Commercial Broker (NACFB Magazine) January 2019

Broker COMMERCIAL

The magazine for the National Association of Commercial Finance Brokers

22 AGRICULTURAL FINANCE

24 PERMISSIONS WHEEL

It's 2019 and Old MacDonald is diversifying his farm

Navigate your way safely through differing introduction types

Prosper in 2019 Your guide to a year of change

38 ENHANCE YOUR BRAND Best practice for brokers looking to pitch with success

48 ENGAGING SMES Top five ways to market your brokerage to potential clients

Contents

In this January issue NACFB News

Special Features

4 6 8 10-11 12-14

28-29 30-32

Note from Graham Toy Updates from the Association Note from headline sponsor Industry news round-up Patron news

34

The ripple effect: Legal update Avoiding the ‘Brelephant’ in the room Bank of England update

Industry Insight 36-37

38-39

Spotcap: The shape of things to come NatWest: Building a broker brand

Opinion & Commentary 40-41

22 Case Studies 16 18-19

20

Kuflink: Financing a listed property Relendex: Collaboration key to risk reduction MFS: Foreign property investors

42-43 44-45

46

48

50

Broker Voice – Mike Deacon: Maintaining standards GVA: Tracking the Big Nine Amicus: Getting on with business in 2019 Roma: Assessing a case for lending Listicle: Marketing your brokerage to SMEs Five minutes with: Alex Innes

KIERAN JONES Communications Manager & Editor

LAURA MILLS Magazine Production Assistant

33 Eastcheap | London | EC3M 1DT Laura.Mills@nacfb.org.uk

UKAF: Financing rural business

RUTH DUNN

Compliance Update 24-25

Further Information

33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk

Patron Profile 22-23

50

Magazine Advertising T 0845 0043169 Magazine@nacfb.org.uk

The Introducer Wheel: Guide to broker permissions

MACKMAN

Ask the Expert 26

Todd Davison: Personal Guarantee Insurance

30

Design & Production T 01787 388038 mackman.co.uk

NACFB | 3

Welcome

Graham's Note

W

elcome to the first edition of our revitalised magazine, Commercial Broker. This is something of a watershed publication for the Association because it represents the start of a new approach to the production of our magazine with all elements of this important medium sitting within our business. But it is not just about the magazine's new aesthetic. Whilst you may notice a change in our brand, which we have been working on over the last few months, the most important aspect for us is making the content more relevant to our readership.

We all have access to a wealth of information on a daily basis so it is important that what we include in the magazine is relevant and useful. It is also important to recognise that this is a magazine for our Members who, to date, have not been given a voice in their magazine. Whilst we want to avoid self-promotion, we do want to invite all Members to contribute thought leadership items.

This is your industry and so there is no one better to share their experiences and views on life at the cutting edge of the sector.

Graham Toy CEO | NACFB

The start of the year is always exciting because it presents the perfect opportunity to reflect on your achievements over the past year, which in turn helps to inform your plans for the year ahead. For me, 2018 was an exciting and productive period.

We took some important decisions about the direction of the Association which have progressed well and created a stable and sustainable platform for future growth.

Looking ahead, we have some important objectives that feed into the very core of our mission, not least is our enthusiasm to increase our training and development activity – this will be rolled out across a number of platforms.

In closing, I would like to thank all the advertisers who have already supported the magazine for 2019. To all the contributors who have agreed to produce articles for us this year we are very appreciative. This magazine is one of a number of ways we can engage with our Members. I value any feedback and I am particularly keen to hear from you as we step further into 2019.

4 | NACFB

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NACFB News

Association updates for January 2019

NACFB in the news A new year and a new look NACFB Throughout the first half of 2019 you will start to see changes to the look and feel of the Association. We hope that you have noticed that your current copy of the Commercial Broker magazine has undergone a significant overhaul – this just the first step on our rebranding journey.

Discussions with stakeholders determined that evolving the Association’s image, rather than completely overhauling our identity, was the optimal decision. The branding, reputation and kitemark the NACFB has established over a quarter of a century remains a valuable asset, to both lenders and SMEs throughout the UK. But it no longer accurately reflected the Association’s modern and forward-thinking approach.

Our plans for 2019 are not just limited to surface level changes.

The rebranding and greater visual consistency overlay the broader logistical and cultural changes taking place behind the scenes. You will soon see enhancements and updates across all our key platforms, most notably a full and complete overhaul of the NACFB website.

Association confirms 2019 Board Directors The Association was pleased to officially announce the appointment of new Board Directors at last year’s Annual General Meeting and subsequent EGM. The revised Board structure of 12 Directors comprises eight broker Board Members – including the Chair and Vice-Chair – two 6 | NACFB

Patrons, and two independents. The six broker Members appointed to the NACFB Board are: Mike Deacon of Asset Based Finance & Leasing, Mike Geddes of Asset Finance Solutions UK, Phil Gray of Watts Commercial Finance, Steve Olejnik of Mortgages for Business, David Sampson of Omega Commercial Solutions, and Geoff Wilson of White Rose Finance Group.

Both Paul Goodman of Goodman Corporate Finance and Adrian Coles of Commercial Mortgage Solutions were reappointed as Chair and Vice-Chair respectively.

They will join Dave Furnival of NatWest and Martine Catton of Catalyst Business Finance who were onboarded as the NACFB's first Patron Directors. Two independent specialist Directors were also announced with the appointments of David Newborough, Director at Ashgates Corporate Services and Russ Lewis; who brings with him high-level leadership and management consultancy capabilities.

Join the debate in the Commercial Broker magazine It’s not too late to get involved with the Commercial Broker magazine in 2019. We will always welcome high-quality thought leadership and robust opinion pieces from lender Patrons and broker Members alike. All insightful feature articles incur no cost, although more overtly advertorial and self-promoting pieces will incur a fee as outlined within our rate card.

You can find out more by speaking to our editorial team on 020 7101 0359 or contacting us via Kieran.Jones@nacfb.org.uk

Lending our support.

Congratulations to the NACFB on your brand new look.

Call us on 020 7118 1133 or visit intermediaries.lendinvest.com. LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929).

ICO number ZA179467. Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.

Note from our Sponsor

Plans for 2019: A story of growth As the new year begins, Andy Bishop, National Director of Business Development, looks back over the highlights of Lloyds Bank’s broker services in 2018, and reveals plans for 2019

Andy Bishop National Director of Business Development SME Banking Lloyds Banking Group

T

here have been several highlights for the Lloyds Bank broker channel in 2018. It’s a story of growth. Growth in term lending of around 35%, with over £1.2 billion of committed lending. And growth of around 35% year-on-year in invoice finance and in asset finance through the business development team. That’s a total funding commitment through the broker channel of around £1.5 billion over the 12 months of 2018.

Expanding access

Looking into 2019 There are three key elements to our plans for 2019: giving brokers more access to a bigger team, further enabling our digital capability, and expanding our offering to larger business clients.

We have big plans to look at how we develop the market further, including supporting brokers with much more streamlined services for smaller deals, and increasing the number of business development managers who brokers can work with on a local basis.

We’re also planning to extend our digital capability, particularly by linking to broker systems through APIs. This will enable brokers and Lloyds Banking Group to communicate more effectively, further speeding up decision making and in time giving brokers a better line of sight to deal agreement.

Key achievements for 2018 include giving brokers access to an increased range of products from Lloyds Bank. This means an increasing number of brokers, who traditionally may have operated in one sector, having the opportunity to develop their own businesses – across term lending, invoice finance and asset finance.

Thirdly, we’re planning to extend our proposition to larger businesses, enabling us to support those with higher turnovers choosing to use a commercial finance broker.

Wealth management

We would like to say thank you to all our brokers who participated in research at the end of 2018 to help us design our plans for the future and a much-improved approach to the way we do business.

In 2018, we launched a new proposition to support the personal lending needs of our brokers’ commercial clients through wealth management. This allows us to offer a bespoke service through our dedicated wealth managers, who can deal with more complex financial needs than can be managed with, for instance, a residential mortgage.

8 | NACFB

The value of brokers’ input

And we continue to recognise that the NACFB plays a crucial role, both in terms of supporting brokers to develop their individual businesses and also as a strong voice in the external market.

Why join the NACFB? The National Association of Commercial Finance Brokers (NACFB) is the flagship trade body for UK commercial finance brokers.

t. 020 7101 0359 e. admin@nacfb.org.uk a. 33 Eastcheap, London, EC3M 1DT

w: nacfb.org twitter: @NACFB linkedin.com/in/nacfb

Industry News

Industry News

1 1. Lack of growth finance holding back UK economy

3. Export drive fails to encourage small firms

5. Banks should justify closure programme

A survey of 650 small business owners by the ICAEW shows that just 7% of SMEs have started exporting in the last two years, despite government drives to encourage trade internationally. The poll saw a "downward trend" in the number of exporters planning to enter new markets, with a fifth investigating new territories, compared to a third in 2014.

Two thirds of bank branches have closed in the past 30 years and a fifth of households are now almost two miles from their nearest location, according to a report from consumer organisation Which? Meanwhile, a survey by TSB found 68% of small businesses believe their needs are being overlooked by banks in favour of larger, more profitable companies.

