The future of CRE is here

As Marc Benioff, CEO of Salesforce, says: “You need to get to the future, ahead of your customers, and be ready to greet them when they arrive.” And before your competitors get there, or you risk being left behind. Ultimately, commercial finance brokers who adopt embedded finance early will, ultimately, win the race for borrowers and deals.

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Whilst other firms going digital might not be affecting your brokerage today, fast forward two or three years and the market becomes much smaller for brokers who are not tech-enabled

What’s in the box? Schrödinger ʼs cat and compliant culture

Adam Matthews Compliance Officer NACFB

In the realm of quantum mechanics – stick with me here – the Schrödinger’s cat thought experiment stands as a perplexing yet fascinating illustration of the paradoxical nature of observation. Imagine a scenario where a cat is placed inside a sealed box along with a radioactive atom, a Geiger counter, and a vial of poison. According to the experiment, until the box is opened and observed, the cat exists in a state of superposition – simultaneously both alive and dead. It is only the act of observation that collapses the probabilities, revealing the cat’s true state.

In the ever-evolving world of financial services, where compliance professionals wield their expertise to navigate the complex terrain of regulations and ethical considerations, there exists a striking parallel to this quantum conundrum. Within the corporate ecosystem, a similar enigma emerges, in that the compliance culture of a firm, like Schrödinger’s cat, seems to embody dual natures, dependent on whether it is observed or left unattended.

The notion that observing a firm’s compliance culture changes the nature of individuals’ behaviour may, at first glance, appear counterintuitive. Yet, upon closer examination, it unravels a profound truth that lies at the heart of a compliance professional’s role.

To understand this paradox, one must delve into the intangible realm of human behaviour and the delicate balance between corporate governance and individual ethics.

Just what is culture?

A firm’s compliance culture is the collective result of its values, principles, and practices, intricately woven into the fabric of everyday operations. Like Schrödinger’s cat, this culture exists in a nebulous state, influenced by countless internal and external factors. In the absence

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As the custodians of ethical standards, compliance professionals possess the unique ability to effect change through their observations and interactions

of observation, employees may be unaware of its full significance, and the true depth of its impact remains concealed. Yet, the moment the compliance professional’s gaze turns toward it, a transformative shift occurs – much like the cat’s fate upon opening the box.

As the custodians of ethical standards, compliance professionals possess the unique ability to effect change through their observations and interactions. The act of scrutinising a firm’s compliance culture brings it into focus, magnifying its strengths and exposing its weaknesses. With every risk assessment, audit, or communication, the compliance professional plays the role of an observer, affecting the actions and choices made by individuals within the business.

The challenge then lies in recognising that this observation, in itself, modifies the behaviour of those being observed. The mere presence of a vigilant compliance professional fosters an environment of accountability, where employees are more likely to align their actions with the company’s regulatory and ethical guidelines. Like particles responding to the observer’s measurement, employees adapt their conduct in response to the perceived presence of compliance oversight.

However, this effect is not as straightforward as it may seem. As compliance professionals, the NACFB team must tread carefully when visiting a Member firm for the first time, as an overly oppressive or intrusive approach can lead to a defensive reaction, stifling creativity and innovation within the business. Striking the right balance between vigilance and encouragement has always been the key to nurturing a compliance culture that empowers individuals to make principled decisions without compromising the company’s integrity.

Thinking outside of the box

In the quest for ethical conduct and sustainable success, it becomes evident that culture plays a vital role. “But how do you measure something so enigmatic and intangible?” I hear you ask? Well, unlike Schrödinger’s cat, compliance professionals give equal reverence to what is happening outside of the box. That is to say that every action of a firm is an indicator of their culture.

Culture is more than simply following rules. It can be seen in a business’ level of service, their reaction to complaints, how feedback is used as an opportunity to improve the client experience. It’s recognising where employees have gone above and beyond, fostering creativity, and encouraging collaboration. It’s providing the client with the best options to suit their needs, ensuring all communications are clear, and following up after a deal has been completed.

If this is starting to sound eerily familiar that is because culture is key to providing good consumer outcomes. A good culture is at the heart of what we do and without it a firm is unlikely to satisfy Consumer Duty requirements.

The challenge in unravelling the true nature of culture lies in its observation. Whilst the binary fate of Schrödinger’s cat is revealed upon opening the box, there exists no simple metric for measuring culture. But this should be seen as an advantage, for culture is not a tick-box exercise. It is only through the continuous assessment of what can be done differently, what can be improved, and what can make a business better, that we can truly understand the culture.

Unlike Schrödinger ʼs cat, compliance professionals give equal reverence to what is happening outside of the box

Leeann Nash Head of Corporate Sales Currencies Direct

International payments can be a headache for SMEs, resulting in additional costs and lost time for finance teams. Supporting your clients in simplifying their currency transfers allows them to gain a competitive advantage and cost-effectively access overseas suppliers and customers.

We spoke to Leeann Nash, head of corporate sales at NACFB supplier Partner Currencies Direct to gain insight into how businesses can develop more efficient international payments.

Simplifying international payments Q

services make international transfers to pay foreign suppliers.

What risks should SMEs be aware of when making international currency transfers and how can they be mitigated?

When making overseas payments, SMEs should be aware of three key risks.

Fluctuations in exchange rates can impact the final amount received, or that needs paying. SMEs can mitigate this risk using forward contracts or currency hedging tools to lock in favourable exchange rates for later use.

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to relying solely on their bank. Due to their smaller overheads, specialist providers can often offer more competitive exchange rates and charges than banks. Specialist providers also focus exclusively on currency transfers, allowing faster and more efficient processing than banks. SMEs can therefore receive more personalised assistance from specialist providers and access more tools than a traditional banking option can provide.

Currency transfer specialists offer hedging tools, such as forward contracts and limit orders, to help lock in favourable exchange rates and develop strategies to stop exchange rate movements increasing costs and damaging profits.

What sort of SMEs make international currency transfers?

A variety of SMEs can have international payment requirements. SMEs engaged in international currency transfers typically conduct cross-border transactions for various purposes. These SMEs may include exporters and importers, global retailers, service providers, and freelancers with international clients.

SMEs which export goods and services overseas use international currency transfers to receive payments from foreign customers. SMEs which import goods and

Banks may charge high fees for currency conversion and international transfers. SMEs should explore cost-effective transfer options and consider using specialised currency transfer platforms.

Thirdly, international transfers can sometimes be subject to delays due to regulatory requirements or banking processes. SMEs should plan ahead and use providers who can complete payments quickly.

