In a country that’s always changing, banks and brokers need to work together to help businesses grow. That’s why we offer the breadth of finance and level of service you and your clients can trust.
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Some of you may have noticed that January was missing its usual copy of the NACFB’s Commercial Broker magazine. Alas, that is because there wasn’t one. We had to switch timings around somewhat, not because of any postal strikes, or for lack of content. We had to push the publishing date back to accommodate the entirety of the NACFB’s annual survey results –for it is a big one.
Fuelled by a desire to capture as much information about our sector as possible, last year we doubled the survey’s ambitions and for the first-time approached lender Patrons in addition to NACFB Members. This increase in scope means the results we have garnered are more encompassing, more detailed, and fundamentally view commercial transactions through two different lenses.
But all the analysis, write-up and design took time, more time than we had anticipated and thus you are reading a combined January/ February issue. Regardless of timing, the results are here and reveal a total transaction increase from the NACFB community in 2022, the full report in all its glory can be found from p.20.
February also saw registration for this year’s NACFB Expo open. Quite staggeringly, more than 500 delegates registered to attend in the first week alone, setting the Association on a firm course to smash all previous attendance records.
We will unveil more information regarding this year’s flagship NACFB Expo in the coming weeks, alongside further details of all the Association’s in-person activities this year, from the return of the Summer Party and award ceremonies to a continuation of smaller regional event offerings.
Strap yourself in, it’s full steam ahead this year here at your trade body HQ, you remain a part of the UK’s largest commercial intermediary community, and we’re proud to have you with us for the ride.
Norman
Association updates for January / February 2023
Lending to small businesses via NACFB Members jumped 10% in 2022 to £45 billion, according to the Association’s annual survey results.
The survey reveals an average loan size of £563,000 in 2022, up 23% on 2021. Of the small businesses successfully funded, an average of 29% had been refused capital elsewhere.
Of the commercial lenders that operate both direct and broker-led business models, 70% of their new business came via the broker channel in 2022. The survey also reveals that lenders most commonly declined loan applications because they viewed a sector as ‘too risky’. The industries generating the largest proportion of loan enquiries in 2022 were property at 44%, followed by construction at 13%, and manufacturing at 9%.
Further findings reveal 88% of UK enterprises that borrowed via an intermediary were driven by growth ambitions, whereas only 12% of total borrowing was for reasons that imply more distressed factors.
Commenting on the findings, NACFB Chair Paul Goodman said: “The results demonstrate clearly the value of intermediary-led lending to UK plc and endorse what the NACFB community has long known; that small businesses looking to access finance are often better served by enlisting the support of a commercial broker.”
“With many lenders withdrawing their high-street presence, commercial finance brokers have firmly stepped into the role of the modern-day bank manager; but with the added benefit of providing a wider array of funding solutions to their clients,” Paul added.
Reflecting on the NACFB’s findings, Economic Secretary to the Treasury, Andrew Griffith MP said: “We welcome the significant contributions of brokers in connecting small and medium enterprises with lenders, which will support these businesses to grow and thrive. Access to finance is vital for the growth and investment plans of British businesses, helping to achieve the Prime Minister’s pledge to grow the economy and create opportunity across the UK.”
Responding to the results, Bernie Skivington, Head of Origination & Relationship Management, Guarantee & Wholesale Solutions, at the British Business Bank, added: “It’s encouraging to see so many businesses securing funding through the NACFB’s network of brokers. These broker Members are a vital source of origination for many of our delivery partners, and we look forward to building on our positive relationship with the NACFB as we work together to facilitate better access to finance for smaller UK businesses.”
The full survey results can be found from p.20 in this month’s issue of Commercial Broker magazine
Total lending up 10%
As I write this, the UK looks set for another tough year economically. Inflation, interest rates and energy prices have created a brutal looking storm, leading the Bank of England to forecast that Britain is on the road to recession.
It’s a stark picture for Britain’s SMEs and their plans for growth. In Allica Bank’s recent survey of 222 commercial mortgage brokers, a significant majority told us that rising prices had disrupted their clients’ plans – over a third said ‘severely disrupted’.
We also asked how our brokers’ clients had so far responded to the disruption:
• 65% said their clients had to delay or reduce their growth plans for the year
• 48% reviewed their variable costs
• 34% took steps to reduce their overheads
• 17% reduced staff numbers
• 53% passed on rising costs by increasing their prices.
SMEs themselves are realistic about their prospects this year, but encouragingly ambitious.
A survey Allica undertook of 150 business owners at firms with between 10 and 100 employees revealed that 89% expect to look for finance in 2023. Of those polled, 43% said they would be looking for finance to keep their business afloat. However, a majority of those seeking finance were doing so to invest or develop their business for the long term:
• Over a quarter will be seeking funding to invest in new initiatives and products
• 22% plan to expand their business
• 37% will be looking to refinance, perhaps to protect against further interest rate rises.
It's these businesses that are going to be the vanguard of the UK’s fight to escape recession and get back to growth.
The commercial finance sector has a big role to play here. 17% of SME owners we surveyed cited both affordability and product range as areas banks need to improve. 10% said there’s a need for better communication and transparency.
Clearly there’s a lot we at Allica can focus on to support businesses in this challenging environment. But these statistics also shine a light on the vital role of brokers to help business owners navigate the market, find the right products and the most suitable provider.
As the lending market gets increasingly complex, banks and brokers will have to work closely together to ensure finance is accessible to the businesses that are going to keep our economy moving.
Here at Allica Bank, we are laser-focused on exactly that.
Bank to business lending is forecast to contract sharply in 2023 while mortgage lending will grow at its slowest pace since 2011 as fears of recession intensify, economists have predicted. According to EY Item Club, bank to business lending is expected to contract by 3.8% this year – one of the sharpest falls in decades – before returning to growth in 2024. Dan Cooper, UK head of banking and capital markets at EY, said: “SMEs are currently more vulnerable to a rise in loan impairments than larger businesses as they are less able to insulate themselves against higher rates and also because of the volume of bank debt they hold, which has grown since 2019.”
Data published in early February showed banks had been paid £4.4 billion of taxpayers’ money to cover default and fraud on the £77 billion in state-guaranteed loans made to struggling businesses during the pandemic. Of the £77 billion worth of emergency taxpayer-backed funding provided across three pandemic loan schemes, at least £11 billion is in arrears or defaulted. Some £640 million worth of facilities were marked as ‘suspected fraud’. The report, which covers the period to the end of December, will add to concerns about the scale of taxpayer losses on the schemes.
British Business Bank CEO Louis Taylor met with fund managers in Scotland recently to discuss a new £150 million fund to assist small businesses. The Investment Fund for Scotland is one of a series of nations and regions investment funds being introduced by the Bank which will deliver a £1.6 billion commitment of new funding to smaller firms across the UK. Alongside the investment for Scotland, funds are planned for Wales, Northern Ireland and the South West of England, along with follow-on funds for the Midlands and the north of England.
A study by the consumer group Which? has found that banks are putting customers at risk of fraud by sending security codes via text. In an investigation into 13 current account providers, Which? found that many sent a one-time passcode by SMS, even though the consumer group said this was the least secure way to authenticate customers because criminals were increasingly intercepting texts. It awarded top marks to banks that asked customers to use a card-reader or their mobile banking app to log in.
The Chancellor has met with the bosses of Britain’s biggest housebuilders to discuss the upcoming Budget and demands from Levelling-Up Secretary Michael Gove that they spend around £2 billion to fix fire safety defects on high-rise buildings. Housebuilders including Barratt Developments, Fairview and Persimmon met Jeremy Hunt while the Home Builders Federation (HBF) also attended the meeting. In its Budget submission, the HBF called on Mr Hunt to introduce a new home ownership scheme targeting first-time buyers.
A letter to the Prime Minister Rishi Sunak from UK business leaders is calling for a serious response to Joe Biden’s US Inflation Reduction Act, arguing that Britain must shift to an economic “war footing” with a wave of reforms of its own or risk being left behind by the US President’s massive programme of subsidies. Members of the Global Britain Commission, a business group chaired by the Tory MP Liam Fox and including the chief executives of Virgin Atlantic, Coutts, Heathrow Airport and Rolls-Royce’s nuclear power project, are calling for tax credits for exporters, formal secondments between the civil service and business and a merger between the Business Department and the Department for International Trade.