6. SMEs fuelling jobs boom

Restricted access to alternative finance options among businesses is restricting UK economic growth, according to a report from the Federation of Small Businesses. Only 13% of small firms are currently applying for finance, with 68% being offered rates above 4%. Women business owners and those from minority backgrounds find it particularly difficult to secure funding.

UK SMEs have created three times more jobs over the past five years than larger businesses, according to analysis of the latest ONS data commissioned by Santander Business Banking. While firms employing more than 250 staff added around 650,000 net jobs over the five years from 2013 to 2017, those employing less than 250 added 1.7 million, a 14% increase.

7. Open Banking report reveals slow uptake

2 2. Machine learning will speed up lending decisions, says BoE A Bank of England official has predicted that machine learning and artificial intelligence are set to improve the quality of credit risk in mortgages and other loans.

Executive director James Proudman said robots and technology can use data to spot trends in risk and identify when a mortgage may under-perform.

10 | NACFB

3 4. Call for mortgage industry to revisit 100% LTV lending In a report on intergenerational mortgages, the Building Societies Association says the mortgage industry should “revisit the case for lending up to 100% LTV�, arguing that in certain circumstances the risk can be mitigated, such as for borrowers in certain professions, those with high probabilities of substantial inheritance and parental guarantees.

A report from Splendid Unlimited suggests that less than a quarter of people in the UK have even heard of Open Banking, almost 12 months since its launch in Britain, and just 9% have used its services.

Those questioned were also asked to review Open Banking services they used, with no clear winner emerging.

7

8. EU banks may be forced to boost UK presence

10. Lendhub launches new broker portal

The FCA has said European banks may have to increase the scope of their British operations to ensure their UK customers' money is protected should they fail.

In a notice to consumers, the regulator said that it may extend the UK's financial services compensation scheme coverage to European Economic Area firms.

NACFB Patron Lendhub has announced a new bespoke CRM and broker portal, MyLendhub. MyLendhub will provide brokers and borrowers with a seamless lending journey from enquiry through to completion. Brokers can opt to receive emails, SMS and or notifications through the app and have the option to message Lendhub directly via the portal.

9. SMEs concerned over fleet downtime

9

Maintenance and costs are the primary concerns of fleet managers in the UK’s SMEs, according to data from Verizon Connect, with 31% of small business managers concerned. Director Jayne Pett said: “Effectively managing vehicle downtime for vans is of paramount importance, as the vehicles are the workhorses of the UK economy and are required to complete revenue-generating jobs.”

10

A bank of knowledge not simply a bank of money Our support for your broker business goes beyond finance. We can connect you with the right people, with the right knowledge, to boost your clients’ businesses and help them grow.

Search: NatWest Brokers

NACFB | 11

Patron News

Bank lending to SME construction businesses falls by £1.2bn following Carillion collapse

B

ank lending to SME construction businesses fell by almost £1.2 billion following the collapse of Carillion, dropping to £15.46 billion at the end of September 2018, down from £16.63 billion on 30th September 2017, according to a study by NACFB Patron, Hadrian’s Wall Capital.

As only 16% of lending to UK SMEs is done on a fixed rate basis and with the Bank of England forecast to increase rates again within the coming months, small businesses with traditional floating rate borrowing arrangements could see their costs of borrowing rise, reducing their ability to invest in growth.

Hadrian’s Wall Capital shared that total lending to SME construction businesses had fallen by 7% over the last 12 months. This is a far sharper fall than in lending to large construction businesses, which reduced by 3.5% to £17.21 billion from £17.83 billion over the same period.

Marc Bajer, CEO of Hadrian’s Wall Capital, says: “The failure of Carillion had a direct impact on the construction businesses who might have been Carillion suppliers or subcontractors, which is further exacerbated by a reduction in available finance to the sector which makes trading very tough for these businesses.”

Following Carillion’s liquidation, many of its subcontractors lost significant amounts of work and were left with substantial bad debts, encouraging lenders to become more cautious about extending credit to smaller businesses in the sector.

The effects of Carillion’s liquidation may already have started to push more construction businesses into insolvency. Data from the Insolvency Service shows that the insolvency of construction businesses rose 11% in the year to 30th September, up to 2,924 from 2,645 the previous year.

12 | NACFB

“

Small businesses with traditional floating rate borrowing arrangements could see their costs of borrowing rise, reducing their ability to invest in growth

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Patron News

Aldermore lends £1bn worth of wholesale and structured finance facilities Specialist lender adapts to the developing requirements of UK SMEs Follows key appointments and unveiling of bridging finance products

A

ldermore has announced the delivery of over £1 billion of wholesale and structured funding since launching a dedicated team in 2014.

The NACFB Patron, who are one of the fastest growing wholesale lenders in the market, have put in place a dedicated wholesale finance team, tasked with successfully building on the wider achievements of the Bank to reach the £1 billion total in just five years.

Over the past five years, the team has seen the requirements of UK SMEs change. They now require larger and more complex funding solutions ranging from £1 million to £40 million.

This increase in demand is not surprising with Aldermore’s Future Attitudes report finding that over a third (35%) of SMEs now believe that their finance comes from alternative lenders.

The Aldermore team outlined that one of the key drivers behind the achievement is the team’s ability to prioritise personal relationships and deliver flexible funding arrangements.

Lee Rhodes, Commercial Director Wholesale & Structured Finance, at Aldermore said: “To achieve such a significant landmark in a short space of time really demonstrates our backing for these types of products into the independent leasing and bridging markets, as 14 | NACFB

well as our other activities in supporting vendors and clients directly in achieving their ambitions.

“The team at Aldermore continues to grow in strength, following the new appointments of Mick Barber and Eamonn Pearson as Wholesale Business Development Managers. I strongly believe these new hires, combined with our dedication to service excellence and expertise, continues to really set us apart in the market.”

The announcement comes after the Patron appointed Mick Barber and Eamonn Pearson to its team and unveiled plans to expand its offering to include bridging finance products.

“

This increase in demand is not surprising with Aldermore’s Future Attitudes report finding that over a third (35%) of SMEs now believe that their finance comes from alternative lenders

Case Study

Landlord secures £562k in four days for Grade II listed property Narinder Khattoare CEO Kuflink

O

ur main focus this year will be to continue delivering the fastest possible loan turnaround times, which is no easy feat when security, affordability and quality are all key challenges that need to be united. The team have been working on their five-day bridge product for months and finally launched it last quarter, having perfected the behind-the-scenes processes that consistently deliver fast finance without compromising on service and sensibility.

So, when a broker approached us recently with a complex case that was incredibly time-sensitive, after the borrower was let down by another lender, the team saw it as an opportunity to demonstrate the effectiveness of the five-day bridge in action.

The challenge The borrower, who is an experienced landlord, required urgent funding to repay existing indebtedness against a 25-bedroom, Grade II listed, detached property in the Derbyshire countryside.

He had secured development planning permission for this property already, therefore any potential buyer would benefit from having full rights to convert the residence into a hotel and apartments.

Since gaining the DPP, the borrower had received several offers which assured us that there was demand for the security.

Our approach £562,500 was required to repay the existing finance, which was too high a figure to lend against this one security on a second legal charge. However, instead of turning the broker away as many other lenders had already done, we took the time to assess the borrower’s portfolio and suggest a workable alternative.

The borrower has an extensive list of properties, from which our in-house experts selected a further two as appropriate securities 16 | NACFB

that would allow us to split the total facility into three parts, making the loan secure and affordable for both parties.

The broker put this option forward to his client, who was more than happy to accept on the basis that we were able to draw down before the imposing re-term date, and as such the existing lender’s late fees could be avoided.

Financed in just four days The sales, cases and underwriting teams worked closely and agreed to split the loan into a £153,500 facility secured against the Derbyshire country house, a £179,000 facility secured against a block of four flats, and a final £230,000 facility secured against a block of eight flats. With this structure in place, we paid out funds in just four days and the borrower was delighted to meet his re-term date in plenty of time.

The security properties, exit strategies and structures of these deals varied and as such, the bridge was a complex one – luckily, we are used to this type of deal, took this in our stride and were able to rise to the challenge working against the clock to deliver our fastest ever loan and deliver an exceptional service.

At the end of the six-month term, the borrower will repay the facilities following the sale of several properties, leaving them in a great position to continue growing their portfolio. *5-DAY TURNAROUND SUBJECT TO UNDERWRITING CRITERIA.

Key details Borrower: Landlord Loan Amount: £562,500 Loan Type: Bridge Location: Derbyshire Project Type: Investment Property Special Features: Financed in just four days

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| Auction Finance | Business Finance | Development Finance | | Bridging Finance | Farm & Land Finance |

Case Study

Collaboration key to reducing risk Martin Murphy Lending Director Relendex

N

ick Dulson needed a lender who shared his vision for a barn conversion scheme near Oswestry on the Welsh borders. One part built, another very derelict and without detailed planning permission and surrounded by land that also needed planning to realise its full value.

Martin Murphy, Lending Director at Peer-to-Peer real estate lender Relendex Limited, was introduced to Nick Dulson by one of Relendex’s very valued independent commercial finance brokers, Dave Chesters of Complete Business Solutions. Martin recalls: “I have worked with Dave for many years and he often has great clients and he puts in the right level of work on proposals to make our life easier. He told me it wasn’t the most straight forward of schemes, but I was sufficiently encouraged by the track record of the developer to go with Dave’s recommendation to meet the guys on site, something we do on every deal we fund, and so it was off to Shropshire.”