Many SMEs use their bank for international currency transfers; what are the advantages of using a specialist provider?

Using a specialist currency provider offers several advantages for SMEs compared

What would you say to brokers with clients who insist on transacting in GBP only?

It is essential to understand the reasons behind their insistence on GBP transactions. There might be specific business reasons or risk management factors influencing their decision.

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While respecting their preferences, you can gently advise them on the benefits of accommodating transactions in different currencies. Diversification can help mitigate currency risk and unlock new opportunities. SMEs can also provide their overseas customers with a better experience by allowing them to pay for services or goods in their home currency.

Laying the foundations

Backing our brokers in the construction industry

Chris Smith Head of Specialist Equipment Aldermore

In 2022, Aldermore underwent a significant strategic change. The ultimate aim of this strategy is to grow and diversify our asset finance portfolio and, to do that, we needed a new approach.

What really stood out from our strategic review was that we’ve built a very successful business in industries such as specialist car and transportation, but there are other sectors where we have significant appetite but are underweight in our lending balances.

It was at that point our specialist equipment team was born, and the formation of our team represents Aldermore’s commitment and aspiration to bolster our presence in these sectors both in 2023 and beyond. The aim is to replicate what we have done in the specialist car and transportation industries.

Building on expertise

We are targeting multiple industries to expand our presence over the next 12 months but, to start, we’ve chosen the construction sector in which to launch first. This is predominantly down to the fact that we’re doing a reasonable level of construction business already and the expertise that we have in the team is very complementary to that industry.

The construction industry is an enormous part of the UK economy. It employs nearly two million people (figures from CITB) and builds the roads we drive on, the schools our children attend and the houses we live in. The supply of equipment to the UK market is vital for these projects and supporting our customers’ investment in plant, machinery and equipment is key to them winning contracts across all construction sectors from housebuilding and utilities through to infrastructure and civil engineering.

Our launch into the market was at the PlantWorx show in June where we fully immersed ourselves in the sector and the assets on display. We were able to get up close and personal with the latest equipment and explore the emerging technologies that will drive the industry to a greener and more sustainable future. As a funder, its paramount for us to understand the products our customers will be investing in as the industry evolves, as well as some of the legacy technology being left behind. Aldermore Opinium SME research we conducted across the industry in February 2023 told us that 22% of construction firms have prioritised sustainability. We are expecting this percentage to grow as more infrastructure and capital projects start, and responsibilities around more sustainable practices receive increased focus.

Enhanced package of support

We’ve got a great team and we’re growing. We have doubled the size of our team in just under six months and we are backing them to deliver excellent service levels that can help our brokers maximise their opportunities.

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Through taking time to understand both the opportunities and the challenges, it will only allow us to serve our introducers better

We’ve been training our sales analysts with enhanced credit skills to help our brokers with structuring transactions and freeing up our business development managers to do what they do best; serve you.

On top of attending PlantWorx, we’re taking our credit and our asset management teams on factory tours to understand the products and market from both the customers’ and manufacturers’ perspective. Through taking time to understand both the opportunities and the challenges, it will only allow us to serve our introducers better.

Looking ahead

The construction sector is just the beginning. We’ve got strong ambition to enter similar markets such as agriculture and materials handling. These are areas where we have operated in the past, but now we have the team, the expertise, an invigorated approach, and the right strategy. It’s exciting times ahead and I’d say, watch this space.

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A healthy appetite

Navigating the labyrinth of lending hunger

Norman Chambers Managing Director NACFB

From my days working for a high-street bank, to my tenure here at the NACFB, I have witnessed first-hand the perplexing ebb and flow of lending appetite, its complexities, and its impact on businesses across sectors and regions. An undeniable reality for all commercial brokers and their clients, is that more often than not lending appetite stands as a vital determinant of an SMEs’ access to capital and their growth prospects.

Running a successful commercial lender, can be like running a good restaurant. The restaurant owner will diligently craft a seasonal menu to suit changing tastes and manage food costs. Similarly, a lender carefully adapts its lending appetite to economic shifts and funding availability. Both industries also face challenges in attracting skilled and service-led personnel and must compete on value to thrive. While a restaurant seeks to satisfy hungry patrons a lender strives to meet the financial needs of borrowers and brokers. Despite their differences, the art of balance and adapting to change unites them. These two seemingly disparate operations are fundamentally led by appetite – but of two very different kinds.

Over these next few pages, I seek to embark on a journey to better understand the thinking that underpins lenders’ overall appetite, exploring the nuances of block funding, loan book construction, and more unseen elements that shape lending decisions. I’ll base my assertions from what is a very privileged position, in that I weave together the thousands of conversations I have with all manner of industry professionals each year.

I’ll also attempt to delve into the often-disparate relationship between lending institutions’ appetites and the borrowing appetite of small businesses themselves, and finally, shed light on the pivotal role of commercial intermediaries in bridging the gap and ensuring a flourishing lending landscape for SMEs.

Filling the plate

Lending appetite, at first glance, may appear as a relatively binary concept – an on-off switch dictating whether lenders operate in feast or famine mode. However, in reality, it is a nuanced and multifaceted construct shaped by various factors. For the most part, lenders’ appetite is influenced by a delicate interplay of risk appetite, funding availability, macroeconomic conditions, and the overall health of the lending institution. Let’s also not forget the strict confines of both the FCA and PRA for the banks.

At the core of lending appetite lies the construct of the loan book –the diverse portfolio of loans held by a lender. The composition of this loan book is a result of strategic decisions, balancing both risk and return. Most, if not all, lenders will carefully assess the sectors, regions, and types of loans to include in their portfolios. For instance, some lenders may focus on short-term working capital loans for businesses in specific industries, while others may prioritise long-term investment loans in growth sectors. Often, similar – and even competing lending intuitions – will adopt strategic approaches to loan book fulfilment that are entirely at odds with one another, such is the combination of unique forces at play.

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Lending appetite, at first glance, may appear as a relatively binary concept – an on-off switch dictating whether lenders operate in feast or famine mode

Block funding, on the other hand, plays a pivotal role in influencing lending appetite. Lenders often receive funding in chunks from various sources, such as wholesale markets or deposits. This block funding may bring with it specific terms and conditions, imposing constraints on the types of loans lenders can issue. As a result, even if there is ample demand for certain types of loans, lenders may face limitations due to block funding restrictions. Whilst the high-street lenders are being challenged on their current lending appetite, evidenced by an increase in the number of challengers stepping in to the market, many of the clearing banks will confidently argue they still provide indirect support through block funding arrangements to lower tier lenders.