Turnaround specialists are pointing to the manufacturing and retail sectors as particularly vulnerable to the current economic malaise. Andy Leeser, chairman of the Institute for Turnaround, said the manufacturing sector would require the most turnaround expertise with 63% of its members expect manufacturing to be the sector under most stress. The remainder believe retail will be the worst hit. More than 17,000 retail businesses have already been identified as “distressed”, where payments increasingly are being delayed and liquidity is deteriorating.
The Bank of England’s latest Monetary Policy Report has shared that demand for rental properties has continued to outstrip supply as “…the number of landlords choosing to exit the market increased”. Official data shows that rents across all private UK tenancies jumped by 4.2% year-on-year in December – the highest rate recorded since data set began in 2016. Ben Beadle, chief executive of the National Residential Landlords Association, saidtax changes had exacerbated the blow of higher mortgage costs for buy-to-let owners.
New research reveals that total till grocery sales rose by 7.6% in the last four week period due to an increase in food price inflation, which reached 13.8% in January. However, volume sales fell 6.9% – the lowest volume growth recorded in over nine months, which reflects the concern shoppers have about cost-of-living increases. Analysis also shows that discount chains Aldi and Lidl continued to show strong momentum with sales growth of 21.9% and 17.3% respectively over the 12 weeks to 28th January.
Retailers have warned that British consumers sharply cut their spending in January as the cost of living crisis damaged household finances amid growing concern over the impact of high inflation on the economy. The British Retail Consortium (BRC) said sales growth slowed last month despite retailers offering steep discounts in the January sales, with households reining in their spending in the face of soaring costs for energy, food and other basic essentials. Total sales rose by 4.2% in January compared with a year earlier, down from December's annual growth rate of 6.9%.
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Mark Thompson Chief Operating Officer UK Agricultural Finance
Understanding lending to businesses operating in the agriculture sector is quite niche; however, the opportunity for brokers is much wider when you consider that in 2021, there were 216,000 farm holdings in the UK alone. This figure was reported in the ‘Agriculture in the UK Evidence Pack’ (September 2022 update) published by the Department for Environment, Food & Rural Affairs (DEFRA) which also revealed that the nation’s utilised agricultural area was 17.2 million hectares of land which is an eye-watering 71% of the UK land total. Added to this, agriculture employed almost half a million people, who were mainly involved in business ownership or management.
UK Agricultural Finance has been a Patron of the NACFB since the beginning of 2017, so we were delighted to be offered the opportunity to feature in this magazine at the start of 2023, not only because we know that many more brokers have joined the Association in recent years but also because it’s a perfect
opportunity to let readers know that we have a new funder on board giving us £300 million of funds ready to lend.
With the current economic situation, helping your agricultural clients access some of these funds could be just the boost they need, whether the money is required for refinancing and recovery or for expansion and new business opportunities. For Members who have not worked with us before, we can provide finance for:
• Land purchases – If your client is looking for additional acreage, in addition to premium land we can consider land where there are specific issues such as access rights, invasive species, drainage problems or any other challenge too difficult for someone without agricultural experience to assess.
• Livestock purchases – Our rolling facility allows your clients to buy (or sell) livestock including buying at auction, opportunistic B&B contracts, contract rearing as well as longer term heifer replacement.
• Renewable energy projects – These can be a great source of additional income for farmers and add real value to under-utilised land, or even turn waste products into revenue. We have over 20 years’ experience in renewables and will consider any proven technology, even pre-planning permission.
• Diversification – From holiday lets, to farm shops and novel crops, we’ll consider credible proposals.
• Property – For agricultural property purchases, repairs and renovations which result in capital appreciation or income
generation. We can also help with conversions into residential units, or even develop a plot of land from the ground up.
• Recovery and restructure – There are always bumps in the road in business, particularly in agriculture. We understand the need to gain some breathing room, take control and rationally plan the best way forward when financial pressure is at its most acute. Our team has successfully negotiated attractive exit terms with the banks’ impaired loans teams, and if required, we can ask one of the country’s most experienced agricultural receivers to fight your client’s corner and help them back onto an even keel.
It is also worth noting that agricultural lending does not only relate to farming; the breadth of businesses requiring finance in the sector is far wider than that. Think country estates, studs and equestrian facilities, kennels and catteries, the list goes on and for brokers with clients who may fit our criteria, it’s always worth checking to see if we can assist.
We are a hands-on bunch. We don’t use rigid lending algorithms to
work out if we can lend. We use people – a very experienced team of underwriters and a credit committee who are ably supported by equally experienced and knowledgeable BDMs. Tracey Simm covers the South West and South Wales, Sue McIntosh-Gibbs – Central England, Mid and North Wales, Louise Old – North England and Scotland, and Sharon Welch supports brokers and their clients in East Anglia.
To help better understand the needs and situation of your clients, our BDMs always visit prospective borrowers, and we include the broker in that trip, not just to keep everyone in the loop but also because it helps to ensure the very best outcome. At the end of the day, everyone wants a good harvest, and we are all about a fair deal for borrowers who want quick, simple and flexible agricultural finance. This means we take communication, risk management and responsible lending very seriously: they help protect our borrowers and the wider rural community, as well as our business, our introducers and investors.
We look forward to working with NACFB Members this year. We wish you all a fruitful 2023.
“
Agricultural lending does not only relate to farming; the breadth of businesses requiring finance in the sector is far wider than that
Rob Levitt Compliance Officer NACFB
Clear, fair and not misleading are the words that form the cornerstone of the FCA’s financial promotions rules and guidance. This is never more prominent than when addressing commission and its disclosure to clients.
A 2021 Court of Appeal decision highlighted the importance of following the FCA’s rules on commission disclosure. The case related to a broker in the mortgage sector who failed to disclose commission to the borrower. The judge found in favour of the borrower and ordered the broker to pay the borrower over £92,000 as part of the recission (where a contract is set aside, and the parties are put back into the position they were in before the contract was made).
This case, and others in both the mortgage and motor finance sectors, highlight the importance of the help that the NACFB compliance team provides in ensuring that Members’ business processes are working properly and can provide mitigation should Members find themselves in this unfortunate situation.
The rules on commission disclosure are high level, and intended to be so, and they give credit brokers significant discretion as to how the disclosures are made. The essential purpose of the disclosure rules is that firms should elaborate on the nature of commission arrangements where these could affect the customer’s willingness to transact. Understandably, the number and nature of a firm’s commercial arrangements will be a factor in how the nature of those arrangements are disclosed.
Commission disclosure rules apply to brokers at two stages, although the actual content of the disclosure will depend on the circumstances of the arrangements between the broker (or retailer) and the lender.
On websites, in emails and other marketing material, the broker should describe the extent of their powers and whether they are independent or working exclusively with one or more lender. They should also disclose prominently the existence and nature of any financial arrangement with a lender. These disclosures may be in general terms.
The broker should disclose to the customer the existence and nature of any commission (or other remuneration) arrangement with a lender and explain how this may affect the amounts payable by the customer. This information should be displayed prominently and in good time and crucially, before the customer decides whether to proceed with the financial agreement.
The NACFB’s template document for commission disclosures ensures that all key business and commission information that the FCA regulation expects is included. This template, along with the many others in the Association’s document library, is updated regularly and can be edited and personalised. Members can download the document free of charge by logging into their NACFB account.
More information on commission and disclosure can be found across various FCA sourcebooks including PRIN 1, 6 and 7, CONC 2, 3 and 4, and SYSC 6. Should Members have any specific questions or require more detailed help, please contact the compliance team via compliance@nacfb.org.uk
David Newborough Director Ashgates Corporate Services
On 1st January 2023, HM Revenue & Customs rolled out changes to the penalty and interest regime aimed at businesses which file late VAT returns and pay their VAT bills late. We asked David Newborough, director at Ashgates Corporate Services, about the new regime to help brokers understand how it might affect their business clients, particularly those who operate outdated accounting systems or are struggling with cashflow.
The new rules are designed to encourage businesses to make payments as soon as possible as well as make the penalties fairer, by ensuring that only those who persistently fail to file their VAT returns on time or make late payments are penalised.
Ordinarily, a businesses’ VAT liability is due to be paid to HMRC one month and seven days following the end of the VAT return period. From January, no penalty will be charged where payment is between 1-15
days late, or a payment plan has been agreed, although interest will be charged. Thereafter, a penalty charge will also be calculated on the outstanding amount – 2% between 15-30 days, an additional 2% after day 30, then a daily rate of 4% per annum until the balance is paid in full or a payment plan is agreed. In all cases, interest will be charged from the original due date.
payments will be charged in addition to any late filing or late payment penalties issued by HMRC.