Nick Dulson and his father, Derrick, have been developing in Shropshire for over 40 years across both residential and commercial sectors.

As with a lot of developers, they had a painful experience during the crash and at the request of their principal lenders at the time had to dispose of a number of assets they had worked very hard to build up over many years. But development is in their blood and, not to be deterred, they carried on doing what Martin saw for himself they did very well. “I was immediately impressed by their development experience in the local area and some of their other schemes. It was obvious that this was their patch and they had their finger on the pulse of the local market and I was keen to support them.”

But the deal was not without its issues – part built, issues with access, without full planning on one of the properties and in a semi-rural location. But Relendex put in its own hard work, together with its advisors, to get itself comfortable with each of the risk aspects and the local market sufficient to believe that this was a deal their peer-to-peer lenders would like, which they certainly did, and Relendex closed the deal a couple of weeks after the successful fundraising auction.

18 | NACFB

Relendex makes its loans available to its lenders during a standard two week fundraising period, but such is its liquidity at the moment and the interest amongst its ever expanding lender numbers that they are closing funding often much more quickly and sometimes in a matter of only days. As a result, they are also now front running legals to shorten the period from funding close to legal close wherever possible.

Nick Dulson was certainly happy with the whole process. “We knew that if we had taken this deal to the mainstream lenders we wouldn’t be where we are today with the farmhouse and barn both finished, one of them about to change hands, and having the planning in place for the next phase. Relendex have been great to deal with, very supportive and very professional. We have been in property development as a family for many years and have seen it through a number of phases, good and bad, but Martin also brought his own 25 years plus of banking and property finance experience to the deal and that gave us the confidence that we had chosen the right lender and we have nothing but praise for the way Relendex has dealt with this from start to finish. We also have to thank our broker, Dave Chesters, for bringing us together as without him we may not have come across Relendex and the peer-to-peer funding option”.

Relendex certainly values its close ties with its broker partners: “Brokers like Dave are our life-blood and without them we would find it harder to meet great clients like Nick and Derrick.

“

The deal was not without its issues – part built, issues with access, without full planning on one of the properties and in a semi-rural location

“

Since the 2008 financial crisis, SME housebuilders like the Dulsons, previously so critical to creating the nation’s housing stock, have been left starved of cash by lenders who have largely pulled out of this market

"We have the team in place now to help us hit our strong growth targets for 2019 and beyond and look forward to forging closer relationships and doing more business with our broker partners”.

accounts that pay well below the rate of inflation. Through its peer-to-peer commercial real estate lending platform, Relendex is looking to harness one problem to solve the other.

Since the 2008 financial crisis, SME housebuilders like the Dulsons, previously so critical to creating the nation’s housing stock, have been left starved of cash by lenders who have largely pulled out of this market. Meanwhile, the vast majority of UK savers are losing money in savings

By opening the advantages of secured property lending to all, Relendex facilitates the financing of property developments and refurbishments throughout the UK and is contributing to the alleviation of the housing shortage.

NACFB | 19

Case Study

Working with foreign property investors in 2019 Paresh Raja CEO Market Financial Solutions

J

anuary’s arrival is invariably accompanied by a wave of predictions about what the New Year will have in store.

This is certainly as true in the property and finance sectors as it is in others.

With the UK’s departure from the European Union taking place on 29th March 2019, long-term forecasts are particularly difficult to make this year. In particular, brokers and lenders will be eager to see how Brexit affects the appetite of international investors to purchase bricks and mortar in Britain.

However, if recent data tells us anything, it’s that Brexit certainly has done little to dampen the country’s attractiveness to foreign buyers.

In the year to May 2018, non-UK residents acquired 2,162 properties in London alone, which had a combined value of £2 billion – this was up from £1.65 billion in the preceding 12 months. Meanwhile, separate figures show that more than half the prime central London real estate acquired in 2017 was purchased by foreign buyers.

Consequently, lenders and brokers must remain attuned to the financial needs of international property buyers.

As a bridging loan provider that regularly works with international high-net-worths – and brokers who have such individuals as clients – Market Financial Solutions (MFS) understands the unique challenges facing foreign investors within the UK property market.

Fast and bespoke One recent case from late 2018 highlights this point. A new broker approached us for a client who required funds urgently to clear an existing debt on a prime central London investment property.

Said property – which had a market value of £8.7 million – was listed for sale and, at the time of enquiry, was garnering strong interest from potential buyers.

20 | NACFB

As the client resided offshore, they had experienced difficulties to raise finance through traditional methods in order to clear their debt with an existing lender; their current facility was close to being called in and only a very quick completion on the London property would enable them to avoid being penalised and charged for late repayment. MFS helped the broker and their client overcome the challenges they faced.

MFS instructed a valuer to complete a report on the investment within 24 hours. Simultaneously, our solicitors were engaged to start the legal process and to ensure the transaction was conducted without delay.

The result was that we were able to issue a loan to the client of £5.2 million at an LTV of 60%. It was agreed that the exit was the sale of the security property that was already attracting lots of attention from prospective buyers. The broker’s client was particularly pleased with the fact that we do not charge any penalty for early repayment, which allowed the client to redeem the loan as soon as the property sold without any additional costs.

Whatever the outcome of Brexit and however the coming 12 months unfold, it is safe to say that the need for fast and flexible financial solutions will remain of critical importance for property investors.

For foreign buyers – who are evidently still keen to pursue bricks and mortar opportunities in the UK – it is vital that brokers and lenders take a bespoke approach to delivering short-term finance. Due to the unique challenges they face and investment portfolios they boast, international high-net-worths require a tailored approach when it comes to bridging, and that will hold true in 2019 and beyond.

Key details Borrower: Property owner Loan Amount: £5.2 million Loan Type: Bridge Location: Central London Project Type: Investment property Special Features: Foreign buyer

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Patron Profile

Old MacDonald is diversifying his farm Robert Suss Director UK Agricultural Finance Ltd (UKAF)

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• Property finance to develop, renovate or repair property for capital appreciation and income generation • Renewable energy projects can be a great source of additional income and add real value to under-utilised land on a farm, or even turn waste products into revenue

e founded UK Agricultural Finance to provide much needed business finance to rural communities across England, Scotland and Wales. Recently we secured institutional funding to expand our loan book by £150 million to meet the demand from farmers for short and medium-term capital, after many of the banks cut their specialist lending teams during and post the financial crisis.

• Livestock finance to expand their livestock holdings

Rural finance is different and requires specialist knowledge and a lender willing to offer traditional face to face underwriting.

Our team knows rural property and rural businesses, as well as the many challenges they face, but most importantly their appeal.

We also understand business lending against agricultural land, where a ‘one size fits all’ approach simply doesn’t work, and we pride ourselves on working with the leading experts in agricultural valuation, security and restructuring to ensure swift informed and fair decisions.

• Generational transfer to help farming families who are looking to transfer their farm to the next generation achieve this

As proud Patrons of the NACFB, our team works with brokers up and down the country providing loans to assist farmers.

We have lent farmers money for:

Ian Burrow, NatWest’s head of agriculture and energy, said: “We are excited to welcome our first specialist industry finance provider to Capital Connections. Traditional funding routes are not always the best option for businesses in the rural community. They are an ideal partner for us and complement the impressive and innovative range of alternative lenders already on the Capital Connections panel.”

• Diversification, to build new businesses • Purchasing new farmland when additional acreage or a unique property opportunity may come available and often at short notice

22 | NACFB

• Recovery and Restructuring is needed when financial pressure is acute, and a facility can provide a window to take control and rationally plan • Tenant farmers with a right to buy their land

These loans have ranged from £100,000 to £10 million, with terms from one to seven years and a maximum LTV of 65%.

We recently joined a select group of alternative finance firms on NatWest’s Capital Connections panel, becoming the 10th lender and first industry specialist on the panel.

Lord Davies of Abersoch, chairman of UK Agricultural Finance, said: “The new partnership between UK Agricultural Finance and Capital Connections will be transformational in supporting the farming

“

Farm finance is an attractive sector for brokers, as competition is limited, loans tend to be large and secured against real assets

community with access to flexible and reliable finance. We are delighted to be part of the panel and to add our specialist experience to the innovative range of companies already involved.”

a continued key driver for diversification in the agricultural community, with an increase in the rural community identifying strategies as a way to buffer the potential change in subsidies.

In the year ahead, we plan on announcing several exciting new partnerships and we're keen to make additional hires in our business development team too, expanding our presence to strengthen relationships with the broker market up and down the country.

This trend towards diversification was highlighted in a recent Sunday Times article, which pointed out that almost two-thirds of farms derive some revenue from non-agricultural sources. It outlined that: "The most common activity is letting spare property or developing it for sale. The second most popular form of diversification is renewable energy.”

Agricultural loans, overlooked by many brokers, have recently got more attention given the size of the opportunity, with an average bridge loan in the region of £2 million and term loan in the region of £750,000. One of the challenges is accessing finance, as the unique nature of farming makes it difficult for inflexible lending systems to cope. However, brokers able to access specialist business lenders, can really help their clients build their businesses.