Furthermore, regional focus is a key element that shapes lending appetite. Lending institutions may concentrate their efforts on specific geographic areas, reflecting their risk assessments and market expertise. This regional focus can lead to disparities in lending appetite across different parts of the country, affecting SMEs’ access to finance in certain parts of the UK.

All full up

Despite the careful considerations and strategies that underpin lenders’ overall lending appetite, a significant disparity often exists between lending institutions’ preferences and SMEs’ borrowing appetite. While lenders may exhibit cautiousness during uncertain economic periods, SMEs may be keen to seize growth opportunities and invest in their businesses. Conversely, lenders may become overly enthusiastic during economic upturns, while some SMEs may prefer to exercise prudence and reduce their debt burden.

The misalignment between lending appetite and SME borrowing appetite can be attributed to a variety of factors. First and foremost, the risk perception of lenders may not always align with the risk appetite of SMEs. Lenders may be more cautious due to regulatory requirements, credit market conditions, or – as I outlined above –their existing loan book composition. On the other hand, SMEs may be confident in their growth prospects and willing to take on additional debt.

Furthermore, the informational gap between lenders and SMEs can also contribute to the mismatch in appetite. As many brokers know all too well, SMEs may not always be fully aware of the diverse range of lending options available to them, while lenders may not have a comprehensive understanding of SMEs’ evolving financing needs.

The cherry on top

As a seasoned commercial finance professional, and a longstanding advocate for commercial brokers, I am steadfast in my belief that the commercial broker really has adopted the role of the modern-day bank manager. Unlike their predecessors, however, today’s intermediaries possess a unique advantage – a freedom from the constraints of any singular lender’s strategic decisions impacting lending appetites. This independence allows the community to be agile, versatile, and laser-focused on finding the best lending solutions for their clients.

In a world where lending appetite can vary significantly from one institution to another, the broker’s role as a mediator becomes all the

While lenders may exhibit cautiousness during uncertain economic periods, SMEs may be keen to seize growth opportunities and invest in their businesses

more crucial. Brokers act as knowledgeable advisors, guiding SMEs through the labyrinth of lending options and matching them with lenders that align with their borrowing appetite. This ability to navigate the diverse landscape of lenders grants SMEs access to a wider pool of funding possibilities, enhancing their chances of securing the most suitable financial solution.

Moreover, the cyclical nature of lending further highlights the indispensability of brokers. Over time, I have witnessed countless new lenders entering the market with enthusiasm, but at times, struggling to deploy capital as quickly as they would like. This period may be followed by a fallow phase of loan book management, where there is more focus on managing their existing portfolio rather than aggressively pursuing new lending opportunities.

Throughout these lending cycles, brokers remain a consistent force, continuously monitoring the lending landscape and staying attuned to market dynamics. By proactively engaging with lenders and understanding their ever-changing appetites, brokers position themselves as pivotal players in the financing ecosystem, adept at seizing opportunities when they arise and steering SMEs towards lenders willing and ready to lend.

While a lending crisis may impact certain lending institutions, market forces suggest that there will always be opportunities for lenders to lend. The financial landscape may fluctuate, but the constant demand for capital remains, and lenders will adapt to meet these needs. It is during such times of change and uncertainty that the role of the broker shines most brightly – providing stability, guidance, and unwavering support to SMEs seeking financial solutions.

Splitting the cheque

As we reflect on the challenges posed by the disparity in lending appetite, the role of commercial intermediaries emerges as a vital antidote to the shifting dynamics. Commercial intermediaries, equipped with both an in-depth understanding of lenders’ preferences and SMEs’ borrowing requirements, act as a bridge between these two worlds. Good commercial intermediaries closely monitor lending institutions’ activity and stay attuned to their changing appetite. The very best commercial intermediaries maintain open dialogues with various lending teams, ensuring they introduce the right deals at the right time to lenders. By aligning SMEs’ borrowing appetite with lenders’ preferences, intermediaries create a symbiotic relationship that fuels the growth of businesses across sectors and regions. Here they can confidently evidence their claims to act as trusted advisors, offering tailored financial solutions, and navigating the labyrinth of lending appetite to secure the best possible outcomes for their clients.

As I’ve outlined, lending appetite in the UK’s commercial finance landscape is a complex and multifaceted construct, shaped by various factors, including loan book construction, volumes of retail deposits, block funding, and regional focusing. The often-disparate relationship between lending institutions’ preferences and SME borrowing appetite underscores the need for intermediaries to demonstrate their undoubted worth and the value they can bring to the table.

Through this collaborative approach, we can create a lending landscape that not only fosters the growth and success of UK SMEs but also bolsters the nation’s economic resilience.

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Good commercial intermediaries closely monitor lending institutions’ activity and stay attuned to their changing appetite

Turning 10

Invoice finance and the role of the broker

Kevin Craven Director of Invoice Finance Metro Bank

This summer, we reached a ten-year milestone for Metro Bank, as our invoice finance business officially launched in July 2013. As we look towards the next ten years, here are some of the key emerging trends we’ve spotted in the invoice finance space.

One eye on the horizon

Over these past 10 years, the invoice finance market has been relatively stable both in terms of size and innovation through technology – except for some growth in the asset-based lending (ABL) field. Consecutive base rate increases from the Bank of England since the end of 2021 have radically changed the landscape and impacted businesses across the country. The knock-on impact of this is already being felt across the invoice finance sector and should be followed closely.

Find your niche

Where we have seen a huge level of growth within the wider invoice finance market, and it’s particularly pertinent to the NACFB, is the explosion in broker numbers. What was once the domain of a handful of specialist invoice finance brokers, has opened considerably over the past ten years. Brokers are increasingly opting to specialise across a variety of different areas, either by focusing on technology or offering regional expertise.

We also now have industry experts able to provide a consultative approach on a regional basis, meeting with businesses and collating information in the way an invoice finance business development manager would previously have done. There are national firms focused on telemarketing to find volume opportunities, and one newer area is marketing specialists who are excellent at producing content and engaging with business owners. Whichever route a client goes down there will be no shortage of specialists available to support.

Brokers’ requirements will change from client to client, sometimes focusing on finding the cheapest rates, or addressing challenging solvency situations for clients. Others may focus on transactions where a business is completing an MBO or an acquisition. Some cover all the above and more, and many brokers delve into other lending outside of invoice finance.