What advice can you share to help businesses file and pay their VAT bills on time?
HMRC will allow a period of familiarisation for businesses to get used to the changes and therefore will not charge the first late payment penalty for the first year (from 1st January 2023 to 31st December 2023) if payment is made in full within 31 days of the payment due date. However, any partial underpayment of VAT will still incur the penalties.
A points-based system has been introduced such that each late return will incur one penalty point. Once a penalty point threshold has been reached, the business will receive a £200 penalty, with further £200 penalties being issued for each subsequent late submission. The penalty threshold will differ according to the business’ submission frequency. Late payment interest will be charged from day one after the due date at a rate of 2.5% plus Bank Rate. The interest
AEven if a business is struggling to pay, they should still submit the VAT return on time to avoid late filing points racking up and penalties being issued. Businesses which regularly struggle to submit VAT returns on time should consider reviewing their bookkeeping process and resource – a cloud-based accounting system can ease the workload, and obtaining assistance from your accountants can help either with the processing of information or with developing more efficient ways of doing things.
For those who can pay but who are often late in paying, it’s a good idea to set up a direct debit so that HMRC can collect VAT payments automatically at the right time. If the business is struggling to pay on time, we recommend they contact HMRC’s Business Payment Support as soon as possible to arrange a payment plan. HMRC is always more supportive if you communicate than if they hear nothing. Arranging a payment plan can help to avoid late payment penalties being issued, although it should be noted that, even if a payment plan is agreed between the business and HMRC, late payment interest will still be charged.
Our whitepaper analyses the impact of the rising cost of living on the UK’s private rented sector, as it has added a new dimension to the energy efficiency conversation. While changes to the Energy Performance Certificate (EPC) regulations are still proposed for 2025, the growing importance of energy efficiency for tenants can’t be ignored.
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somewhat. Many lenders removed the ‘Truss premium’ from their products. If we continue along this path, we expect mortgage rates to fall to around 5% in 2023.
We faced many challenges in 2022. Government instability, a cost-of-living crisis, rising rates – it seemed to be just one thing after another. Despite all this, the market remained robust. House prices rose throughout the year and are now sitting above pre-pandemic levels. But challenges will hit the market in 2023 and as always, certain key trends will define our industry for the months ahead.
Our current economic problems will likely lead to a period of slow growth or decline in house prices. Recession pressures, combined with higher interest rates and the end of the Help to Buy scheme will limit borrowing capacity. Demand could drop as a result. During the 2007 recession for example, house prices fell by 12%. In 2023, we predict the downturn will be less severe. According to the Office for Budget Responsibility (OBR), house prices will dip by 9%; however, Knight Frank argues they will only decline by 5%.
And while house prices may drop, we are cautiously optimistic about mortgage rates. At the moment they are high, but since Rishi Sunak became Prime Minister, the markets have relaxed
Currently, the housing market is attracting cash buyers. As owners opted to sell their homes due to rising rates, we have seen more cash buyers emerge. This trend could continue into 2023 as prices cool and rates stay relatively high.
Foreign buyers may also be tempted by the falling value of the pound. In fact, the last time we saw a similar run on the pound, in 2016, 14% of the world’s commercial real estate investments occurred in Britain. Overseas investors could capitalise on favourable exchange rates once again this year.
Rents may rise further in 2023. Rental supply is low at the
“
We expect mortgage rates to fall to around 5% in 2023
moment, and demand could rise as prospective buyers wait for mortgage rates to drop.
In fact, the number of people looking to rent a home is 142% higher than it was half a decade ago. This trend could continue in 2023, with the Royal Institution of Chartered Surveyors (RICS) believing a 15% hike in rental prices may emerge this year.
Some sectors of the market could outperform others in 2023. Specifically, Knight Frank predicts prime central London properties could be more insulated than most.
New Energy Performance Certificate (EPC) rules are also edging closer. Soon, any property being let to new tenants will need an EPC rating of C or higher. In 2022, it was estimated that 58% of UK homes had an EPC rating of D or lower.
Investment will be needed across the country to improve the energy efficiency of housing. On top of this, with energy bills skyrocketing, there is rising demand for greener homes. This could incentivise landlords to renovate.
In 2023, a stable government, an improving economy, and rising demand from specific segments of the market could calm things down. Regardless of what is on the horizon though,
the specialist finance industry will be able to adapt and support property investors.
With the turbulence we have seen in recent months, it is no wonder that we will see continued pressure as we head further into 2023. With inflation, interest rates, and the cost-of-living crisis in mind, specialist lenders will need to play a vital role in supporting the property market through a potential recession or other challenges.
Clear and proactive communication will be crucial. Our clients value clarity and the impact that the economic climate might have on them and their financial options. At MFS, we underwrite from day one, so our clients know where they stand from the outset.
Flexibility and creativity will also help support the market. Last year, lenders pulled deals following the ‘mini budget’, creating a nightmare for borrowers and their brokers. As such, in 2023, lenders must prioritise adaptability.
With the high street market in disarray, specialist finance will prove crucial over the coming months. Our bridging loans provide optionality for investors, helping them move forward confidently in a hesitant market.
Although the months ahead will be challenging, opportunities still abound. We will be on hand to enable buyers, landlords and investors to seize them by delivering the right financial products for their needs.
The National Grid is responsible for the safe, reliable, and efficient transmission of electricity to customers across the UK. The network connects power stations with major substations ensuring the delivery of energy where demand is most needed. It is an understated but vital role.
Much like the energy that underpins modern life, the role undertaken by commercial finance intermediaries – and their lender counterparts –is largely an understated one. The remit of the NACFB and its annual membership survey is to shed light on the collective endeavours of this growing community.
The findings from this survey tell a story rarely told, because the data it shares is unique and simply unavailable elsewhere.
The Association, led by its Members and its Patrons, knows of the value that intermediary-led lending brings to UK plc, but to be able to back-up those assertions with hard data – with demonstrable evidence – means the NACFB can justify a reputation firmly in its ascendency and safely champion a ‘people first’ manner of facilitating business growth.
Returning for a fourth year, in a revised form, the NACFB survey features results from more questions, spanning a wider range of activity from a larger cohort of the membership than ever before. It remains the most
comprehensive survey of its kind. And – for the first time ever – this year the Association approached lender Patrons to gauge activity; not just to garner an alternative perspective but also to validate key data against a corresponding source.
Over a third of the NACFB’s Member firms responded to the survey and more than 50% of the trade body’s lender Patrons shared their insight. This impressive data set provides assured credibility so that when declarations are made, and conclusions drawn, the NACFB can be confident that they are representative of the membership and indicative across the entire intermediary-led lending sector.
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If you or your organisation would like to see answers to specific questions that are not contained
within these annual findings, then do please contact the trade body’s team to discuss further. But for now, we leave you with the results of 2022’s survey and seek to tell the story of how the year unfolded through the eyes of the NACFB community.
The NACFB is made up of commercial intermediaries from all walks of life and remains a uniquely broad church. The Association’s community is primarily made up of two cohorts of membership, commercial finance brokers – we call these Members – and their lender counterparts, commonly known across the Association’s community as Patrons.
It is the NACFB’s role to facilitate engagement and dialogue between the two, greasing the transactional wheels whilst ensuring knowledge is pooled, relationships are strengthened, and professional standards upheld.
NACFB Members come in all shapes and sizes, and, for the first time, the Association asked what type of firm they consider themselves to be.
2,195 brokers operate out of just over 1,047 NACFB Member firms
It will be interesting to track responses over time to see if increasing operational costs, alongside higher regulatory burdens, will drive more directly authorised firms to join AR networks.
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35% of firms fall into the one-person firm category – this is lower than many within the Association had anticipated. In total, nearly two thirds of Member firms have no more than three brokers.
35% of NACFB
Members are one person firms
Although some Member firms offer only one type of finance, most maintain a multi-disciplinary practice. To better understand the overall product blend, the NACFB asked respondents to list their primary, secondary, and tertiary areas of business activity. The primary blend is a near exact continuation of last year’s split, with just over a third of Members identifying commercial mortgages as their primary business area, whilst a quarter led with asset and leasing activities.