Farm finance is an attractive sector for brokers; as competition is limited, loans tend to be large and secured against real assets.

In addition, the ability to raise cash by parcelling up land, without damaging the whole business, makes for more favourable outcomes if the business plan doesn’t develop as expected.

When looking at 2019 and beyond, the uncertainty of Brexit will be

The choices for diversification are vast and the range of innovative start-ups appearing on Britain’s farms is astonishing. From caravan parks to kennels, farm shops, bed and breakfasts, cookery schools, wedding venues, shooting estates, green burial grounds, natural beauty products, niche food makers, breweries and vineyards.

UK Agricultural Finance remains an enthusiastic supporter of farm diversification and is experienced in working with brokers and providing farmers access to capital to diversify, sustain, grow and improve their businesses.

You can reach the UK Agricultural Finance team via 01732 252 399 or info@ukagriculutralfinance.com NACFB | 23

Compliance

The Introducer Wheel: A visual guide to the permissions brokers need

James Hinch Compliance Consultant NACFB Compliance

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s a commercial broker in an ever-expanding regulated world, it can be hard to navigate the fine line between regulated and non-regulated introductions from various sources of business. Brokers have more channels than ever from which to accept introductions, but does the introducer have the right permissions to do so? Do they need any?

Are they exempt?

For brokers, conducting due diligence on existing or potential introducers is more important today than ever before and checks should be carried out with all introducers to ensure both you and they do not fall foul of a regulatory breach. Examples of due diligence may include: • A robust vetting procedure to ensure the introductions have been sourced legitimately • Regular reviews of systems and controls and adequately demonstrating whether you have full and complete ownership of the advice you are providing • Recommending products you understand fully, disallowing introductions for unfamiliar products • Not allowing another entity – regulated or not – to use your FCA registration number on your behalf • Only delegating the performance of regulated activities to other authorised firms that have the required permissions or who are your appointed representatives, with appropriate monitoring But in practice it can be hard to know exactly what permissions you should be expecting to see as part of your due diligence, indeed, the Financial Conduct Authorities (FCA) handbook can be a daunting labyrinth to navigate, understand and interpret.

There are some general rules that can be applied in the first instance; 24 | NACFB

is the introduction for a sole trader, partnership of three or less, or an individual? If so, do they have Credit Broking permission displayed on the FCA register? This is a good starting point but only scratches the surface, it is then right to ask what type of finance agreement is being introduced. Is the introducer exempt? Is it by way of business? Is there a fee chargeable? Is Credit Broking the correct permission? What about limited permissions and so on. So where do you start and what can you do?

The NACFB Compliance team have created the ‘Introducer Wheel'.

The supporting infographic tool is designed to be an aid to the decision making process for our Members. It should help them understand the permissions and requirements needed from the introducer for a broker to take an introduction.

As with all regulation, there may be times where exceptions to the wheel apply, so this should only be used for supporting guidance. NACFB Compliance is on hand and available to provide more detailed support.

You can visit us at nacfbcompliance.co.uk or contact us at compliance@nacfb.org.uk

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In practice it can be hard to know exactly what permissions you should be expecting to see as part of your due diligence, indeed, the Financial Conduct Authorities (FCA) handbook can be a daunting labyrinth to navigate

Mortgage Broker – Requirements: • Arranging (bringing about) regulated mortgage contracts

Independent Financial Adviser (IFA) – Requirements:

• Credit Broking

• Set Qualifications – qualified at Level 4 or above of the Qualifications and Credit Framework (equivalent to the first year of a university degree), Statement of Professional Standing (SPS)

• CBTL Arranger

• Arranging (bringing about) regulated mortgage contracts

• CBTL Adviser

• Credit Broking • CBTL Arranger • CBTL Adviser

NACFB | 25

Ask the Expert

Unpacking Personal Guarantee Insurance

Q Todd Davison Director Purbeck Insurance

What is Personal Guarantee Insurance (PGI)?

Personal Guarantee Insurance (PGI) provides cover for a company director who has signed a personal guarantee in support of a business loan. Should the director’s company enter into insolvency and should the personal guarantee be called in by the lender, the insurance will provide cover for an agreed proportion of the director's personal liability. This product provides finance professionals with an alternative solution when it comes to client conversations around personal guarantees.

Personal Guarantee Insurance is available against a wide range of business finance facilities.

Why is this important for SMEs to obtain?

Even the best businesses face many risks they have little control over. When a business with a commercial loan experiences financial trouble it is often the company directors who have provided security in the form of a personal guarantee who have most to lose, ultimately their home and savings are at risk. When SMEs obtain finance they should factor in the cost of protecting the directors who guaranteed the loan as part of the finance cost.

26 | NACFB

Can you give an example of when PGI has been used?

Personal Guarantee Insurance is used at point of purchase where a director wants to reduce their personal liability created by the signing of a personal guarantee.

In this instance, it provides security that the director requires to enable the company to apply the finance to support its growth objectives. Recently the cover has been used to satisfy the call of a guarantee for a business that failed following stresses caused by the unusually hot summer.

The personal guarantee was over £50,000.

business support services for companies who may be experiencing difficult business stresses.

&“

And what’s in it for commercial finance brokers?

As well as offering the director a new alternative to taking on the full liability associated with a personal guarantee, Purbeck pay NACFB Members 12.5% commission for any business introduced to them. All we require is a name and contact details, we will do the rest.

A

What does it not cover?

Cover is straightforward and, as with all insurances, it is important that directors properly answer all questions when completing the proposal form. It has been our goal to provide a fair policy with no intention to catch the customer out. The policy only covers personal guarantees signed by directors in support of finance taken out by limited liability companies and LLPs.

What are the key aspects of PGI that people are often not aware of?

The policy is normally paid by the director's company; after all, it is the company that is getting the benefit of the business finance.

The policy may also include more than one guarantee and/or more than one director guarantor. The policy also provides

When a business with a commercial loan experiences financial trouble it is often the company directors who have provided security in the form of a personal guarantee who have most to lose

NACFB Compliance support is available to all NACFB Members. Our team will provide you and your Brokerage with the guidance, training and support necessary to remain fully compliant with both regulatory requirements and the NACFB Minimum Standards.

t. 020 7101 0359 e. compliance@nacfb.org.uk a. 33 Eastcheap, London, EC3M 1DT

w: nacfbcompliance.co.uk twitter: @NACFBCompliance linkedin.com/in/nacfb

Special Feature

The ripple effect How new FOS eligibility rules and enhanced validation order requirements will impact brokers

Joanne Davis Partner, Head of Asset & Consumer Finance Locke Lord (UK) LLP

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he FCA announced last October that it intended to go ahead with plans proposed in 2019 to extend access to the Financial Ombudsman Service (FOS) to a greater range of small and medium-size businesses. The FCA has also published a parallel consultation on raising the maximum amount of compensation the Ombudsman Service can require financial services firms to pay.

On a separate matter, the High Court has handed down judgment in a case that will significantly affect how both firms and the regulator itself deals with validation orders in instances of regulated agreements being entered into as a consequence of a party making an introduction in breach of s.19 of the Financial Services and Markets Act 2000.

SME access to FOS and raising the compensation cap Currently, only individuals and businesses with less than 10 employees and annual turnover or balance sheet/gross assets below â‚Ź2 million can refer complaints to the FOS. The FCA has proposed in its near-final rules published in PS18/21 that the threshold for SME access is to be raised from April 2019.

Under the proposals, firms with an annual turnover below ÂŁ6.5 million and a) fewer than 50 employees; or b) an annual balance sheet below ÂŁ5 million, will be able to refer complaints to FOS. These rules

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The ramifications of this are that validation exercises are likely to become more complex and detailed with firms expected to demonstrate comprehensively that detriment has not arisen at any point

differ slightly to those proposed by the FCA in its initial consultation in that the criteria for eligibility have been amended so that SMEs must only meet the turnover test and one of either the headcount or balance sheet total tests, not all three tests as previously proposed.

Under the new rules the FCA is also extending access to FOS to personal guarantors of both regulated and unregulated loans to a business in which the guarantor is involved. Currently, and since 2014, FOS has treated personal guarantors of business loans, mortgages and credit/hire agreements as ineligible if they are involved in the business to which they are providing a guarantee.

From 2014, individual guarantors (i.e. natural person) will also become eligible complainants for FOS purposes.

Finally, the FCA has proposed (in CP18/31) to increase the maximum amount of compensation the Ombudsman Service can require financial services firms to pay out from £150,000 to £350,000.

The FCA is proposing that the new limit also come in from April 2019; however, a final policy statement is expected in March 2019 clarifying the final rules in this respect.

A potential consequence of these changes is that firms may wish to harmonise any differences they may currently have between their complaint handling processes for regulated and unregulated complaints. This is particularly likely where a guarantor is involved.

This new ability to ‘look into’ unregulated deals (through guarantor eligibility) may also serve as a new channel for the FCA (via FOS) to gain quantitative and qualitative data about firms’ unregulated activities.

