Commercial Broker (NACFB Magazine) January 2020 by NACFB

Issue 76 JANUARY 2020

Broker COMMERCIAL

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

22 CHANGES TO IR35 The off-payroll working rules that come into effect from April

40 SERVICING LANDLORD CLIENTS The year of specialist brokers with growing appetite and capability

Where do we go from here? The results from the NACFB broker survey

44 CIRCLING THE DRAIN Brokers can add value â&#x20AC;&#x201C; even when a business is in trouble

58 SOCIAL PURPOSE LOANS Money has meaning and the power to change lives

Contents

In this January issue NACFB News

Special Features

4 6 8 10-11 12-14

24-25

Note from Graham Toy Updates from the Association NACFB: Wear it with pride Industry news round-up Patron news

27-36 38

40-41

42-43

YBS Commercial Mortgages: Meet the team NACFB: Broker survey results Redwood Bank: Speedy deal approval Paragon Bank: Serving landlord clients Recognise: Starting an SME bank

Industry Insight 44-45

FRP Advisory: The warning signs 46 ThinCats: Innovative funding models 48-49 Spotcap: 2020 vision

18 Case Study 16

Praetura Asset Finance: Mining for millions

Patron Profile 18-19

Octopus Real Estate: A year of milestones

Opinion & Commentary 50-51

54-55 56-57

60 62

Alternative Business Funding: Britainâ&#x20AC;&#x2122;s foundations iwoca: The ÂŁ10 billion funding gap Esme: Machine learning Be the Business: Getting match fit Reliance Bank: Social purpose loans Listicle: The corridors of power Five minutes with: Marios Theophanous, Credit Manager, London Credit

33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk LAURA MILLS Graphic Designer

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

MACKMAN Design & Production T 01787 388038

Ask the Expert

KIERAN JONES Editor & Feature Writer

Magazine@nacfb.org.uk

20-21 NACFB: Walking the perimeter

Emma Rawson: Changes to IR35

Further Information

MAGAZINE ADVERTISING T 02071 010359

Compliance Update

mackman.co.uk

NACFB | 3

Welcome

Graham’s Note

his year will no doubt herald exciting challenges for all of us. Our new government will likely oversee some of the biggest political changes this country has seen for a generation. Whatever policies, initiatives and investments come from Westminster in the coming years, the small businesses that our lending community helps fund will still need the support of trusted advisers to help them navigate a shifting landscape. As your trade body, we’ll be ensuring the broker’s voice is heard where it matters. Be it in the corridors of power, before key regulators and of course in front of our growing panel of lenders. To be confident that when we do speak, we speak with clarity and certainty, we approached our entire membership with a survey that attempted to capture a snapshot of our intermediary community at the end of what had been a turbulent year. We were thrilled with the high response rate that saw a majority of the membership respond and share their insight into how 2019 had been for them.

Graham Toy CEO | NACFB

We’re pleased to be able to share with you in this issue the high-level findings from the survey as well as updates on the growing commercial sector. This information means we have robust data on a diverse range of metrics, from the average sized loans in the Buy-to-let space, how many lenders are on our brokers’ panels as well as their justifications for selecting lenders. This data is invaluable and I wish to thank all those who took part. It quantifies just how much value brokers are bringing to market – and the figures are something to be genuinely proud of. Please enjoy our January issue of Commercial Broker, and on behalf of the team at the NACFB, may I wish you all a prosperous 2020.

4 | NACFB

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NACFB News

Association updates for January 2020

Events in 2020 Funding Future Growth 2020 The NACFB will this year host a Funding Future Growth series of broker finance forums across the UK. In a move away from events focussed on finance products, the Association’s 2020 events will be reframed and instead be structured around business finance sectors. This rethinking enables the Association to host days by SME sector types, namely, but not limited to the: retail, hospitality, construction, automotive, manufacturing, professional services, healthcare, technology, exporting, property investment, and residential sectors. The events will feature a wider range of Patron lenders and brokers, as well as guest speakers who will provide updates on each sector from an outside perspective. • • • • • • • • • • • • •

Retail Finance Forum – 05/02/2020 – London Hospitality Finance Forum – 05/02/2020 – London Construction Finance Forum – 03/03/2020 – Manchester Property Investment Finance Forum – 03/03/2020 – Manchester Manufacturing Finance Forum – 18/03/2020 – Midlands International Trade Finance Forum – 18/03/2020 – Midlands NACFB Commercial Broker Awards – 23/04/2020 – Birmingham Professional Services Finance Forum – 13/05/2020 – London Healthcare Finance Forum – 13/05/2020 – London NACFB Commercial Finance Expo – 17/06/2020 – Birmingham Automotive Finance Forum – 15/09/2020 – Midlands Technology Finance Forum – 15/09/2020 – Midlands Residential Finance Forum – 07/10/2020 – Swindon