Primary area (Core area of business activity)
Secondary area (Next largest area of business activity)
Tertiary area (Third largest area of business activity)
33%
of Members diversified their offering in 2022
5%
of Members reduced or refined their offering
62%
of Members maintained the same offering as the year prior
65% of all Members are property driven, with 26% leasing and asset
At the end of 2022, there were more than 160 lenders on the Association’s Patron panel, the highest the NACFB has known in its 30-year history. 2022 was also the first year that the trade body approached lender Patrons for the annual survey so whilst there is little by way of comparable historic data, the data’s inclusion helps to not only broaden the survey’s scope and capture a broader snapshot, but it also helps validate the data from Member brokers.
Despite it being difficult to neatly categorise all commercial lenders, the majority fall into one of five distinct categories.
The NACFB believes that this divide is broadly reflective of the wider intermediary-led commercial lending market. The largest subsect falls within the specialist lender category, which is often a difficult category to define and may act as a ‘catch-all’ category, indeed many short-term and development finance lenders fall within this specialist category.
The NACFB is also making concerted efforts to develop the number of CDFIs on its panel, helping to facilitate lower ticket size transactions for clients who may also have been turned away elsewhere.
Typically NACFB Patrons are backed by larger teams than their Member counterparts. This total headcount includes both front and back-office functions, ranging from field-based relationship and business development operatives to underwriters and in-house marketing roles.
65% of NACFB Patrons said the size of their broker-facing team had grown in 2022, whilst 31% said their size had stayed broadly the same. Just 4% of Patron lenders reduced their headcount in 2022. Anecdotal feedback from Members in 2022 saw a drop in the satisfaction with lender service levels. This drop in service levels – coupled with an increase in headcount – suggests lenders are redeploying resource away from frontline and intermediary-facing activities.
Not all commercial lenders provide regulated products via their intermediary channel; in fact, this year ’s data reveals that the majority of NACFB Patrons do not.
Commercial lending mostly sits outside the regulatory perimeter; however, many providers of business lending and banking facilities are signed-up to the Lending Standard Board’s Standards of Lending Practice for business customers.
57% 43% regulated lenders non-regulated lenders
49%
of NACFB Patrons diversified their offering in 2022
42%
of NACFB Patrons kept their offering broadly the same
9%
of NACFB Patrons refined or narrowed their product range
As with NACFB Members, some Patron lenders offer only one type of finance, although again, most maintain a multi-disciplinary practice. To better understand lenders’ overall product blend, the NACFB asked respondents to list their primary, secondary, and tertiary areas of activity. Property brokers are typically well served, but whilst only 8% of Patron lenders offer leasing and asset products as their primary service, 10% see it as their secondary, and 7% as their tertiary area of activity. The complete 2022 blend is outlined below.
area (Next largest area of business activity) Tertiary area (Third largest area of business activity)
Who funds the funders? Commercial finance lenders will draw from many sources, from the more traditional deposit and savings-backed lending to alternative methods including P2P structures and government-backed schemes.
The data reveals that the majority of NACFB Patrons are funded via institutional investors. It is not uncommon for high-street lenders and challenger banks to block fund other lenders, diversifying their portfolio and exposure. The NACFB hopes to see an increase in block funding from senior lenders into the CDFI space.
The 3% of lenders with government-backed funding as their primary source, likely represents the 3% of Community Development Financial Institutions (CDFIs) that make up the NACFB Patron blend, however 23% of Patrons utilise state support as their third largest source of funds.
Before any transactions are undertaken, before any terms are agreed and lenders approached, the intermediary-led funding process begins with the fundamentals, the people, and their businesses. It is both a truism and a cliché that SME business owners are the backbone of UK plc and it is their entrepreneurial spirit that the NACFB community seeks to, serve, protect, and nurture.
70% of NACFB Members maintain an active client base of no more than 150 clients
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NACFB Members – indeed all commercial finance brokers – oversee a roster of SME clients. These clients span all industries, business sectors and corners of the UK.
This year’s survey has sought to build a clearer picture of this client base, starting with just how many clients constitute a ‘base’. There was much pre-survey debate over what constitutes an active client, but the team settled with a client that a Member has sourced funding for in recent years, and one that is likely to return.
As is evident, some 70% of NACFB Members maintain an active client base of no more than 150 clients, which suggests a real focus on client care and the nurturing of longer-term relations over a higher turnover of new clients.
Within this active client base, NACFB Members also welcomed new clients last year, as in new businesses to act as funding pathfinders for.
The results reveal that 60% of NACFB Members welcomed no more than 50 new clients to their active base in 2022.
Turning to the clients themselves, this year the NACFB sought to garner a clearer picture and make-up of the enterprises both Members and Patrons seek to serve. The Association asked Members to share the size of their clients in 2022 by employee count. The results will help the community better understand and articulate which end of the SME spectrum is being supported by NACFB Members.
Just under half (48%) of those that responded shared that the average headcount of the clients they serve was no bigger than nine people. This same question was asked of NACFB Patrons, with the bandings matching almost exactly, verifying this spread across the full SME spectrum.
NACFB Members receive their business leads from all manner of sources and much depends on the sector and type of finance.
52% said their biggest lead source was from returning customers, whilst 13% said they get most of their leads from professional service introducers, a figure which dropped by a third when compared with last year’s data. This year the NACFB also introduced a category to include referrals from other clients.
The oft-mooted ‘Levelling-up agenda’ has become something of a political carrot in recent years, long on ambition, but so far short on meaningful action and investment. But just how was intermediary-led funding spread across the UK in 2022? Previous iterations of the
NACFB survey have sought to better understand the UK regions where Members’ clients have deployed their funding. This year, the approach was to ask Members to rank to the top three areas where the funds they had helped originate had been utilised. The primary, secondary and tertiary areas act as something of a barometer of the funding spread across the UK.
As expected, the South East of England and Greater London were the locations for just over a third (36%) of NACFB Members’ primary funding. It should be noted that both the South West of England and Yorkshire and the Humber ranked higher than previous years, each representing 10% of deployed funding. Whilst the North East of England represented just 2% of Member's primary area of funding, SMEs were still being supported by the membership as it ranked highly (10%) in secondary areas of funding deployment.
Future versions of this survey will no doubt revise the methodology as the results garnered on this occasion do not enable the Association to draw the more granular conclusions it is seeking.
Beyond the more tangible aspects of an SME client, perhaps their most interesting attribute is the reason behind their seeking of commercial finance. When constructing this survey question the NACFB sought to understand what level of finance was for proactive growth funding as opposed to more distressed borrowing. Given their propensity to embed themselves into the inner workings of an enterprise, NACFB Members are well placed to ascertain the drivers and motivations behind their clients’ borrowing.
Respondents were asked to rank the top three most common ways the funding they helped source in 2022 had supported their clients. The available options were carefully selected to reflect proactive growth funding (to help clients innovate their products/services, to help them acquire property/assets, and to help improve operational efficiency) whereas the remaining reasons for funding would point to more distressed borrowing (to help maintain daily operations, to prevent insolvency, and to directly save jobs).
The results reveal that overwhelmingly the most common primary reason for borrowing in 2022 was to acquire property or assets, which suggests a fairly high degree of proactive growth borrowing. However, it is worth highlighting that chief among the secondary reasons for borrowing is the enterprise’s desire to maintain daily operations. It can be argued that if a client is seeking to borrow in order to simply maintain daily operations, then that in itself is a form a distressed borrowing.
The survey revealed that of the primary reasons SMEs borrowed in 2022, 88% were driven by growth ambitions, whereas only 12% of borrowing was for reasons that imply more distressed factors.
The NACFB also asked Patron lenders to outline the growth to distressed borrowing ratio, with the results largely aligning, which seems to verify the driving forces behind borrower demands.
It should be acknowledged that the methodological underpinning of this question, in that the SMEs themselves were not directly asked, means that the results can only ever be treated as indicative, but they remain noteworthy, nonetheless.
NACFB Members further revealed that on average 35% of their clients sought to refinance in 2022, up three percentage points on 2021. This slight increase may well have been driven by steadily rising interest rates, with businesses opting to restructure their finance over longer repayment schedules.
To develop a clearer picture of client make-up the NACFB also asked Members if they currently collected diversity data (both on client gender and ethnic background), 82% said they do not do so currently, with only 7% saying that they recorded any meaningful data.
27%
50%
of Members saw an increase in green funding enquiries
of Members saw a decrease in green funding enquiries
of Members saw no change
The NACFB asked its Member brokers what percentage of their clients had ended up utilising a different solution to the one they had initially enquired about (i.e. a client may have enquired about a term loan but ended up drawing down an invoice finance facility following the broker’s counsel).