Chickombe -v- The Financial Conduct Authority Last summer saw an interesting case that has significant ramifications for firms looking at obtaining validation orders from the FCA. The High Court was asked to determine the extent to which the FCA must consider that consumer detriment may have arisen in circumstances where an unauthorised broker has played some part in introducing regulated business to an authorised lender.

The case itself concerned a subsidiary of Barclays Bank that entered into 1,444 regulated credit agreements as lender under which the total

amount payable was roughly £47 million. The Barclays subsidiary had notified the FCA that the agreements entered into had been brokered by an unauthorised broker, albeit the unathorised broker was not the entity that had directly introduced the business to Barclays.

After the FCA initially granted a validation order a number of borrowers referred the matter to the court alleging that they had in fact suffered detriment. Following this, the FCA asked that the court remit the matter for it to reconsider its decision (to grant the validation order) on the basis of these new claims. Before doing so, the court directed that a preliminary hearing was necessary to determine whether the question of consumer detriment is a relevant factor to be taken into account in deciding whether to issue a validation order and, if so, whether the failure to do so (by the FCA) means the court should determine the references in favour of the customers and remit the matter to the FCA for a fresh decision.

Discussion during the hearing focused upon whether, when determining whether to grant a validation order, the FCA should only concern itself with whether customer detriment had arisen as a consequence of the breach, or, that the FCA should examine comprehensively whether detriment had arisen at any point, regardless as to whether the detriment had arisen as a consequence of the breach of the general prohibition.

The court’s view was that it was only just and equitable to “consider all relevant factors and conduct a multifactorial assessment by reference to all the circumstances and balancing the various factors which it [the FCA] identifies as being relevant to the matter.”

In short, the court directed that the FCA would need to conduct the comprehensive examination.

The ramifications of this are that validation exercises are likely to become more complex and detailed with firms expected to demonstrate comprehensively that detriment has not arisen at any point. Lenders are likely to ask for more from brokers to assist them with demonstrating to the FCA that no detriment has occurred.

Additionally, this in turn reiterates the importance of ensuring that all parties introducing within a chain are identified and have the requisite authorisation status and permissions.

NACFB | 29

Special Feature

How the industry is shaping up in 2019... ‌avoiding the 'Brelephant' in the room

Norman Chambers Managing Director NACFB

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he UK’s commercial lending market appeared little affected by the 2016 vote to leave the EU, despite an initial pause after the surprise referendum result as both brokers and lenders took stock. But 2019 will see the deadline for a formal exit pass and whilst other January previews will focus on Brexit and its potential impact, with such unprecedented levels of uncertainty we thought it best to look to the future without overly fixating upon the ‘Brelephant’ in the room.

The future isn’t what it used to be If everything goes according to plan, the UK will leave the European Union on 29th March 2019. Talk of deadline extensions, general elections, party coups and second referendums are rife, but day to day life continues. UK businesses will continue to trade, grow and require finance. Commercial brokers will still be required to support SMEs with their expertise, saving them both time and money, whilst lenders will continue to introduce dynamic products into a market awash with liquidity. All of us will seek to maintain business as usual.

But the buzzword infiltrating most business activity in the UK is ‘uncertainty’. Such uncertainty – and talk of it – is ironically an undisputed surety that we will carry with us further into 2019, with the term becoming a byword for political indecision, deadlocked policy initiatives and general business timidity.

Nonetheless, and perhaps bruised by this uncertainty, in late 2018 British business morale hit its lowest point since 2009. The IHS Markit Business Outlook, which also compiles the closely watched purchasing managers’ indexes, outlined that plans for hiring and investment across both manufacturing and services firms are on the downturn. In addition, the number of companies expecting business activity to rise in the next twelve months fell to 32% from 39% in the previous survey, demonstrating a marked trend of decline.

Views from across the industry It was the poet Andrew Lang who said that forecasters use statistics like a drunk man uses lamp-posts, for support rather than for illumination. Given that any industry forecast is entirely dependent on the aforementioned ‘Brelephant’, the NACFB sought the insight and instincts of those with boots on the ground, approaching some of the industry’s leading figures to ascertain what they viewed as the outlook for 2019 – without any mention of the B-word.

From a broker’s perspective, Steve Olejnik, Managing Director of Mortgages for Business, expects 2019 to be a good one for the specialist broker, although this is peppered with some caution:

“The feedback we are getting from the business banks is not as bright as perhaps it has been in previous years” he said, before sharing that some lenders are seeking to: “reduce LTVs in both the care and leisure sectors.”

For the SME market, Steve foresees that “retail businesses could find borrowing trickier given recent failures on the high street.”

Believing though that this will stand to benefit commercial brokers: “We expect this general outlook to play into our hands. It will become increasingly important for investors and businesses to use the services of the specialist broker.”

Tim Shand, Business Development Director at Rivers Leasing, suggests the lending market may see some consolidation in the year ahead: “There are plenty of funders at the moment with plenty of money to lend, but that might all change.”

Tim’s advice for the broker community in 2019 is to: “Make time to ensure that all your requirements are covered and future proof,” adding that: “Funders and brokers should build their relationships so that the opportunities can be grasped, and any upsets mitigated.”

Looking more closely at key sectors, David Arthur, Head of Partnerships at Hitachi Capital Invoice Finance, spoke of the “resurgence” that invoice finance had seen during 2018 and sees 2019 as the “perfect time” for brokers to introduce their clients to its benefits.

David views trends within the sector as encouraging and reflecting: “…improvements in the client experience; where progressive invoice finance providers are fusing technology with good old-fashioned personal service.”

Asset finance enjoyed steady growth last year and Wesley Harfield, Head of Sales at Investec Asset Finance, suggests that this is set to continue: “We believe that the asset finance market will show modest growth, bolstered in part by the increase in the Annual Investment Allowance to £1 million.”

“Overall, the market will continue to favour borrowers, with excess liquidity continuing to put pressure on yield and driving some to compromise quality in the pursuit of increasing their market share,” Wesley added.

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The number of companies expecting business activity to rise in the next twelve months fell to 32% from 39% NACFB | 31

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It will become increasingly important for investors and businesses to use the services of the specialist broker STEVE OLEJNIK

Liza Campion, Head of Key Accounts at Precise Mortgages, shared how “...the buy to let market and landlords’ profiles are changing,” and that “it’s never been more important” for brokers to be able to access specialist borrowing products in 2019.

Liza views the year ahead as being one of opportunity for brokers who: “Embrace specialist lenders… [they] will be perfectly placed to help customers with alternative borrowing needs, such as complex tax structures, portfolio landlords, top slicing that assists with affordability and refurbishment buy to let.”

Turning to the bridging sector, Marc Goldberg, Commercial CEO at Together, said: “There are now more innovative uses for bridging as customers look to expand portfolios, increase yields and change the uses of their properties.

“Improving broker knowledge of these wider uses is a major factor which has nudged bridging – once seen as niche – towards becoming a highly-relevant solution for today’s commercial clients.”

On the regulatory front, 2018 saw some seismic developments with the roll out of GDPR and the FCA confirming greater access for SMEs to the Financial Ombudsman Service (FOS). Roger Deane, Managing Director of NACFB Compliance, foresees the regulatory trajectory for 32 | NACFB

the year ahead continuing on a steady course: “If past performance is ever a guide to what lies ahead, it is fair to say that the scope and reach of regulation does not stand still.”

Roger continued: “2018 saw evidence of this for the commercial finance sector in both the Motor Finance review and the proposed expansion of FOS to offer greater protection to the SME market.”

The importance of a strong trade body The question many are asking is, when the dust settles, what will the relationship between the UK and the EU look like? And, crucially, what impact will this have on the demand for SME growth finance?

For now, at least, no one can be sure, but amidst the landscape of unpredictability a few certainties remain. Commercial brokers and NACFB Members are instinctively agile and historically resilient, most came through the 2009 crash with the knowledge and experience of how to navigate uncharted waters and mitigate outside impacts.

The NACFB continues to witness such vigour and adaptability first-hand. Informed and dynamic commercial finance brokers – championed by a strong and independent trade body – will continue to have a vital role to play in ensuring Britain continues to prosper beyond our exit from the European Union.

Our bridging loan helped The Clarks to downsize before they’d even sold.

The upside of that, we helped them do it.

Lending for the new normal.

At Together our experience spans over decades and tens of thousands of bridging loans. So no matter the circumstances our flexible approach to lending means that it’s perfectly normal to us.

Find out how we do things differently at togethermoney.com/bridge or call 0333 455 3900 For professional intermediary use only.

‘The Clarks’ has been used for illustrative purposes only.

Special Feature

The view from Threadneedle Street Jay Jobanputra Bank of England Agent for Greater London

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would like to flag three recent announcements made by the Bank. All of them relate to money in one way or another. One refers to the official interest rate set by the Bank; the other is about the new fifty pound note; and the third is about the very future of money itself.

The outlook for interest rates On interest rates, in late 2018 the Bank’s Monetary Policy Committee (MPC) provided its latest assessment of the economy and the path of interest rates needed to bring inflation back to the 2% target over the coming few years.

The MPC think the economy is now close to full capacity – I hear from businesses in Greater London for example that they are struggling to recruit staff or that they have no more capacity with which to grow.

That means that if the economy performs as the MPC expects, interest rates may have to rise gradually from 0.75% towards around 1.5% over the next two or three years.