Norman Chambers, NACFB managing director, spoke of the decision to reframe regional events: “The decision to focus on business sectors means that a broker who attends an Association event aimed at helping fund UK retailers could come from a variety of finance sector types. Commercial mortgage brokers could see as much value in attending as much as an invoice finance broker or an asset finance broker.” All events remain at no cost to NACFB Members. Find out more and register at nacfb.org/events 6 | NACFB

Introducing the Commercial Broker Awards 2020 In addition to our two flagship events, 2020 will see the NACFB launch our inaugural Commercial Broker Awards, honouring the Association’s best brokerages from a wide range of commercial sectors. The awards ceremony will be hosted at Edgbaston Cricket Ground in Birmingham on the afternoon of Thursday 23rd April 2020. The event will seek to mirror the NACFB Gala Dinner, in that brokers can submit their nomination, before a panel of Patron lenders whittle down a shortlist, this will then be voted on by all of the Association’s lenders. The event is an opportunity for the NACFB to thank our broker Members as all broker tickets will be subsidised to just £50 per seat or £500 per table. Tickets include a welcome drink on arrival, a three-course meal and half a bottle of wine per person. Graham Toy, NACFB chief executive, looked ahead to the new flagship event: “Our November Gala Dinner recognises Patrons who are best in class, but the Commercial Broker Awards will turn the spotlight onto our broker Members – who remain at the very heart of everything we do.” “The aim of the event is to have an 80-20 broker and lender split, and we would encourage our community of brokers to bring their partners and clients along with them to join in the celebrations.” NACFB brokers can submit a nomination from a full list of award categories and to secure your place at the NACFB Commercial Broker Awards visit: commercialbrokerawards.co.uk

Association Update

Wear it with pride What the NACFB logo means for your business and – more importantly – your clients

Norman Chambers Managing Director NACFB

often talk about the power of belonging and the power of being part of a community that is greater than the sum of its parts. Whether you’re a member of a football supporters club, your local sailing fraternity or golf club, there is intrinsic value in being part of a collective; bound by a common interest and, more likely than not, shared goals. Such collectivism matters even more when you become a member of a professional body, like the NACFB – but with us you get a lot more than just a shared sense of identity. Being a member of a recognised trade association is more than just displaying the logo and getting on with business; it’s understanding what that logo actually represents, sharing its inherent value with your stakeholders and, ultimately, wearing it with a sense of pride. I spend a significant part of each working day talking with NACFB brokers, so I am well versed in relaying what the logo means to our community. I often draw parallels between a business owner drawing a loan facility and a family booking a holiday. Both represent a significant financial outlay, both require advice from genuine experts and perhaps most significantly, both require a high-level of assurance that the person providing you with a service is legitimate and can provide you with a level of protection if things go wrong. 8 | NACFB

When you book a holiday, you look for the ATOL protection logo, a nationally recognised body who ensures that when you pack your suitcase you can pack some peace of mind too. We see the NACFB logo as an equivalent level of nationally recognised protection for SMEs seeking a business loan via an intermediary. Only full broker Members of the Association are entitled to display the NACFB logo. This means they are an organisation that meets a stringent set of minimum standards and adhere to a Code of Practice, whilst operating under FCA permissions and a full Data Protection licence. The logo also means that the broker firm operates with Professional Indemnity Insurance, there to provide protection should anything go wrong. These are all important elements that can provide the business you engage with an extra layer of assurance and we always encourage all our Members to relay this to their clients. So, if you’re a full Member of the NACFB and you’re not displaying the logo on your website, business card or email signature, why not? For it’s not just clients that seek the reassurance of a nationally recognised trade body, increasingly lenders are too. The Association has grown to the largest it has been in its 27-year history – with over 1,050 companies now operating as NACFB broker firms. Your trade body is the UK’s largest independent, and non-profit, association dedicated solely to the commercial finance broker. We are a community bound by a common interest, united by a duty to provide funding to small UK businesses and one that continues to operate for the greater good – we encourage you to make our identity a part of yours.

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Industry News

Industry News 3. Hitachi Capital opens fund for flood-affected SMEs

5. Treasury hikes borrowing amid council bankruptcy fears

Hitachi Capital Business Finance has set up a multi-million pound 0% interest rural emergency fund to support flood stricken rural and local businesses in meeting unforeseen costs. Hitachi has therefore allocated short-term funding of £5 million to help rural and local businesses that need to replace or invest in equipment that may be required as a result of flooding.