Over a quarter (28%) of intermediary-led transactions resulted in a client selecting a different solution to the one they had initially enquired about. This points to the clear and demonstrable value that the partnering with a commercial finance broker can provide.
Another key issue of 2022 was that of sustainable finance. The number of lenders offering green funding solutions is growing, but is the demand from clients? We asked NACFB Members if they had seen an increase in clients seeking green funding solutions this year. 23% of Member respondents said they had seen an increase in clients seeking sustainable loan products, 27% said fewer SMEs have enquired about green funding solutions, with 50% sharing that interest had stayed broadly the same. Last year, 79% of respondents said they had seen no increase of interest in sustainable borrowing.
To further demonstrate the value that an NACFB Member can bring to a small business client, on average last year, 29% of successfully funded new clients had been turned away for funding elsewhere. This significant data point includes successfully funded business that may have been turned away for debt financing either directly from their bank or through other types of finance, including equity funding. These are businesses that may not otherwise have received growth capital and is perhaps the starkest evidence to date of how much value engaging with an NACFB Member can bring by unlocking access to finance.
28% of brokers’ transactions resulted in a client selecting a different solution to the one they had initially enquired about
7%
82% of Members collect diversity data
of Members do not collect diversity data
29% of successfully funded new clients had been turned away for funding elsewhere
NACFB Patron lenders, those who ultimately release the capital, enjoy a more nuanced approach to client service. Whilst some brokers retain close contact with their clients throughout the funding journey, others are happy to take a step back and allow the lender to have a more handson approach. Neither option is wrong, but fundamentally it does mean that a lender must also see the intermediary as a client as well as the SME that receives the funding. Herein lies the art of intermediary-led lending, the delicate balancing of interests, relationships, and resource.
68%
of Patrons saw their broker panel size increase
26%
of Patrons said their broker panel size stayed broadly the same
6%
of Patrons saw their broker panel size decrease
With an average full panel size of 927 firms, it is little wonder that lenders most commonly work with comparatively smaller ‘active panels’. The NACFB asked Patrons how many of their full panel they work with consistently – as in transacting business from them more than twice a year. Under these parameters, respondents revealed a more manageable average figure of 223 broker firms who successfully complete business with them on a more frequent basis.
Lenders of all sizes maintain panels of brokers, much like brokers themselves will maintain panels of lenders. In 2022, the average full broker panel for NACFB Patrons was 927 firms. This means that – on average – 927 organisations could introduce business to a typical commercial lender at any one time. 68% of respondents said that this number had increased year-on-year, whilst 26% said it had broadly remained the same. Just 6% of NACFB Patrons said their full broker panel size had decreased in 2022.
Such an increase in panel size suggests lenders are becoming more open to new lead generation sources. It could also point to increasing levels of competition in the intermediary space, but perhaps most accurately it hints as to why many brokers are grappling with a perceptible decline in lender service levels. Simply put, accompanying an increase in lender headcount is an increase in the number of intermediaries they serve.
On average, 61% of respondents’ broker panels were NACFB Members. A growing number of Patrons will only transact business with NACFB Members, assured by the Association’s Minimum Standards Reviews.
The average full broker panel for NACFB Patrons was 927 firms, of this only 223 are frequently used
The blend of NACFB Patrons means that some lend directly to SMEs as well as via the intermediary route. Others offer no direct model whatsoever, relying entirely on brokers and introducers for their business. In 2022, 70% of NACFB Patrons’ total lending to UK SMEs was through the commercial intermediary channel. Whilst there is no historically comparative data, the fact that nearly three quarters of commercial lending is via intermediaries, clearly demonstrates the value of the channel and the reliance upon it by many lenders.
42% of intermediary-led commercial finance applications were successfully drawn down in 2022.
70% of NACFB Patrons’ total lending to UK SMEs was through the commercial intermediary channel
3
To those unfamiliar with the wide array of work undertaken across the NACFB membership, it can sometimes be a challenge to visualise and accurately articulate just how substantial the funding network’s contribution to the UK’s SME funding landscape
Some NACFB Member brokers focus on bigger ticket transactions and may complete fewer than ten transactions a year. Others transact smaller ticket values and are therefore more reliant upon volume.
is. The following is an attempt to illuminate just how integral the NACFB community remains in post-COVID efforts to keep Moving Britain Forward.
37%
of Members saw their transactional volume increase
14%
of Members saw their transactional volume decrease
49%
of Members saw their transactional volume remain broadly the same
37% of NACFB Members said their total transaction volume was more in 2022 than in 2021. Just 14% said the total number of transactions was less, whilst 49% said it had remained broadly the same.
For the last four years the NACFB has tracked the average loan size per primary area of business activity for brokers. This figure fluctuates and is affected by all manner of factors that impact client demand and confidence.
The average NACFB Member transaction size of £563,000 represents a 23% increase on 2021’s total. The average size loan category’s most popular modal response continues to fall within the £200,000£500,000 range, which accounted for 32% of all responses in 2022 and 30% in 2021. This remains the most frequent response from across most types of finance, except for the leasing and asset finance space that saw the range value of £30,000-£50,000 most commonly selected both in 2022 and 2021. The most common range of unsecured finance transactions dipped from £150,000-£200,000 in 2021 to £75,000-£100,000 in 2022. The higher mean average loan size of £563,000 is influenced by responses in the higher value categories.
Finance types that saw a decrease in 2022 were in both the invoice finance and mergers and acquisition spaces, with each respectively seeing a 29% and 15% year-on-year drop in deal value.
34% of Member responses said their average transaction value increased in 2022, 16% said it had decreased whilst exactly half of the membership (50%) said it had stayed broadly the same.
“The short-term lending sector remained largely unscathed during the recent rising cost of living issues,” shared Vic Jannels, CEO of
the Association of Short Term Lenders. He continued: “The latest figures for 2022 suggest that average loan sizes rose to around the £550,000, tallying with the NACFB data, whilst loan to values remained fairly conservative. This is good news, but it is important to note that provable exit routes remain crucial and a strict priority for all stakeholders.”
The average NACFB Member transaction size of £563,000 – a 23% increase on 2021’s total
TOTAL VALUE FLUCTUATIONS
of Members said their total transactional value increased
48% said it had remained broadly the same
35% of Members said their total transactional value decreased
17%
The total amount introduced by NACFB Members in 2022 was £45 billion – a 10% increase on 2021’s value of £40.9 billion
The total amount introduced by NACFB Members in 2022 was £45 billion – a 10% increase on 2021’s value of £40.9 billion. 48% of respondents said that the total value they successfully introduced to lenders in 2022 was higher than in 2021. Just 17% said their volume was lower whilst 35% of Members said it was broadly the same.
The term vanilla is frequently used to describe more standard transactions, but in reality, nuance can be found in any aspect of a commercial finance loan. One such area is in the broker and clients’ selection of lender that ultimately goes on to provide the capital. In a new addition to the survey, the NACFB sought to gather insight into the transactional split of lenders by type. Simply put, the Association sought to ascertain the most common types of lender through which surveyed intermediaries successfully placed business in 2022.
As this was the first time the question was asked of NACFB Members, the Association is keen to build over time a more accurate picture of the types of lenders selected and the blend across the entire membership.
The latest iteration of the Recovery Loan Scheme (RLS) was introduced by the British Business Bank in 2022, the Bank continues to administer the scheme on behalf of the Secretary of State for BEIS.
One key change from the previous iteration of the scheme is that (for most borrowers) there is no longer any requirement to confirm they have been affected by COVID-19. The maximum facility size is still £2 million, at least for borrowers outside the scope of the Northern Ireland Protocol, and £1 million for those in scope of the Northern Ireland Protocol.
In 2022, 86% of NACFB Patrons did not complete a single intermediary-led transaction through the Recovery Loan Scheme. Of these lenders, 18% said that this is because they themselves can provide better terms than those within the scheme, 15% of them said it was simply not profitable for them to engage with the RLS, and 13% said the scheme’s criteria was too restrictive.
Of those NACFB Patrons that were accredited and those that did utilise the scheme, the overwhelming majority (93%) completed less than 150 transactions through it in 2022. The survey only concerned broker introduced transactions so there may well be higher figures for the SMEs approaching scheme accredited lenders directly.