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Where we have seen a huge level of growth within the wider invoice finance market, and it’s particularly pertinent to the NACFB, is the explosion in broker numbers

This creates more choice for clients and will inevitably lead to more competition, which can only mean improved service to businesses. Brokers are an incredibly important part of the invoice finance ecosystem, and not just in terms of providing opportunities to banks and other financiers, but by spreading the word about invoice finance and marketing our industry to a wider audience.

Communication is key

Invoice finance clients are likely to have several business banking products making it essential that there is communication and harmony across these products.

At Metro Bank for example, clients benefit from a lead relationship manager who can act as a focal point for each product they have with the bank, be that business banking, overdrafts, loans, invoice finance or any other service. Our teams talk to each other and enable customers to build strong relationships with us. We think that’s important and one reason invoice finance with your bank can be a great solution. It’s not the only solution though and we are blessed to have a variety

of invoice financiers in the UK to suit all manner of different circumstances and businesses.

Where next?

Growth will only come from spreading the net further afield to businesses which don’t yet understand the benefits of invoice finance, or to those which previously couldn’t use it. As an industry we have a duty to challenge ourselves to make this happen, not just for self-preservation but to support UK SMEs as we have done for many years.

As government support via CBILS, RLS and Bounce Bank Loans start to fall due for repayment, coupled with inflation, the aftermath of Brexit and increasing base rate, there will be a point at which businesses need further support and invoice finance will be an important part of that.

As Metro Bank reaches adolescence, we will no doubt continue to learn how we can continue to adapt and suit the ever-changing needs of businesses, and one thing is for sure, brokers play a huge part in supporting the growth of our industry.

“ Growth will only come from spreading the net further afield to businesses which don’t yet understand the benefits of invoice finance, or to those which previously couldn’t use it

An SME-led recovery

A rally of resilience

John Phillipou Managing Director of SME Lending Paragon Bank

No one should doubt the resilience and forward-thinking of SMEs. After facing challenge after challenge, they are looking to the future and are set to drive economic recovery throughout the UK.

Recently published in a report for Paragon Bank, where I am Managing Director for SME Lending, new data shows that businesses in key sectors are preparing for substantial new investment and are ready to take full advantage of the opportunities that will arise in the months and years ahead.

This is very encouraging news. Without growth in the SME sector, the wider economy cannot reach its potential. That SMEs are feeling confident, investing, and planning for the future is a positive indicator that, despite the turbulence over recent months, the economy is once again heading in the right direction.

The research, undertaken for Paragon by Opinium and published in An SME Led Recovery, looked at what was behind improving SME activity in Q2 of this year in the manufacturing, transport, construction, and agriculture sectors.

Across those months, more than half of SMEs surveyed (57%) sought over £100,000 in additional financing – and plans for investment is set to further increase. Over a third (34%) plan on increasing investment

over the next six months, with 52% set to maintain their current spending levels.

The research also identified where businesses are looking to invest. Of all those surveyed, 32% planned in investing in new equipment and machinery respectively – while 24% planned to grow the total they are spending on recruitment.

Planned investment by businesses coincide with confidence for the time ahead. Over half (53%) of those surveyed were confident about how they would perform, with only 14% reporting doubts – though the remaining third were unsure.

These results were closely mirrored by how they thought their sector would perform – with a third once again saying they were unsure and 16% having doubts, but over half (51%) continue to have confidence.

This demonstration of confidence is also supported by expected improvements to cashflow. Rising from 45% expecting improvements

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A third of businesses are set to increase their full-time staffing levels over the next six months

in the next three months, half of SMEs (50%) expect their cashflows to have improved in six months’ time – rising to 55% across the next year. This is in stark contrast to the 15% and 14% of SMEs respectively predicting a fall.

Increased financing and cashflow is also unlocking the ability of SMEs to invest in the future of their operations. Rising from 14% of SMEs in the previous three months investing in electric vehicles to 22% in the next three, an increasing number of businesses are recognising the benefit of updating their fleet and prepare for the phasing out of fossil fuel assets – though their ability to acquire them depends on whether supply chains can meet demand.

Our research also found that SMEs have been forced to extend the life of their existing assets as global supply chain issues reduce the availability of new assets. We found that nearly a third of SMEs (30%) had operated existing machinery longer than planned in the past 12 months, with 29% acquiring pre-owned machinery due to the unavailability of new assets. A fifth of companies reported that they had refinanced an existing machinery asset.

A similar story was reported with commercial vehicles, with 34% of SMEs running these for longer than planned and 20% acquiring

pre-owned equipment. The problem with the supply of new assets forms part of a wider issue SMEs face with the broader supply chain, with companies reporting a deterioration across several areas of supply.

The main issues businesses faced were in the cost and availability of goods – 43% of SMEs said the cost of goods and services had worsened in the previous three months, versus 23% that said it had improved. Meanwhile, a third (32%) of companies reported the availability of goods and services had worsened, against 26% that recorded an improvement.

Further evidence of the forward-thinking of SMEs are their plans to expand their workforces. A third of businesses are set to increase their full-time staffing levels over the next six months, preparing their operations for growth in activity and ensuring they can maximise forthcoming growth opportunities.

For SMEs to be able to invest, it is essential that they are supported and have access to the funding necessary to deliver on their plans. As SME lending specialists, Paragon knows and understands the challenges they face and shares their passion for generating economic growth –and I can’t wait to work with businesses to ensure that this potential is delivered.

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Over half (53%) of those surveyed were confident about how they would perform, with only 14% reporting doubts

The dragon roars

Wales sees a surge in SME funding

Andrew Raphaely Managing Director 365 Business Finance

It’s very easy to make assumptions in our line of work. Demand for funding will continue to grow; alternative lenders will take more market share from the banks; and London and the South East will always be the biggest markets for SME lending.

While I’m confident these are all true, I always like to dig into the data to uncover the nuggets of insight that give credence to these hypotheses – and indeed challenge my assumptions. With that in mind, our team at 365 Business Finance ran a data science project that revealed some surprising insights. One in particular stood out – demand for funding from SMEs in Wales is surging to record levels.

In the last nine months alone, we’ve seen a 49% increase in Welsh SMEs taking our revenue-based funding. In addition, those businesses are obtaining on average 22% more funding.

Diving further into the data, we saw that hospitality is by far the biggest sector seeking funding. This is perhaps unsurprising, given the incredibly challenging year that sector faced in 2022. Despite this, we’ve seen many pubs and bars in Wales turn the situation around and thrive.

A surge in demand

This leads to the question, what other factors have driven this surge in demand for our finance and that of other alternative funding providers? In my opinion, the answer is threefold:

1. Lenders – in particular traditional high street banks – are reticent to lend to SMEs.

2. The CBIL and BBL schemes did their job in keeping the lights on but they did not solve ongoing capital requirements (and repayments are hurting SMEs’ cashflow).