Of course, there is still a great deal of uncertainty about the outlook for the economy because of Brexit. As a result, the path of interest rates set by the Bank will depend on the nature of future trading arrangements and whether there is a smooth transition to them.

Importantly, whatever happens, the Bank will set interest rates in a sustainable way to ensure that inflation returns to target, 34 | NACFB

whilst supporting jobs and activity during this most important time of change.

The new fifty pound note – think science!

On 2nd November, the Bank announced the start of the character selection process for the new polymer £50 note.

The character is to be drawn from those from the UK who have made an outstanding contribution to science. What’s more, the public are invited to nominate the scientist they would most like to see on the new fifty.

You can learn more about the selection process and how to submit an idea by visiting the Bank’s website.

The future of money And it’s not just the future of the £50 note we are thinking about: we’re asking the public to talk to us about the future of money, in all its various shapes and sizes.

The Bank has launched its annual Future Forum to hear what people think about topics ranging from the rise of cashless payments, to crypto assets and financial technology.

As part of the event, the Bank’s Governors will be hosting live online Q&A sessions – giving you a chance to talk directly to Mark Carney and his senior colleagues. There are also great opportunities for youngsters to get involved.

Meanwhile, my colleagues and I in the Agency network continue to meet with our contacts in companies and charities to deepen our understanding of what’s happening in the economy in every part of the United Kingdom.

FUNDING THAT’S MORE IN TUNE WITH YOU The funding solution for growing SMEs Only by listening to your growth plans can we provide a finance solution that’s right for your business.

It’s why we’ve built a team of experts across the UK waiting to hear your story. It’s how we’ve helped fund businesses with more than £350 million so far – with a further £600m standing by.

Whether you’re looking to fund growth, an acquisition (including Management Buy Outs or Buy Ins), capital expenditure or refinance existing loans, we’d love to hear from you.

Bespoke business loans from £100k up to £10m

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Industry Insight

Foresight: The shape of things to come Kevin Vendel Head of Sales Spotcap

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indsight may offer 2020 vision, but before we reach the year 2020 we thought we’d offer some foresight into the trends that we believe will shape commercial finance for the year ahead.

Have you looked to the future to gain an edge over your competition?

Allow us to help you do so, as we anticipate open banking, broker diversification and a changing range of products to leave their mark on 2019.

Open banking will gain momentum Despite its introduction in January of last year, open banking could make a big impact in 2019. The initiative offers business owners the opportunity to consent to third parties accessing their financial information in a secure way.

How might this benefit commercial finance brokers? I’m sure you’ve been there before, sat in your office packaging a mountain of bank statements. You’ve sent a lender three months of your client’s statements and they’ve responded asking for six. The client has an aversion to picking up the phone and remembering their internet banking login details. You know what needs to be done... To add insult to injury, the lender is diligently calling to follow up: “We seem to be missing a month from your client’s statements.” Imagine what direct access to your client’s details could do in this situation.

Within a few clicks you could have all the required statements sent to the lender, your client living in bliss, unaware of your slick problem-solving abilities. Open banking has the potential to be a real game changer.

The commercial finance world is yet to take full advantage of this convenience, but indicators suggest this is changing. The last quarter of 2018 saw announcements from alternative finance providers and major banks partnering to link their data. We can expect news of the benefits of these partnerships spreading throughout the industry, encouraging further collaboration in the near future.

36 | NACFB

Consumers have been sceptical about sharing their data for the past twelve months, but efforts to communicate its benefits should see a sharp rise in clients adopting change. 2019 could be the year the industry fully embraces open banking.

Diversification of broker services The need for brokers to offer their clients an increased range of services is on the rise. With a boom in the awareness of alternative finance, business owners are approaching intermediaries armed with questions about the latest finance options they’ve learnt about from their peers or through trade publications and marketing campaigns. Brokers are responding to the trend by developing their knowledge and contacts, growing a product portfolio that looks very different from a year ago.

Asset based brokers are exploring fully unsecured loans, either as a stand-alone product, or in combination with a secured option.

With no need to provide security or a personal or director's guarantee, unsecured loans can be offered on a complimentary basis.

Similarly, we’ve seen a rise in mortgage brokers turning to working capital loans to broaden their services. After securing a mortgage on a commercial premises, it’s common for business owners to look to purchase stock or equipment, why not do this through the same broker?

With an established relationship in place and the potential of a new revenue stream, why would mortgage brokers refer business elsewhere? With speedy turnaround times and value added for their clients, I expect to see many more mortgage brokers partnering with lenders to provide working capital.

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I expect to see many more mortgage brokers partnering with lenders to provide working capital

Pre-existing finance products will evolve Alternative finance is maturing. Not long ago many of the lenders filling portfolios were considered newcomers, offering a limited product range to cater for specific needs. Fast forward a few years and these same lenders are gaining a better understanding of their partners and clients, tweaking their products to better serve their needs. Typically, this involves changing term lengths or increasing maximum loan size and this shows no sign of slowing in 2019. I expect fewer newcomers to enter the market and existing players to further cement themselves as a mainstream borrowing option. In 2019, business lenders will have earned their place amongst traditional lenders as a ‘go-to’ finance option.

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I expect fewer newcomers to enter the market and existing players to further cement themselves as a mainstream borrowing option

Looking ahead is only the beginning of ensuring your future business success. Learning from the front runners and taking action could be the difference that secures a positive 2019 and beyond.

NACFB | 37

Industry Insight

Laying the groundwork: the simple way to build your broker brand Securing investment shouldn’t be difficult if brokers don’t underestimate the value of the process. NatWest’s Dave Furnival and Ian Pottle address common frustrations and best practices for brokers looking to pitch with success

T

he rapid pace of change in Britain’s commercial broker marketplace is placing new demands on and creating opportunities for businesses in the sector.

In many cases, brokers who previously specialised in a single area, such as asset or commercial finance, are looking to broaden their reach and offer a more rounded service to clients.

The introduction of Financial Conduct Authority (FCA) oversight of broking activity has placed even greater onus on firms to operate in a more transparent way and to look at opportunities to add value to SME customers whenever possible. This changing landscape presents brokers with a great opportunity to build their brands – and their businesses – by developing a reputation for outstanding service and client support.

Better outcomes, smoother process Creating a brand that clients will come back to and recommend to other members of their professional and personal networks rarely happens overnight. But the good news is that there are some simple steps brokers can take to improve the outcomes for their customers as well as the whole process of applying for credit.

One of the most frustrating aspects of the credit process for businesses, brokers and lenders alike is the delays and indecision that can often accompany borrowing applications. But thanks to their pivotal position, brokers can be instrumental in making the whole process as quick and decisive as possible; one that’s in the best interests of the customer.

Given the growing number of lenders in the market today, even a decline can have value, provided it’s communicated soon enough to give the borrower time to seek alternative sources of finance.

38 | NACFB

Common pitfalls So what are the challenges that brokers face when they pitch to lenders? And what are the factors that can slow down applications or lead to significant problems down the line?

Essentially, this boils down to collecting the right information about the client upfront and passing it on to the lender. Brokers who are able to present the whole story about why an individual business wants to borrow, as well as what its ability to service the debt is going to be, will be able to deliver decisions within days – if not sooner.

If, on the other hand, the lender makes some assumptions that, upon checking, turn out to be incorrect, or has to come back to the broker for more documentation or explanations, matters are unlikely to run smoothly.

Brokers can benefit from putting themselves in a lender’s shoes, and by asking: What is the business looking to do with this finance? How much does it want to borrow, and on what terms? What sector does it operate in – and what kind of skill set does management have?

This latter point is especially relevant when business owners are moving into a new sector that they may not have prior experience of.

Give lenders the full picture Collating the right documentation is also important. As well as statements for business accounts, brokers should not be reluctant to ask clients to provide personal asset, liability and expenditure statements – especially in the case of lifestyle businesses where a significant proportion of profits may be being paid to directors.

Firms in certain sectors are more likely to have large hire-purchase commitments for the likes of plant and machinery: again, the more

relevant information of this type that can be passed on to the lender at an early stage, the more efficient the process should be.

Another benefit of this kind of transparency is that lenders, once they have a full picture about an applicant, may be able to suggest practical alternatives if the specific deal originally sought is not viable.

At the same time, brokers will not harm their clients’ interests by exploring the detail of their applications and being as realistic as possible when assessing their plans. By sharing any questions or potential concerns with lenders, the two parties will be better placed to develop a finance solution that is most appropriate to, and in the best interests of, the borrower.

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Thanks to their pivotal position, brokers can be instrumental in making the whole process as quick and decisive as possible; one that’s in the best interests of the customer

By employing the kind of best practice described above, brokers have the ability to deliver wins for their clients, who get an efficient process with the most appropriate outcome; for lenders, who can make more confident credit decisions, and for themselves.

This is not just in terms of stronger relationships with finance providers and greater levels of compliance with the FCA’s Treating Customers Fairly principles, but also through an enhanced brand and greater levels of customer advocacy.

Search: NatWest Brokers and speak to us about how we can help your business grow.