55% of NACFB Members did not complete a transaction through the RLS in 2022, a further 22% undertook no more than four transactions through the scheme across the same period of time.
There are myriad rationalisations for why scheme take-up is demonstrably lower than in recent years. The NACFB asked its Members for the reasons why RLS engagement had dropped.
It is evident that COVID is no longer directly impacting trading conditions to the level it once did, but borrowers may also be more reticent to take on additional debt, and competition has seemingly returned to the market from commercial lenders offering products on comparative terms.
86% of NACFB Patrons and 55% of Members did not complete a single RLS transaction in 2022
Last year’s NACFB survey revealed that whilst some lenders remained open and ready for business throughout COVID, others did step back, tightening their criteria, and reducing their appetite in certain business sectors. At the end of 2022, the Association asked both Patrons and Members why funding applications had generally been turned away to help build a more accurate picture of the funding landscape and to establish whether appetites had developed.
Understanding the reasons why a lender declines to fund a broker’s client is as often as important as knowing the reasons why it was transacted. The NACFB asked both Patron lenders and Member brokers to outline the top reasons why deals were declined in 2022.
The reasons for transactions being declined in 2022 is revealing not just because of the areas where there is clear correlation between the two cohorts of membership but perhaps as revealingly where there is clear divergence. It is unlikely that an NACFB Member would select incomplete paperwork as the reason for a transaction being declined, but lenders highlighted this as a concern. Brokers may do well to reflect upon whether a lender is in receipt of as much paperwork as possible from the outset, a common gripe of many an underwriter.
On the flipside, it is highly unlikely a lender is going to overtly
declare that a commercial transaction has been declined on the basis of reduced sectoral appetite, but it is clear that from their vantage point brokers believe that this is the case all too often.
The data isn’t suggesting either cohort has been disingenuous with their responses, it is entirely possible to see two different and legitimate perspectives on the same transaction, neither lens is distorting too much. The reality – and indeed possible truth – behind any summation of decline reasons most likely falls somewhere between these two data sets.
If an intermediary-led transaction is declined by a lender, the broker is often well placed to source funding via a number of other options. Such plurality of choice remains one of the key benefits for SMEs of enlisting the support of commercial finance brokers. But what of those direct enquiries from small business owners to lenders? When they’re declined – for whatever reason – what happens next to those enterprises? The NACFB asked Patron lenders just that.
Quite staggeringly, 40% of NACFB Patrons do not have a formal referral system in place for those direct enquiries that have been declined. This is a significant number of UK enterprises that are not receiving any direction or signposting of where to go after a funding rejection. The Association is seeking to address this group of borrowers, as many could have their ‘no’ turned into a ‘yes’ through the professional support and guidance of an NACFB Member.
Embracing professionalism and the highest of standards lies at the very heart of the NACFB’s remit. The enterprises we have spoken about thus far in the survey findings rely upon the entire lending community to uphold a framework that puts their interests first.
2022 saw the Financial Conduct Authority (FCA) use its new powers to more swiftly cancel or change what regulated activities firms are permitted to transact. FCA regulated entities are required to prove they are carrying out the regulated activities they are permitted to or face losing their permission. This new power is available following changes that now permit the regulator to streamline and shorten their removals process. The
FCA now provides a firm with two warnings if it believes they are not using their regulatory permission and is now empowered to cancel or change the permission.
2022 also saw the FCA timetable the roll out of its Consumer Duty framework. In what is heralded as the largest regulatory shake-up for a generation, the regulator’s new consumer-focused principles require firms to act and deliver good outcomes for retail customers. NACFB Members and Patrons have been embracing such a philosophy for years, indeed they pride themselves on it, so the measures will merely formalise trading practices to which firms have long-since become accustomed.
—
In 2022, just 17% of NACFB Members’ commercial finance transactions were regulated, up one percentage point on 2021. In addition, NACFB Patrons shared that just 10% of their overall commercial transactions last year fell within the regulatory perimeter.
Paradoxically, regardless of the fact that only a consistently small percentage of transactions fall within the regulatory scope, a considerable proportion (92%) of NACFB Members shared that, nonetheless, they do hold FCA credit broking permissions. From a distance, these two data points seem at odds with one another, so the NACFB sought to understand why Members choose to hold permissions, their purpose, and attitudes to them.
Maintain regulatory permissions, but not relevant to scope of business
Do not maintain regulatory permissions, not relevant scope of business
Do not maintain regulatory permissions, seeking to become authorised in the future
Maintain regulatory permissions, as relevant to scope of business
20% of NACFB Members are maintaining permissions even though they are not relevant to their scope of business
We were advised to become FCA authorised We maintain authorisation to remain on some lender panels
With a significant number of Member firms sharing that they maintain regulatory permissions simply to remain on some lender panels, the NACFB asked Patron respondents to share their insight. 34% of respondents revealed that they expect all commercial brokers on their panel to maintain regulatory permissions for all transactions, whereas 56% outlined that they did not expect brokers on their panel to maintain regulatory permissions for non-regulated transactions.
The NACFB is keen to monitor prevailing attitudes and will share with the FCA findings with a view to informing their ongoing reviews of the sector.
The question then is begged, why are 20% of NACFB Members maintaining regulatory permissions despite them not being applicable to their business? The Association put this very question to those Members.
It emerges that some firms are clearly maintaining their permissions both to remain on some lender panels and (although perhaps the two reasons overlap) for reputational reasons. The FCA’s ‘use it or lose it’ approach is attempting to disrupt the ‘halo effect’ and it remains to be seen what longer-term impact this will have.
The last UK recession was at the peak of the COVID-19 pandemic in 2020. During that time, cases of fraud rose by 24% according to the latest England and Wales crime figures. Now, as we approach the next fiscal downturn, it is highly probable that fraud will also be on the up. For the first time the NACFB asked its membership for their insight into fraudulent loan enquiries.
13% of NACFB Patrons said they had seen an increase of fraudulent loan applications (including direct enquiries) in 2022, whereas 14% said they had seen less. 73% said it had remained broadly the same.
13%
of NACFB Patrons saw an increase in fraudulent loan applications
34%
14% 73%
of NACFB Patrons saw a decrease in fraudulent loan applications
of NACFB Patrons said levels had remained broadly the same
It is however not unreasonable to assume that lenders are less likely to stumble across an instance of fraud from an application that has first been triaged by a commercial finance broker. When NACFB Members were asked whether they had seen an increase in fraudulent loan enquiries in 2022, just 8% said they had with 45% sharing that they had seen less instances than the year prior.
of NACFB Patrons expect all commercial brokers on their panel to maintain regulatory permissions for all transactions
Surveys of economists at the end of 2022 in the US, eurozone and the UK were unremittingly bleak, stuffed with predictions of recession, higher unemployment, and continued inflationary problems. The head of the IMF, Kristalina Georgieva, talked of a tougher 12 months ahead and expects a third of the world to experience a recession. It is fairly depressing stuff.
However, the NACFB community has weathered all manner of
It is important to understand the sectors that NACFB Members are receiving enquiries from. Such data nods towards demand and can be juxtaposed against prevailing lender appetites. It is worth noting whether the sectors with a high number of enquiries are being met with the requisite lender appetite. NACFB Members were asked to name the business sector they had received the most enquiries from in 2022.
storms in the name of serving UK plc, including what is nearing a dozen ‘once in a generation’ crises in the last decade alone. Owing to their unique vantage point, sitting between SME and lender, NACFB Members remain expertly placed to gauge business confidence, market fluctuations and overall commercial lending outlook. This final section of survey results explores both NACFB Members' and Patrons’ sectoral analysis and tentatively engages in some horizon scanning.
As well as increased enquiries from certain sectors, NACFB Members were also asked to select the area in which they had seen the biggest slowdown of enquiries.
When trying to develop a picture of overall lending appetite, it is again worth comparing viewpoints. We start with an analysis of the data that followed when both membership cohorts were asked for the business areas where lenders had been most reluctant or had least appetite to lend to in 2022.
Whilst reading the stones is fiendishly complex in the era of the unexpected that we currently cohabit, the NACFB also asked both membership cohorts to select a business sector where growth is anticipated this year.
It is clear that although there are areas of overlap, both Patrons and Members share different perspectives of the same transactional base. As outlined earlier in these findings, it is not just the areas of correlation that strike interest, it is worth observing where the disparities emerge – unfortunately we can only speculate as to why such discrepancies emerge.