3. Costs of goods, employment, premises (and indeed borrowing) have increased significantly in the past 12 months.

On the positive side, the COVID schemes have opened a lot of business owners’ eyes to the alternative lending sector. They understand now that there are far more funding options available to them than they were previously aware of – and the NACFB’s Member brokers have done an outstanding job in supporting their clients by giving them access to alternative finance.

Not just the South East

It’s easy to become focused on London and the South East – quite naturally given the disproportionately high level of SMEs in these areas – however we must never lose sight of the lesser-funded areas of the UK that have potential for significant growth. Wales stands out as a key growth area, with demand for funding accelerating by the day.

I’m also encouraged to see the hospitality sector bounce back, with business owners investing in their businesses’ continued growth. This long-term view from our clients shows a welcome confidence in the market, and signs of brighter times ahead.

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The COVID schemes have opened a lot of business owners’ eyes to the alternative lending sector

This one’s for the brokers

Introducing our Broker Direct service.

We’re making it even easier to do business with us, with a new, bespoke service specifically for lending requests under £150,000. Our bank of knowledge is open Monday to Friday, 9am to 5pm. And now with our specialist team on hand, you and your customers can expect clear timing plans from the get-go. Contact our local centre of excellence at brokerteam@natwest.com Security may be required. Product fees may apply. Over 18s only. Subject to status, business use only.

A legacy of resilience and prosperity

A history of Jewish lending in the UK

Rabbi Maxim Cohen Chief Executive The UK Adviser Group

The history of Jewish lending in the UK is a testament to the resilience and adaptability of the Jewish community. Throughout the centuries, Jewish moneylenders have played a vital role in the nation’s economic development while adhering to their religious and ethical principles. In this article, I will explore the historical evolution of Jewish lending practices in the UK, the significance of tzedakah (charity) and interest-free loans, and the innovative use of Heter Iska to navigate the complexities of modern finance while maintaining religious compliance.

The Jewish presence in England can be traced back to the medieval period after the Norman Conquest in 1066. As Christians were prohibited from charging interest on loans due to Church doctrine, Jewish moneylenders filled the void and became instrumental in facilitating trade and finance. Jewish lending practices played a crucial role in the English economy during this time, despite facing challenges from anti-Semitic sentiments.

As the Jewish community grew in prominence, it faced increasing hostility and discrimination. During times of economic hardship or political turmoil, Jews often became scapegoats, leading to violence and persecution. The Statute of Jewry in 1275 imposed restrictions on Jewish moneylenders, including capping the interest rates they could charge on loans. This marked a significant departure from the previously more liberal lending practices.

The expulsion of Jews from England in 1290, ordered by King Edward I through the Edict of Expulsion, forced many Jewish moneylenders

to leave the country. The Jewish community was dispersed to other parts of Europe, and for several centuries, they were absent from the UK.

The formal readmission of Jews to England occurred in 1656 during the Protectorate of Oliver Cromwell. Slowly, the Jewish community began to rebuild their lives and businesses, reintegrating into British society.

Tzedakah, meaning “righteousness” or “charity” in Hebrew, is a central principle in Jewish tradition. It emphasises the moral obligation to help those in need and contribute to the welfare of the community. The concept of tzedakah is deeply rooted in the Torah and otherJewish texts, promoting social justice, compassion, and communal responsibility.

In the UK, Jewish organisations, synagogues, and individuals actively engage in various charitable initiatives to address the needs of the

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Interest-free loans not only uphold the principle of dignity and self-sufficiency but also enable individuals to address their immediate needs without incurring additional financial burdens

vulnerable and support the community. These initiatives include providing aid to the homeless, supporting educational programmes, offering medical services, and assisting with community development.

Alongside tzedakah, the practice of providing interest-free loans has been a prominent way of assisting those facing financial challenges. Known by the acronym Gemach (Gemilut Chasadim, meaning acts of loving-kindness), these loans are classed more as grants, and the borrower is expected to repay the principal when their financial situation improves.

Interest-free loans not only uphold the principle of dignity and self-sufficiency but also enable individuals to address their immediate needs without incurring additional financial burdens. These loans promote a sense of responsibility and empowerment among the recipients, fostering a culture of giving back to the community once they are in a better financial position.

Where interest needs to be charged, the use of a Heter Iska can be utilised, a legal contract that converts a loan into a business partnership. Heter Iska allows Jewish lenders to include a predetermined return on investment instead of charging interest. This innovative solution aligns with Jewish religious laws while facilitating participation in modern financial transactions.

The Heter Iska contract essentially redefines the transaction from a loan to an investment, making it permissible under Jewish law. This legal instrument has become a valuable tool for observant Jews in the UK, enabling them to engage in interest-free financing while remaining compliant with Halakhic principles.

In contemporary UK, the principles of tzedakah and interest-free loans continue to be integral to the Jewish community’s identity and values. These practices reflect a commitment to social responsibility, compassion, and the betterment of society.

The history of Jewish lending in the UK is a testament to the enduring values and contributions of the Jewish community. From medieval moneylenders to modern practices of interest-free loans and the use of Heter Iska, the Jewish community has navigated economic challenges while upholding their religious principles. The principles of tzedakah and interest-free loans stand as a testament to the importance of giving back to the community and supporting those in need. As the Jewish community in the UK continues to thrive and adapt, these practices will undoubtedly remain integral to their identity and social fabric for generations to come.

Rabbi Maxim Cohen is also the founder of the Jewish Lending Institute

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The history of Jewish lending in the UK is a testament to the enduring values and contributions of the Jewish community

We’ve seen the light

Why brokers are here to stay

Andrew Jackson Country Manager/Managing Director Swishfund

Every lender thinks that they should love a direct sale: better margins on the arrangement fee; no repeat business fee; less competition with other lenders; and customer loyalty is high.

And yet, for many alternative lenders, direct marketing is simply not viable: high sunk costs; ongoing expenditure on A/B testing; the high costs of managing digital channels; and no certainty of success.

In 2023, Swishfund saw the light. We decided to become 100% broker driven. And it’s working out for us. Without the distraction of direct marketing, we are providing a better service to brokers because we enjoy working with them.

There is huge tangible value created by intermediaries for SMEs and lenders. Brokers are here to stay, for at least seven magnificently good reasons:

1. Pre-qualified leads – Leads from brokers are more likely to meet lenders’ eligibility requirements, and credit criteria. This increases operational efficiency and helps lenders manage frontline costs.