Security may be required. Product fees may apply. Over 18s only. Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

NACFB | 39

Broker Voice

Staying at the top of your game Mike Deacon, NACFB Board Director, reflects on how commercial finance brokers can maintain standards

Mike Deacon NACFB Board Director

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aving been a “gamekeeper” lender in the past and now firmly a “poacher” broker today, it is all too easy to slip into unhelpful deal packaging habits. I have experienced this, but I am able to call upon my experience to ensure that I try and avoid as many pitfalls as possible.

This is achieved by continual review and an openness to learning so that I can maintain high standards for my borrowing clients and ultimately place their deals successfully.

In my experience, these are some of the most common mistakes made by commercial finance brokers when packaging a deal:

1. Providing too little information Thankfully long gone are the days when a broker can just ‘give a name and number’ and let the lender do the rest. A good broker will be schooled in ensuring that the information provided meets the standards expected by lenders to get an indicative quote or decision to progress a transaction.

2. Not disclosing all the facts It is easy to take what a client says and gives at face value. It is up to brokers to pre-qualify each deal and to ask the clients the difficult questions that they know lenders will want to know. This will allow brokers to weed out proposals that require a more intensive approach and the different lenders that may need to be considered.

How many times have brokers discovered a fact from a borrower client during a proposal or underwriting process that the client forgot to mention? More than many would care to admit I suspect.

3. Not giving regular feedback Both the client and prospective lenders need to know how a deal proposal is progressing. This is often hardest when a lender is not providing the solution the client really needs. So, keep in regular and constant contact with all parties to ensure satisfactory completion of each deal.

4. Not managing expectations Sometimes, if a deal is hard to place, the hardest thing for a broker to say is that ‘I can’t help’ after weeks of trying. A good broker will, by giving feedback, manage expectations for both client and lenders to ensure that the right lender makes the right deal available to your client. If a deal is a big challenge, and is hard to place, then just say so to the client, and give reasons for your comments, but try to do so quickly. If you believe a deal can be closed for a client, then don’t

be afraid to change lenders during a proposal process, even if the client insists on remaining with your initial lender choices, a better lender can make the deal happen.

5. Not being persistent Many deals take time and effort to get over the line. In some cases, this can take several months – my longest closure for a client took 30 months! However, if you can do this, the client will be grateful and you, the broker, will retain a long-term relationship as their trusted commercial finance advisor.

I believe that consistent education is critical for brokers about ‘how to’ rather than ‘how not to’ propose deals. The NACFB provides this continuous professional development by its range of learning modules through the MyNACFB training portal and by some of the Patrons of the NACFB providing learning and education directly to brokers in some of their specialty fields. There are some notable Patron advocates of direct training with product emphasis, namely asset finance and invoice finance. This engagement between lender and broker is good business practice as it reinforces relationships and brings those lenders to the fore when a broker is tasked with raising funding for clients. Investment in brokers by lenders is a ‘win, win’ proposition for prospective borrowers.

Brokers have a duty of care to each and every client that they act for, to ensure that the guiding principles of the NACFB and the FCA to ‘Treat Customers Fairly’ are upheld for each and every deal. It is up to each broker to ensure that they spend time away from the coalface of doing deals and also use this time to learn as well. This can be spent attending seminars, parallel learning events, conferences or indeed anything that directly relates to or impacts their work.

Keeping a record of this CPD through the NACFB is really helpful, and in unintended ways, is good to demonstrate externally; especially if a client complaint arises, and your PI insurer asks about how you conduct your business. Any proof of CPD shows a degree of competency to a third party that may question this.

In short, keep listening, to both your clients and lenders, and keep learning, for your own personal development and you’ll be on the right track to keep earning.

“

Investment in brokers by lenders is a ‘win, win’ proposition for prospective borrowers

NACFB | 41

Opinion

Assessing the UK commercial property market Jeremy Prosser Head of City Agency GVA

I

n a changing economic climate, the UK office market appears to diverge from the economic mood. Brexit will undoubtedly affect the Financial Services industry in terms of the UK property market; but we see little evidence of a slowdown in property market performance. Conversely, the UK market exhibits changing market dynamics that is affecting the type and size of office occupation.

Increasingly, the market for the smallest and largest space is growing further apart. Smaller companies are worse affected by uncertainty about the future of their business. Uncertainty and the rise in the co-working sector have therefore caused take-up for units below 5,000 sq ft to drop off, both in the Big Nine cities and London with deals below 5,000 sq ft reaching their lowest level in Q3 2018 since 2009, excluding one exception. This is exacerbated by a noticeable subdued level of demand over the last decade with tenants unwilling to take space beyond their immediate needs.

With take-up stable however, office market performance is increasingly provided for by acquisitions over 100,000 sq ft. Larger companies are more secure in the market’s ups and downs and major acquisitions are in response to either lease events, or from growing tech businesses such as Facebook’s recent acquisition of 611,000 sq ft of space at King’s Cross Central in 2018 and the acquisition of 225,000 sq ft by Booking.com at Enterprise City, Manchester.

Since the beginning of 2017, take-up over 100,000 sq ft has made up 28% of all take-up for London and 15% in the regions. Eight deals were recorded over 100,000 sq ft in the regions (Big Nine) for Q1-Q3 2018, a record high. Indeed, larger occupiers are increasingly willing to consider the regions as an attractive option and key cities such

42 | NACFB

as Manchester and Glasgow have recently received significant inward investment. Barclays recently acquired 470,000 sq ft in Glasgow, for which they will hire an additional 2,500 staff and HSBC will be moving their retail HQ from London to a new HQ in Birmingham.

The Big Nine offer a significant rental discount to London, hence their attractiveness; however occupiers are increasingly willing to consider regional cities for their own sake having undergone significant placemaking and infrastructure improvement in the last decade.

Nevertheless, there is increasingly a lack of larger unit sizes across central UK locations. With the amount of leasing activity remaining strong, uncertainty about the level of prime stock persists ensuring rents either remain stable or rise. The issue is exacerbated by reduced appetite for speculative development from investors, partly due to build cost inflation, but also to uncertainty around the nature of the market and concerns about its potential to lease well in the future.

Occupiers are increasingly turning towards fringe locations that offer a rental discount, and improved infrastructure has enabled greater accessibility. Within the UK regions, we have seen demand for out-of-town business parks increase and 2018 is set to be a record year for out-of-town take-up, especially within the larger size bracket.

Out of town accommodation is traditionally associated with

“

There is increasingly a lack of larger unit sizes across central UK locations. With the amount of leasing activity remaining strong, uncertainty about the level of prime stock persists ensuring rents either remain stable or rise

characterless floor plates but the placemaking agenda extends to some business parks to offset the possible risk of locating out of town.

Where there is agglomeration of a particular sector, the risk is less.

With improved placemaking and better infrastructure from the Elizabeth Line and the Northern Line extension, the same is true of London. Examples include White City, Battersea and Stratford.

Canary Wharf, also, will benefit from Crossrail and its advantage to meet the demands of occupiers with larger space requirements.

The trend that is emerging across the UK office sector of larger occupations and limited supply is not limited to the office sector.

The industrial sector, prompted by structural change from retail to online shopping, holds similarly true. Urban logistics requirements are expected to increase in step with the 10% annual increase in online retail sales and such demand is likely to put stress on industrial availability with vacancy rates low and strong rental growth,

particularly for space in core locations. The broadening occupier base and growth in demand for the sector is not being matched by an increasing level of supply as there continues to be a lack of speculative development for multi-let industrial estates as the costs are relatively high. Development constraints, difficulties in funding developments without pre-lets and the loss of some estates to alternative and higher value uses is restricting supply.

In the big shed market occupiers are therefore looking at non-prime locations that provide lower cost solutions and a greater level of pre-let opportunities. There is less competition to acquire sites with speculative developers continuing to concentrate on prime areas in the search for suitable assets. East Midlands Gateway is an example of a new scheme, outside the ‘Golden Triangle’ and therefore outside of prime industrial stock, but which has seen 2.5 million sq ft of take-up. Furthermore, there has been a recovery in activity in Yorkshire since the recession, which made up 10% of all industrial take-up for H1 2018.

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DAYS

NACFB | 43

Opinion

Getting on with business Michael Williams of Amicus looks ahead to key matters that will impact the commercial finance community in 2019

Michael Williams Head of Operations

Amicus

M

ost lenders and brokers would like a crystal ball as they enter the new year to see what 2019 will bring them. This year should see one of the most significant political and economic changes that the UK has experienced since World War II in the form of Brexit. It is impossible to look into 2019 without mentioning the ‘B’ word. Business hates uncertainty, it has a tendency to make all players across the market more investor risk averse and most people in our sector whether they are investors, lenders or brokers are keen to see what the outcome of the last two years of negotiation are going to bring the market.

I have yet to speak to anyone who has expressed an opinion as to whether they are a ‘Remainer’ or a ‘Brexiteer’, the focus is solely on getting Brexit over with, and getting on with business. At the time of writing this article no major breakthrough in the negotiations has yet been achieved, and an extension of the transition period seems more likely.

44 | NACFB

In the longer-term, Brexit may improve the strength of the sector by removing weaker lenders and brokers, leaving those which are better run, managing both their costs more efficiently and their customer focused processes more effectively. Basically, poorly run businesses may not survive, but those that are left may flourish and provide a better performing sector, more able to meet the needs of borrowers.