Despite – or indeed because of – the battle-hardened nature of both NACFB Members and Patrons, both cohorts of membership remain vigilant and ready to respond to threats both old and new, foreseen, and unforeseen. The Association asked both parts of the membership what they anticipated as the biggest threat to their organisation's commercial finance lending activity.
Whilst both cohorts operate within the same industry, they do face uniquely different challenges, from lenders contending with drops in service levels and acquiring the right talent, to brokers responding to regulatory reporting and reputational concerns. All of this is thrown into the mix as we present the aspects on the risk radars of survey respondents.
It is worth noting that in 2021’s survey of Members only, their number one concern (21%) was the rising cost of Professional Indemnity Insurance (PII) premiums. A further 12% of Members viewed the FCA’s plans and proposals as the biggest threat to their business.
Remarkably, last year’s number one concern – that of increase PII costs – no longer ranks highly at all on the radar of NACFB Members. This is no doubt a result of the Association’s tireless efforts to launch its very own alternative. 2022 heralded the arrival of the NACFB Mutual, launched to address the rising cost of premiums. To date it has saved policyholders £250,000 whilst delivering average savings of up to 30% compared to previous PII premiums.
Last year, rising interest rates gave 39% of NACFB Members sleepless nights. Combined with concerns over increased lender risk appetites, the majority of brokers' fears appear to be emanating from elements frustratingly beyond their control.
Much like all other questioning directed at Patrons, this was the first time the NACFB had sought to formally record the threats lenders perceive to be the biggest to their commercial lending operation.
Much like their broker counterparts, a significant proportion of lenders perceive rising interest rates as the biggest threat to their operation. Rising rates impact the terms that a lender is able to provide to an NACFB Member’s client, it impacts their risk appetite, but it also directly influences the cost at which they themselves can borrow from their funders.
Notably, not a single NACFB Patron or Member highlighted increasing instances of fraud as a threat to their business. Whilst this is no doubt testament to the vigilance and preventative measures put in place across the sector, it is important such confidence does not lead to complacency.
Thank you to all the NACFB Members and Patrons that completed last year’s survey. The results help to inform key stakeholders of the tangible value that engaging with the community can bring. They also help to quantify activities beyond just the transactional and illuminate areas where, historically, there has been little by way of supporting data.
If you wish to speak with one of the team regarding the latest survey data, or if you want to see an expanded range of questioning for 2023’s survey, then please do let the team know via press@nacfb.org.uk
Since the COVID lockdowns, working from home a few days a week or even just sometimes, has become the norm. Known as hybrid working, it’s very popular and even business owners have caught on to the many benefits it can provide including improved productivity, increased morale and engagement resulting in better staff retention.
The hybrid model is just one form of flexible working which employees have the right to request from their employer. Other popular forms include flexible start and finish times and remote working.
Currently, employees can request flexible working arrangements if they have worked for the same employer continuously for the previous 26 weeks. When a request is made, employers are required to arrange a formal meeting and the employee has the right to be accompanied by a co-worker or trade union representative. The employer must then consider the request in a ‘reasonable manner’ and make a decision, usually within three months.
Employers can reject an application for any of the following reasons:
• Extra costs that will damage the business;
• The work cannot be reorganised among other staff;
• People cannot be recruited to do the work;
• Flexible working will affect quality and performance;
• The business will not be able to meet customer demand;
• There’s a lack of work to do during the proposed working times;
• The business is planning changes to the workforce.
In December 2022, Yasmin Qureshi MP introduced a Private Members’ Bill which proposed changes to flexible working, and the government appeared receptive.
Ms Qureshi proposed that employees have the right to request flexible working from day one and that employers should consult with employees if they intend to reject a flexible work request. Further, she proposed that the decision period be reduced from three to two months.
The Bill also proposed that the number of statutory requests permitted in any 12-month period be increased from one to two and that the existing requirement that the employee must explain what effect, if any, the change applied for would have on the employer and how that effect might be dealt with be removed. The Government also highlighted that where an employer cannot accommodate a flexible work request, they will be required to discuss alternative options before they can reject the request although the rejection grounds would remain the same.
Currently, the Bill is at committee stage and no timeline has been provided to make it into law. However, employers would do well to consider the implications of the Bill now so that they are ready to make changes should the proposals come into effect.
For more information, NACFB Members are reminded that they have free access to Quest’s Broker Protect service which provides business advice lines – HR, legal, tax, and health and safety, as well as access to more than 750 template business documents. Lastly, it should be noted that this article is for information and education purposes only and should not be relied upon as legal advice.
security type, security location, existing mortgage product, rental coverage, credit score, advance size required; the list goes on.
Business lending is now far more accessible than in previous years, but accessing finance is still a concern, because the high street or ‘mainstream’ lenders do not cater for everyone. This could be due to a number of reasons but automated underwriting, credit scoring and lack of appetite are the key reasons. Specialist lenders are stepping in and providing finance to borrowers who are being underserved by the mainstream.
Whether a business is looking for a short-term business loan or more flexible credit over a longer term, there’s a broad range of funding options available. At Mercantile, we find SME owners and property investors are typically looking to borrow money to launch a new business venture, to buy property, to enhance a property portfolio, or to refurbish a property to improve its Energy Performance Certificate (EPC) rating. These are all valid reasons for finance, so why might these borrowers be ‘underserved’?
Lenders may not like the client profile, client income make-up,
Drilling down in more detail, lower property values and certain property types can lead to smaller advances being required – counter-intuitive, perhaps, but this is an issue for many lenders, whose restrictions mean their minimum loan size can be too large. There are lenders who look to serve these customers, however; for example, at Mercantile Trust we start from as little as £10,000 on our buy-to-let term proposition and £25,000 for our bridging up to 75% LTV with no restriction for non-standard property types.
Similarly, complex income stream or rental shortfalls can limit the amount the customer can borrow. Also, some cannot meet the debt service coverage ratio (DSCR) of traditionally 145/165%, leaving little or no option at all. There are options in the specialist market where rental ratios are as little as 100% as well as options to ‘top slice’ enabling the borrower to borrow slightly more.
Others will fall over with declined consent from the first mortgagee or because they have no equity. However, if they have equity in their main residence some specialist lenders can help them achieve their aspirations by offering homeowner business loans. We’ve recently provided commercial landlord clients with homeowner business loans in order to use the equity within their main residence for business purposes, enabling them to leave the portfolio as it
is, leaving preferential rates intact or protecting against costly early repayment charges (ERCs) whilst achieving their expansion/ upgrade objective.
Of course, credit ‘worthiness’ is a common reason why lenders say no, but it’s important to understand that often these decisions are the result of a highly automated process, where no human has actually looked at the client or their application. I believe that a low credit score, or bad credit because the borrower was a victim of circumstance, should not prohibit opportunities being realised. The borrower might have to pay a bit more, but a specialist lender will apply a ‘holistic’ approach to underwriting.
Jurisdiction can be an issue: England, Wales and Scotland are quite widely covered by lenders but Northern Ireland less so, making lending availability limited as well as deterring investors from entering. Happily, the landscape is changing, with Quantum lending providing term loans and Mercantile Trust lending on both a bridging and term basis, amongst others.
Advisers need to know how to access these lenders and products and I believe one solution is to utilise criteria sourcing systems. An initial criteria search provides the broker with details of the lenders which can support the criterion that might be proving difficult. It also ensures that the borrower’s expectations are managed, as they can then look to source those lenders identified (where the rate is relative to the risk) as opposed to recommending a lender and a rate only to find, later down the line, that the lender cannot lend on the particular criterion, but an expectation has been set on rate, leading to a disgruntled borrower.
In this period of largely economic bad news, the good news is that there are lenders out there who can help those being ignored by the majority. Having been involved in specialist lending for many years, I am used to degrees of complexity in borrowers and cases. That’s why specialist lenders can take a more nuanced view to areas where there is traditionally a restricted lending appetite. Knowing there are solutions out there is the first step.
Specialist lenders can take a more nuanced view to areas where there is traditionally a restricted lending appetite
As a result of the FCA’s Appointed Representatives regime review, all principal firms have received a Section 165 notice requesting additional data on the ARs in their network. The notice also requires principal firms to provide more comprehensive information on new AR applications. To comply with these requests, we have had to update our systems and processes.