2. Steady stream – Qualified leads from a strong broker panel provides predictable revenue. Rewarding favourite brokers, keeps a lender front of mind for new, and viable, applications.

3. The helping hand – Brokers help customers get the right documents in order, so that lenders can process applications faster and with less friction. They also help to explain a lender’s (sometimes technical) questions, so that clients can respond with satisfactory answers.

4. Customer choice – Brokers know the market, and the best ones get the best deals for their customers, prioritising lifetime value over short-term margins. Good lenders want to be the right partner for their customers, as lending should be a partnership not a one-off sales transaction.

5. Fraud detection – Brokers identify fraudulent businesses and keep them out of a lender’s sales funnel. Also, where potential fraud is identified, a lender should warn the broker to help protect reputations and pricing in the market.

6. More interesting marketing – Marketing to brokers is a training session and a nice lunch. Maybe a beer or two. Direct marketing, on the other hand, is impersonal, labour-intensive, expensive, a long-game, and delivers unpredictable results.

7. And don’t forget the value-adds – Brokers give lenders market insight, helping us to know where we are in the market. Intel from brokers enables us to compete better on price, quality/service, and speed.

This is brought into sharp relief when a broker-introduced customer comes back to us directly. They often want to cut out the broker and save money. So, we point out the error in their reasoning: first, any lender who relies on solely brokers (such as Swishfund) will always pay an introducer fee to the broker who brought the customer most recently; and secondly, if the broker is a good one, then we’ll explain how that broker knows the market and will get them the best deal, ultimately saving them more money in the long-term.

The SME community needs brokers to help them understand the market and get the best deal with the right lender. The lending community needs brokers to streamline their operational processes and increase the velocity of their money. This is why, now we have closed off direct marketing, I don’t see why we would ever go back to it.

Deeds not words

Supporting women led SMEs’ access to finance

Roxanne Goodman Founder Female Founder Finance

Female Founder Finance was borne out of a concept that had been bothering me for a while. There had been many forums and discussions around the lack of investment into female led business, which is great in itself, but no real avenue for those female founders that were struggling to gain access to general commercial finance facilities such as invoice finance or working capital.

In my opinion, women are just as capable, if not more so, of leading successful businesses, but they continue to face disadvantages when it comes to securing funding. This lack of access to finance might be one of the main reasons why we see fewer of them in the UK.

According to the Rose Review, in the UK 34% of all SMEs are female led businesses in comparison to the 66% led by men. We don’t believe this gap is borne out of lack of talent, capability or ambition as 63% of women find external funding to be a barrier for growing and scaling their own business.

More than 35% of women seeking funding have reported encountering gender bias from financiers resulting in more female start-ups being funded by savings and credit cards whilst men are more likely to receive external funding. This is staggering considering the number of women led businesses that have adverse data is substantially less than their male led counterparts.

Our aim at Female Founder Finance is to provide women entrepreneurs access to the first wholly female circle of commercial funders and support services in the UK with the aim of moving the dial from 34% to 50%. In turn this should facilitate a more equitable and inclusive environment for female led business to thrive. It really is a passion project for me.

Alongside starting and scaling my own business, I also have a small child, a home to run, and everything that goes along with it. I can see first hand the challenges women are facing as the “traditional care provider at the home” but also being inspired to build something that’s important to them. The Rose Review has found that most female led businesses are created for a reason, to solve a problem they’ve come across themselves. I believe that this is why it’s so important they are given the opportunity to succeed, and one of the main reasons why female led businesses are less likely to fail.

The data we have collected so far confirms that the majority of women in business have faced either conscious or unconscious bias when trying to access finance. We have challenged this head on, by asking our founding funders to provide us with

a female chain of command from the ground up with the aim of women being able to support each other to unlock their potential for growth.

We have been overwhelmed by the support of key male advocates in the industry too, who clearly see the need for Female Founder Finance. We are not suggesting that the men in commercial finance aren’t good at their jobs, but perhaps they need to look at things from a different perspective.

One client we spoke to recently commented that she had “been visited by multiple finance professionals, all men wearing blue suits and promising the earth, but none of them delivered”. Martine Catton, my co-founder went to see her, took the time to listen and understand the objectives and what she was trying to achieve and suggested we take a different approach to securing the funding she desperately needed to grow her business.

I encountered something similar when visiting a client who was designing goods then getting them manufactured in China. She had never heard of trade finance, despite asking her bank for support. The funding she now has in place has allowed her to manage her cash flow with regular monthly outgoings and she has employed two more staff to support her business that she started from her spare room three years ago.

Her feedback was exactly the proof I needed to want to make this work for every female entrepreneur. She said: “Although we have had input from accountants, consultants and our bank in the past, none of them were sufficient in supporting us to know what is actually available to us as an SME. There was so much we hadn’t heard of that we can now take advantage of. The support you have given us has transformed our growth strategy.”

I truly believe that we can change the face of commercial finance for women entrepreneurs for the better, allowing female founders access to the same opportunities to start and scale business and adding back to the UK economy.

The majority of women in business have faced either conscious or unconscious bias when trying to access finance

Thinking inside the box

Understanding the benefits of the Patent Box tax relief scheme

Nigel Holmes Director of Tax Catax, a Ryan company

Despite the advantages of filing a patent, the UK is falling behind when it comes to the number of innovative businesses taking this course of action, and this could be restricting them from commercialising their intellectual property.

Many innovative projects, involving research and development (R&D), contain intellectual property that can be patented. Patented inventions generally are a product or a process that provide a new way of doing something or offer a new technical solution to a problem. Inventions worth patenting don’t have to be earth-shattering; they could simply be a minor technical improvement to an established product or process.

Brokers would be wrong in thinking that R&D and patenting are only carried out by large corporations. Small companies can also leverage these routes to create new products and services, improve processes, and, ultimately, increase their income and profit. And the benefits needn’t stop there, R&D can lead to opportunities for businesses to seek public-sector support such as grants, and improve their chances of achieving finance. Plus, they can help SMEs to develop a competitive edge, open up opportunities for collaboration with other enterprises or educational institutions,

and crucially, strengthen a business’ brand and reputation. Not to mention, the available tax reliefs; but we’ll come onto that…

Should a business file a patent?

If a business wants an exclusive right for its invention, then yes. Filing for a patent will enable a business to make the choice as to whether its invention can be used by others. And that’s where tax relief comes in. HMRC has numerous tax relief schemes available to innovative UK businesses, designed to encourage and incentivise companies to undertake innovation, but despite this, many of them, including the Patent Box, are underused.