Currently though there is little doubt that the uncertainty surrounding the outcome of Brexit has dampened economic activity, especially as the leave date draws closer without a clear indication of an agreement being made. Looking to the future once the dust has settled (if the UK and EU governments are sensible) the commercial lending sector should return to a state of steady growth.

This view contradicts the view of the Bank of England, who entertain the possibility of a downturn similar to that of the 2008 crash.

However, the banking sector is far more resilient than in 2008 following the work that Bank of England undertook to improve stability and resilience across banking in the years that followed.

Another important factor is that, with the exception of the retail sector, there remains an underlying resilience across many parts of the commercial property market. Recent market surveys indicate a fall in demand for retail properties, with an increase in supply putting pressure on rental streams and property values.

For industrial and office properties the outlook is generally positive for owner occupiers and investors alike. These trends are expected to continue during 2019.

Another focus for our industry this year is regulation, which is an area that lenders, brokers and borrowers should always keep an eye on. Much of the regulators’ focus will be planning and implementing changes relating to Brexit for the next 12 to 18 months, so their resources will be limited in making substantial changes elsewhere. Many seasoned professionals in the commercial lending sector have long believed that it is only a matter of time before the industry becomes more heavily regulated and closely aligned with the residential sector. Now though, there certainly is not an appetite to go down this route, and if one refers to the FCA business plan for 2018/19 more robust regulation in the commercial lending sector is not on the agenda for the coming year.

One of the areas that will impact the commercial lending sector is the FCA’s cross sector priorities focusing on financial crime and anti-money laundering, which it mentioned in its business plan for 2018/19. The FCA’s objective is to ensure that the safeguards that it has put in place are effective, proportionate, and operate efficiently avoiding any unintended consequences. To achieve this objective, the FCA will conduct regular inspections and also apply appropriate supervision and authorisation. They will also raise awareness of fraud and scam type activities, which the FCA is very concerned about.

Brokers and lenders should always work in partnership, but this is particularly important where financial crime and money laundering is concerned. This is nothing new, but as new technologies emerge

the criminal community becomes ever more sophisticated meaning that the level of vigilance should become more heightened.

Whilst the sector can be the victim of hardened criminals the most common type of fraud according to Experian data is first party fraud, where the applicant falsifies information as part of their application to allow them to obtain a mortgage or increase the level of borrowing.

The broker can play the lead role in these instances, acting as the gatekeeper by knowing their customer and ensuring that all the documentation that is submitted to the lender is legitimate.

A good quality, properly packaged application allows the lender to focus on processing lending submissions more effectively and improves the customer experience which should be everyone’s objective for 2019.

“

In the longer-term, Brexit may improve the strength of the sector by removing weaker lenders and brokers

NACFB | 45

Opinion

Assessing a case for lending – the crucial steps Scott Marshall Managing Director

research on their management team to make sure they are accessible and have an experienced team.

Roma Finance

W

hen making a decision on where to place a bridging or development case, it’s important to consider a number of parameters that make up the different elements, these can cover looking at the customers’ experience, sourcing a suitable lender and ascertaining if the project itself is viable.

Knowing your customer Don’t underestimate the customer in bridging and commercial transactions. It can be very insightful to meet the potential borrower and get a first-hand account of their development experience, learn about other properties they have bought, renovated or sold and their ability to make the current project work. They should also have the business case for the property (and the loan they need!) with a good working knowledge of what is required for any building works and future values of rent or sale. For bridging loans an exit strategy should also have been worked out too, as at the end of the term the full loan will need to be repaid.

Local market forces play a big role in property value, so knowledge of the local area, the rental and sale demand in the vicinity, can be crucial to the viability of a project. And, with the new HMO rules now in force the customer needs to be sure they’ll be able to get the licences they need if they are developing this type of rental property.

With more and more landlords running their portfolios as limited companies, it’s also prudent to check their personal credit profile as well as the stability of any business they run.

Looking into Lenders With new lenders entering the bridging and commercial markets almost every month now, it’s definitely worth taking a closer look at them in order to make the right decisions for the customer and the case. Some lenders have specialisms, which can be based around the property’s location, customer credit profile, property type and condition, LTV or size of loan.

There’s a lot to consider so look at how they are funded, if they are members of industry bodies such as the NACFB, and do some 46 | NACFB

A key factor when looking at lenders is how they underwrite a loan.

An introducer will need to know the lender has knowledgeable underwriters and they can make quick decisions that can be relied on.

Lenders that primarily consider the asset will effectively be viewing the loan as if they were a pawn broker and may not try to fully understand the customer and their objectives for a project.

The key to any successful loan is to understand the borrower first.

Speed to meet deadlines is driven by processes and systems, so look at average completion times and customer service standards can help in those instances where time is of the essence.

A well-structured lender with a number of people mandated in the business to make key decisions will provide the introducer and the customer more certainty around the decisions being made and ultimately will result in a more efficient and faster process.

The Four Pillars of Lending Decisions The key moments of truth in a lending decision can be summarised below: Borrower: Does the lender think they are capable of managing and completing the property project that the lender is backing them on?

Story: Does the project itself make sense with viable business projections?

Asset: Is there adequate security for the loan?

Exit: Will the customer be selling or refinancing the property at the end of the project? Whatever the exit route, will the lender’s redemption figure be significantly less than the net sale price or net refinance amount, thereby allowing some contingency for the borrower? If not, additional security may be required.

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Listicle

Top five ways to market your brokerage to SMEs

T

he UK’s community of SMEs is gaining more market share by the minute. They account for an overwhelming majority of all businesses and already employ over half of the country’s workforce. Forecasts estimate that by 2020, SMEs will contribute nearly £220 billion to the UK economy.

4. Social media

Commercial finance brokers know all too well that the SME market is full of lucrative opportunities. However, it’s a diverse demographic that can sometimes be tricky to tap into. We have compiled what in our view are the five best ways to promote your business to SMEs.

5. Search Engine Optimisation

1. Media coverage Many SMEs still use traditional media, such as national and regional business publications, to stay in the loop. Utilising regional press with both advertising and extended editorial remains an effective way to reach SMEs, your insight and expertise may well resonate with a business owner and help you get that lead.

Many brokerages ignore social media in their B2B marketing efforts. This is a mistake; one of the best ways to promote your business to SMEs is via social networks. And of them all, Facebook and LinkedIn are the most popular.

2 2. Trade shows Traditional business media offers a great channel for raising brand awareness among SMEs. However, trade shows are a much better way to get your products and services right in front of them. Believe it or not, 60% of SMEs prefer this approach.

3. Direct marketing SMEs are more likely to respond to your brand when approached directly. Rather than waste your time on broader ‘spray and pray’ tactics, build a comprehensive campaign that includes personalised emails, calls and direct mail.

1 48 | NACFB

Optimising your website is a worthy investment. A third of the SMEs use Google to help them discover relevant products and services. The easier it is for SMEs to find you online, the more likely it is that you’ll generate inbound enquiries.

3

5 As you can see, there’s no magic marketing bullet that will hit all your targets in one shot. To successfully reach small businesses, the best approach is an integrated public relations strategy that includes traditional media, social media, email and influencer marketing, and SEO. This combination will likely yield the best results for your brokerage.

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Five Minutes With

Five Minutes with: Alex Innes Alex Innes Head of Legal and Risk The Route – City wealth club

Describe your role in ten words or less?

Managing the potential conflict between innovatively funding property deals and risk!

In your view what are the key elements to a successful deal?

A borrower that we can rely on and a realistic exit. If we have full disclosure, we can work with the borrower and we have the expertise to structure a transaction. Often the deal that we fund is different to the one that we are presented with at the outset.

What’s the most common reason for turning away a deal?

The value of the asset is not of sufficient value to cover the risk of the loan.

What recent professional accomplishment are you most proud of?

Enabling The Route – Finance to successfully fund a residential property development loan which involved: negotiating the terms of the seller’s deferred consideration; altering the priority of another lender; inserting an equity position as a fall back; and providing a combination of senior and mezzanine loans. The deal originally 50 | NACFB

presented to us was to fund a simple residential development with no other security or debt.

You need to be able to lead and not just follow. As Mike Tyson said – “everyone has a plan until they get punched in the face”.

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

What’s the most under-rated trend in commercial finance?

Often borrowers need some help to organise the typical information that a lender will require, including the extent of the security being offered, the exit, and the cashflow for the duration of the loan. A broker can greatly assist the process by coordinating this information at the outset, and then presenting this information clearly to the funder. Also, an experienced broker can help to manage the expectations of the borrower, which greatly assists the funder to implement the funding transaction.

There is not enough credit given to borrowers who have procured a good deal, often where they can acquire an asset at below market value due to their knowledge of the site and/or the seller. We place material reliance on the actual value of the assets being secured as opposed to focusing on the cost of acquisition by the borrower.

What is your favourite piece of management/leadership advice?

It is important to have a strategy, but also to adapt to the inevitable obstacles that will be encountered along the way.

What do you like to do outside of work?

I enjoy ultra marathons, which involves running up to 100 miles of trails over hills, all in a day (read 24 hours). The last one I completed was the West Highland Way in Scotland (95 miles and 14,000 feet of climbing). These events provide me with lots of thinking time to solve funding issues!

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