The benefits of being part of a community or network are well established and those of us who forge professional relationships recognise we are stronger together. As a minimum, a broker network can provide regulatory guidance and support, access to tools along with a much wider lender panel than an individual broker would be able to command. There has been a recent move in the sector towards more education and increased professional standards with several recently launching training programmes designed to improve client experience and outcomes.
The time and resource required to facilitate the improvements required by the regulator has not been inconsiderable, but in our experience, it is worth the investment. The closer we work with our ARs, the more successful they become and of course, that’s better for us and the clients.
In fact, since 2014, we have continuously looked to improve the performance of our network and saw the FCA’s AR regime review as validation of our direction of travel. Now that the new policy is in place, the need to formally tighten the relationship is essential.
Some ARs may view the new regulations as an increase in bureaucracy and even intrusive, but I’m glad to say that the majority of ARs I’ve spoken to welcome the additional communication and support.
It is almost nine years since White Rose launched the ‘Brokerplan’ proposition with the intention of recruiting a handful of brokers as Appointed Representatives (ARs). The only constant throughout that time has been continuous change, with the last three years being notably unpredictable as external factors have played their part.
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There may be a minority who may choose to exit the sector
Introduced by the then Financial Services Authority in 2006, the AR model has come under increasing scrutiny in recent years. In 2022 it became apparent that the FCA plans to continue disrupting the sector to reinforce their position as the consumer champion. Perhaps more important and far-reaching than the new AR regime review has been the introduction of Consumer Duty. According to the FCA these initiatives “...go hand in hand and reinforce one another in increasing protection for consumers dealing with ARs.”
As a principal firm we have embraced the objectives of both and recognise the need for our network partners to adopt the same approach. But while both parties share a responsibility, the ultimate accountability is that of the principal firm. For us, it represents an opportunity to review our working practices. Supporting this review, we are in the process of organising a series of local forums designed to ensure we communicate the changes effectively to our ARs and increase mutual transparency.
Developing and maintaining relationships with lenders is a significant part of the broker network model. Lenders stand to benefit from both the new AR regime and the Consumer Duty because the quality of finance applications submitted by ARs will rise due to the increased engagement and oversight from principal firms.
When looking at how the changes will affect the key dynamics between
principal firm, AR and lender, I believe the majority of relationships will become closer, stronger and more productive although there may be a minority who may choose to exit the sector as a result.
about the client?
Of course, the ultimate beneficiary of the new regulations is the client. At White Rose, like most other brokerages, the client is at the heart of everything we do. As standards improve, so will client experiences and those of us working in the industry will reap the rewards as we gradually move towards being recognised as the professionals we are. Our public profile may even be elevated alongside other professions such as accountants and solicitors, although hopefully we remain more user friendly than some.
I view the FCA’s initiatives as positive vehicles which will not only create better outcomes for clients but will also help to fuel recovery of the wilting UK economy. Broker networks, if managed well, will also benefit from the regulatory changes and principal firms are ideally placed to deliver the education that is needed to ensure that the initiatives are implemented.
As long as we continue to embrace change positively and raise standards collectively, I believe that the future for broker networks is very bright. If we get it right, there will be an increased demand for our services.
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The majority of ARs I’ve spoken to welcome the additional communication and support
This article may not find favour with many of the regular contributors to this magazine, but hopefully will give some pause for thought. Like many other industry publications, Commercial Broker often features articles singing the praises of bridging finance. Bridging finance has its place and serves a purpose in our economy. A good broker will, of course, examine thoroughly the terms on offer including what happens if the bridge goes into default.
As a long-term non-status commercial mortgage lender, we are often asked by brokers if we can repay a bridge or find ourselves competing to finance a new proposition. We might make an offer on an open-ended basis meaning that the borrower can keep the funds for as long as desired, as long as the monthly interest is paid. Against that, brokers quite often come back saying that the other provider will do the case at a much lower interest rate which we are asked to match or beat. Often, our response is to say: “Yes, but what happens after the bridge runs out?”
Strikingly, it is not uncommon for the broker not to know nor seem to care. If the borrower can exit the bridge on time, then the product may be exactly what is required, and we make no general criticism of the bridging industry as a whole. However, we have seen some horrendous examples of what happens if a borrower does not repay a bridging loan on time.
We all know that fees and penalties can be significant, but one recent
case took our collective breath away. I shall not name the lender, but in this case the borrower was alleged to have defaulted on an obligation to supply certain information to the lender by a specified date. Interest had been deducted in advance so there was no financial default. The result of the failure to supply the information required was that the loan went into default and was called in. The lender added a default fee and default monthly interest which added 19% of the gross loan, from which all contractual interest and fees had already been deducted.
Leaving aside any claim that may be made by a borrower under the Unfair Relationship Provisions of the Consumer Credit Act, it’s imperative that brokers understand the exact terms and are happy that a loan is in the best interests of the client. Also, they must clearly communicate the terms, the risks and all the potential consequences should the client default on the loan.
With an open-ended commercial mortgage there is no cliff edge deadline to repay, and we do not impose the eye-watering penalties of the like mentioned above. Bridging loans are great in the right circumstances but can be horrendous if they go wrong. Brokers should consider the alternatives.
When bridging is not the answer
“ We have seen some horrendous examples of what happens if a borrower does not repay a bridging loan on time
Louise Chapman Commercial Director VAS Valuation Group
Brokers have a difficult enough job at the moment, so here’s a positive message on how valuation panel management services can help.
A number of market leading lenders in both the term and short-term sector, are now allowing brokers to instruct valuations directly via panel management companies.
Traditionally, brokers would have had to place their work through the lender who would then make the decision where to place the instruction. Today, the improved quality of panel management service providers means that this step is increasingly being removed, delivering lenders and brokers with dramatic time savings and improved efficiencies.
Brokers have been happy with the change because it gives them a greater level of control prior to submitting an application on behalf of the client. It reduces the number of surprises allowing the broker to manage customer expectations better, and because the broker knows the lender’s specific requirements, it also reduces friction in getting deals over the line.
Historically, when comparing estimates to actual valuations, we have found that actual valuations come in approximately 8% lower than the estimate; however, recently this has reduced to less than
a 6% difference. In part, this might be because we have seen more residential opportunities compared to commercial, however the stats are compelling. As finance professionals we all know this can make a massive difference to the chance of a deal completing or having it fall by the wayside.
Increasingly, brokers are working with VAS panel in a more proactive way, having the ability to support in providing advice in more complex transactions or where time is of the essence. VAS can use their extensive valuer relationships to support brokers.
In the current volatile market, these small steps can make a big difference and help to protect both buyers and sellers, and this is where brokers and panel management service providers play a key part. A clear view of a transaction is paramount to proceed to completion, and brokers are in the best position to control the focus, so every piece of the process falls seamlessly into place.
“ A number of market leading lenders in both the term and short-term sector, are now allowing brokers to instruct valuations directly via panel management companies
Describe your role in ten words or less?
Building relationships and ensuring a fair outcome for all.
In your view what are the key elements to a successful deal?
Engagement and putting ourselves in the customer’s shoes, thinking about why they are buying the asset and how they are going to use it.
What’s the most common reason for turning away a deal?
We always try to support our customers but sometimes it can be difficult to demonstrate affordability for the project/proposal.
What advice do you have for the modern commercial finance broker?
The closer you can work with a funding partner, the more value can be driven not only for your brokerage but also for your customers.
What is your favourite SME success story?
I have many, all of which involve my previous customers where we’ve provided a service and product that fits with their business and has ultimately helped them succeed.
If you were to start your own small business, what would it sell?
A fly-fishing guiding company, preferably in Iceland!
What is your favourite piece of management/leadership advice?
Treat others how you would want to be treated.
Which person has inspired you the most?
The founder of Patagonia, Yvon Chouinard. He always put product excellence before everything else. He also happens to be a great fisherman and rock climber.
What was the last great book you read?
Sailing to the Edge of Time by John Kretschmer. I really enjoy good adventure and exploration stories, and these fit well with my own hobbies and love of being outdoors.
What law would you pass if you were Prime Minister for the day?
Remove tax on chocolate!
If you could have dinner with anyone from history, who would it be and why?
The Dalai Lama, I just think it would be fun – and his vision of a kinder world really speaks to me.
What was the last show you binge-watched?
SAS Rogue Heroes because it shone a light on an interesting and little-known part of our military history.
When specialist knowledge, flexible lending and strong relationships combine, you get a special effect!
Productive, long-term partnerships, delivering positive outcomes for you and your clients. we understand specialist banking