Inventions worth patenting don’t have to be earth-shattering; they could simply be a minor technical improvement to an established product or process

The Patent Box

The Patent Box scheme is designed to encourage companies to keep and commercialise intellectual property in the UK. The regime allows businesses to receive a lower effective corporation tax rate of 10% on profits earned from their patented inventions and certain other intellectual property (IP) rights, for the lifetime of the patent.

Equally, if a business owns the licence to use others’ patented technology, it may also be able to benefit from the Patent Box reduced rate of corporation tax.

To claim Patent Box tax relief, a business must be liable to pay corporation tax, be making a profit from commercially exploiting patented innovations, and own qualifying patents or exclusive licences for the rights to those patents.

R&D tax relief

Research and Development (R&D) tax relief supports companies that work on innovative projects in science and technology.

If such a business has a patented invention, then they will more than likely have undergone research and development and may be able to claim R&D tax relief for the innovation. The R&D schemes enable companies with no corporation tax liability to benefit through a cash payment or a reduction of tax. Essentially, SME R&D tax relief allows companies to deduct an extra 86% of their qualifying costs from their

yearly profit, as well as the normal 100% deduction, to make a total of 186% deduction.

The good news is that Patent Box claims can be made alongside R&D tax credits claims as the criteria for ‘innovation’ is very similar.

Even loss-making R&D-intensive SMEs are given support. In the Spring Budget 2023, Jeremy Hunt announced that these businesses can claim £27 from HMRC for every £100 of R&D investment from 1st April.

Why should businesses claim these reliefs?

The tax savings can fund the next generation of research, to produce patented products. Taking advantage of these schemes can also significantly reduce a business’ tax liabilities. Further, the cost of obtaining a UK patent could easily be outweighed by the tax reduction obtained via a Patent Box claim.

The role of the broker

Whilst businesses embarking upon innovation should take specialist advice from the outset, brokers are ideally placed to highlight the schemes, explain their benefits and refer on. Not only could this course of action strengthen the broker-client relationship, but businesses that are able to take advantage of these schemes are more likely to grow and need finance. And of course, successful introductions by NACFB Members to Catax earn commission.

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HMRC has numerous tax relief schemes available to innovative UK businesses, designed to encourage and incentivise companies to undertake innovation

A piece of the action

New opportunities for brokers to support SMEs

Todd Davison Managing Director Purbeck Personal Guarantee Insurance

Despite uncertainty surrounding the economic outlook and rising interest rates, 78% of small businesses are in profit with over a third (34%) saying they are making a good profit. These are the key findings of our survey of 400 owners and managers of small businesses across the UK, conducted in April 2023 via Maru/HUB. The survey also found that half of small businesses questioned have already, or are planning, to secure new finance during the course of the year.

These figures paint a more positive picture of the financial health of the UK’s 5.5 million small businesses than many might expect, but there is no doubt that they continue to navigate turbulent waters. Indeed, based on our survey, the most popular tactics employed by small businesses to help manage costs and cashflow have been to increase prices, cut energy use and reduce staff pay. In spite of unstable times, however, only 7% of the small business owners surveyed have had to take a pay cut themselves.

Yet, as the UK economy continues to throw up challenges, small business optimism is in firm evidence. In fact, 43% think that trading is better now, than during the pandemic, when of course there was government fiscal support in place. In addition, almost half of the small business owners we surveyed who have secured, or plan to secure finance this year, need these funds for growth.

This should be music to the ears of commercial brokers, who understand that many of these small businesses could and should meet the risk appetite of lenders. However, when asked if the SME had received valuable financial support or advice in the past year, only 10% had used a commercial finance broker, sitting behind

accountants (37%), the bank/lender (23%), family (20%) and solicitors (15%). It seems that despite NACFB Members sourcing more than £45 billion for SMEs in 2022 (findings from the NACFB’s 2022 annual survey) some small business owners remain unaware of the benefits of using commercial brokers.

Amongst the businesses that need new funding, 43% plan to seek finance from a traditional lender in the form of a business loan, yet worryingly 28% plan to use their credit cards and just under a third (28%) will dip into overdrafts. Furthermore, one in five (21%) will ask friends or family for some cash.

With a glass half full attitude to their business prospects, now is the time for commercial brokers to step in, educate small businesses on their finance options and the measures they can take to cut personal guarantee risks. While the appetite to borrow is high, even more opportunity exists for brokers to help small businesses invest and grow – they may just have to knock on a few more doors to be let in on the action.

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When asked if the SME had received valuable financial support or advice in the past year, only 10% had used a commercial finance broker

Lessons in lending

BCRS recently celebrated its 21st birthday (and ‘no’ before you ask, I haven’t been here the whole time). It was an immensely proud moment for us. From humble beginnings just supporting businesses in the Black Country, we now lend throughout the West Midlands at a rate of around £10 million a year. We are a not-for-profit CDFI, and all our customers are SMEs unable to secure finance from traditional lenders who use that money to prosper, create jobs and strengthen the economies of the communities we operate in.

However, with any milestone there is also an opportunity for reflection, to look back at our journey so far and try to find the lessons for the future. With that in mind, it is hard not to start with the last three years. The term ‘unprecedented times’ is a cliché that I think we’re all sick of hearing, but it bears repeating. What strikes me about this period on reflection, however, is that whilst nobody saw it coming, we (and the CDFI sector at large) stepped up to help. We were fast to adapt and through schemes like CBILS we proudly helped over 160 businesses survive.

We are an industry that likes to try and predict the future. We keep an eye on trends and want to know what will happen before it does so that we can stay ahead of the curve. There is value in this of course, but there is also value in flexibility and being able to adapt. The lesson we have learned is strategy guides your decisions, but you must be ready to adapt if the market conditions call for it.

There is also value in knowing where others are going and taking a different path. For example, we know that construction is an industry that is facing challenges. Traditional lenders are less optimistic about the future and are pairing back their support. Viable businesses in this sector are struggling to get finance, some unfairly tarred with the same brush. BCRS can adapt our credit policy quickly, identifying risks in particular sectors and, where possible, how these can be mitigated.

As a result, in the last financial year, construction was the sector where we supported the most businesses; accounting for around 18% of the number of businesses we supported. Our second biggest sector was wholesale and distribution, another sector that is currently struggling, accounting for around 12% of our lending by number.

The unique value of BCRS and the brokers who refer to us is that we can look at businesses in more detail and take a view of it in a way that others might not, allowing us to pick out viable businesses in sectors facing challenges. We should not be afraid of this. If our 21-year history proves nothing else, this is a successful model.

What we’ve learned on our journey so far

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The lesson we have learned is strategy guides your decisions, but you must be ready to adapt if the market conditions call for it

Andrew Hustwit Head of Business Development BCRS Business Loans

Cash flow is kingmaker

UK SMEs concerned about cash reserves as inflation continues

John Rozenbroek COO/CFO Capify

Confidence in the UK SME community has fallen slightly in recent months as reduced consumer spend and higher operating costs have put the squeeze on SME business performance. According to our latest research, overall confidence has marginally dipped despite a slight improvement in turnover and profit performance over the past quarter.

Released in July, the latest Capify SME Business Confidence Survey revealed that 39% of SME owners reported an increase in turnover between April and June, whilst one in three saw their profits increase in the same period. Despite this, 47% of respondents find themselves behind annual target for overall business performance – an increase of 5% on Q1’s levels.

The full survey findings – which can be found on our website –canvasses the insights of hundreds of SME business owners from across the UK on areas of current business performance, trading forecast, and investment intentions, and uses the data to produce an overall confidence score between -10 (very unconfident) and +20 (highly confident). The confidence score now sits at -0.35, a drop of 0.36 points on last quarter’s score.

Green shoots of recovery

Despite the drop in confidence, it’s good to learn that just under 60% of SME owners expect turnover to grow over the coming year, with 53% expecting profits to grow over the same period. This improved confidence in operating conditions, means that 59% of firms are

The Confidence Survey reflects what we see and hear every day – that SMEs are struggling to keep ahead of the challenges caused by this extended period of inflation and the impact it has on market dynamics

planning business expansion over the next 12 months – an increase of eight percentage points on Q1’s findings.

For those looking to invest in their businesses over the coming 12 months, 40% told us they plan to invest in the hiring and training of staff, whilst 32% are aiming to invest in marketing. The average expected spend on all areas of investment was £41,000.

Cash crisis

The survey also revealed, though, that continuing inflationary pressure is placing a significant strain on SME owners’ cash reserves, with 50% of respondents reporting they were concerned about the level of cash in their bank accounts.

These concerns around cash reserves are undoubtedly accentuated by problems in cash collection. More than one in five owners (22%) stated that they were worried about unpaid invoices whilst the survey found that the average amount of money owed to SMEs in unpaid invoices was £46,000.

Challenges remain

Consistent with our previous survey findings, cash flow challenges and cash reserves continue to be an issue for respondents. Just under 20% of owners cite cash flow as the reason preventing them from expanding their business, whilst just over a third of respondents cite cash flow as an ongoing worry.

Our survey findings will come as no surprise to most SME owners or brokers. The Confidence Survey reflects what we see and hear every day – that SMEs are struggling to keep ahead of the challenges caused by this extended period of inflation and the impact it has on market dynamics.

If cash is king, then cash flow is the kingmaker. Cash is the great enabler for SMEs, but cash flow issues and depleting working capital can put the brakes on even the most optimistic of businesses.

Sources of finance

There also continues to be concern around the availability of bank finance to support these cash flow requirements. Despite one third of respondents having required external funding at some point in their business life, only 30% of respondents were now extremely confident of being able to use their existing banking partners to fund their needs.

We know that SMEs are finding it harder than ever to find finance solutions that work for them. As bank’s tighten their lending criteria and assess their risk profiles, there are many owners who will feel less confident about their ability to secure finance, and of course, that’s where brokers and lenders can step in. Our survey gives us the insights we need to help address the funding challenges that exist in today’s business climate.

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Just under 20% of owners cite cash flow as the reason preventing them from expanding their business, whilst just over a third of respondents cite cash flow as an ongoing worry

Summer snapshots

Last month, the sun shone on the NACFB Summer Party as 350+ Members, Patrons, Partners and special guests came together to forge closer ties in the unrivalled surroundings of the Honourable Artillery Company headquarters in London. The afternoon saw guests battling playfully to be crowned champion of French Cricket and Boules, delight in the sizzling summer BBQ and take refreshment at the open bar which was kindly sponsored by NACFB Partner, Red Flag Alert.

Commenting on the party, managing director Norman Chambers, said: “Another fantastic afternoon full of laughs and only a little shop talk. It was great to see so many familiar faces and meet the many new Members, Patrons and Partners who have joined the Association over the last 12 months.”

Five Minutes with: Alan Fletcher

Alan Fletcher Partnership Director Invest&Fund

Describe your role in ten words or less?

That’s a tough one. I’d have to go with: “a problem-solving, relationship-building, deal originator and market analyst.” I’m a classic ‘jack-of-all-trades’. I work hard – and rely heavily on the talents of others to get by.

How do you make a difference?

We are attempting to disrupt a space that’s traditionally been dominated by big bank products and big bank behaviours, so part of my quest is getting the narrative out to the market that we play a significant role in an important cause; supporting the UK’s struggling SME property development market – the backbone of UK housing.

If you were to start your own small business, what would it sell and why?

Rare vinyl: I didn’t even need to think about that one! I read the Nick Hornby book ‘High Fidelity’ in the late nineties and saw that as less of a cautionary tale and more of a blueprint to a fulfilling existence.

What is your favourite SME success story and why?

Invest&Fund, although I’m sure everyone says where they work for this question! The why is very simple: I’ve been in the industry for 20 years this year and worked with some incredible people, but the team here are the most capable, and knowledgeable bunch I’ve ever worked with. It’s been an education, and I’ve benefited from that as our clients have.

What advice do you have for the modern commercial finance broker?

The devil is in the detail. The submission technology has moved on incredibly fast, but you can’t beat having that close client relationship. The successful brokers we have been lucky enough to work with over the years all exhibit the same behaviour pattern. They get close to their client and garner as much information as possible in the early stages; they ask challenging and probing questions, testing the foundations of a deal the same way a credit team would. It reduces the number of DIPs you submit, but it

increases your conversion and strengthens the relationships you have with your lenders.

What is your favourite piece of management/leadership advice?

Trusting people will empower people.

Where is your favourite place in the world and why?

New York. I’ve been there many times, and every time it’s a new experience, just the noise and the crowds and the feel of the place; once it gets under your skin, it stays with you.

If there was an Olympics for everyday activities, what activity would you have a good chance at winning a medal in?

I would challenge anyone to make a grilled cheese sandwich as delicious as mine.

What law would you pass if you were Prime Minister for the day?

I would call for a general election.

the specialist effect

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