A surge in councils borrowing to buy commercial property in the hope of generating rental income has spurred the Treasury to increase the cost of borrowing from the Public Works Loan Board by 1%. There are concerns the borrowing could become unsustainable and councils could be left stranded with declining assets.

Figures from retail payment authority Pay UK show the value of late payments to UK SMEs have risen by £10 billion in a year, with firms waiting on £23.4 billion compared to £13 billion in 2018. Pay UK said the average amount owed to each firm is £25,000, up from £17,000 last year. Half of the firms are chasing payments, with the cost for doing so at £4.4 billion.

1 1. Government borrowing hits five-year high Data from the ONS shows government borrowing reached £11.2 billion as of October last year – the highest monthly total in five years. Borrowing in the financial year was predicted to surpass £46.3 billion, more than 10% up on the same period last year and the highest level in two years. Central government borrowed £7.6 billion, local governments account for £1 billion, while the Bank of England borrowed £2.5 billion.

2. Value of new P2P lending hits record high Peer-to-peer lending hit a record £3 billion in the first half of 2019, according to Link Group’s latest Marketplace Lending Index. Property lenders, including Landbay and LendInvest, accounted for three-fifths of the additional lending in the first half of the year at £848 million, up by 54.5% compared with 2018. However, losses have reduced the net return by 3.4%, the highest level on record, compared to a year ago, when losses reduced returns by 2.1%. 10 | NACFB

6. Late payments rise to £10bn

7. Over half of firms still not GDPR compliant

3 4. Bridging loan applications rise 17% to £6.1bn in Q3 Bridging loan applications totalled £6.1 billion in the third quarter, up nearly 17% compared with the same period last year, according to the Association of Short-Term Lenders. Year-on-year annual applications reached nearly £23 billion, and bridging loan books totalled £4.3 billion at the end of the quarter, representing a reduction of 6% compared with the prior quarter.

Research from document management firm Invu has found that over half of financial and accounting firms have still not taken any precautions to become GDPR compliant, despite the regulation coming into force 18 months ago. Invu found that 57% of firms have chosen not to introduce any new procedures or policies to increase security.

8. IoD calls for tax breaks to help boost productivity

10. Wesleyan launches product for renewable heat sector

The Institute of Directors is calling for tax incentives to help SMEs boost productivity. IoD chief economist Tej Parikh said: “From backing start-ups and scale-ups, to speeding full-fibre broadband delivery and strengthening the links between universities and SMEs, thereʼs no shortage of steps government can and should take to put our economy on the front foot and reinvigorate the regions.”

Wesleyan Bank has launched a cash flow product for the renewable heat sector, offering advanced payment for government qualifying renewable heat incentive (RHI) projects. The financing is available to any technology firm receiving RHI payments and it has been structured to assist renewable heat operators overcome technical, financial and commercial hurdles to make project commissioning and operations achievable.

9. FCA issues warning on broker remuneration

The Financial Conduct Authority has warned brokers regarding remuneration practices, saying it should be collected in accordance with the ‘customer’s best interests’ rule. This includes commission, profit sharing, fees and other benefits. The regulator also said providers should create products with reference to how the entire distribution chain may affect their value.

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Patron News

Patron News NACFB Patrons back SME Finance Charter

LendInvest and Precise expand Scottish offering

HSBC, Royal Bank of Scotland, Lloyds Banking Group, Barclays and NatWest are among the firms which have signed the SME Finance Charter, an initiative designed to deliver support to smaller businesses.

NACFB Patrons, LendInvest and Precise, have independently expanded their product ranges in the Scottish market.

Other NACFB Patrons that have signed-up to the Charter include Aldermore, Bibby Financial Services, Close Brothers, CYBG, Funding Circle, Haydock Finance, Santander UK, Secure Trust Bank and Ultimate Finance. Pledges in the SME Finance Charter, which is led by the Business Finance Council, have been signed off in collaboration between finance providers, business organisations and the government.

LendInvest’s two-year fixed rates start from 2.89%, with five-year fixed rates from 3.19%. It has an ICR assessment rate of 5% across all its products, with the exception of the five-year fixed interest product, which remains at 3.6%. The full range of LendInvest’s existing short-term loan products continue to be available to Scottish property professionals, while borrowers also have access to a £750 legal fee cashback offer on a five-year fixed term at 75% LTV.

The first pledge listed comes from the Bank of England, who state that the banking system is resilient and prepared for the wide range of risks it could face. The second is to “…help you prepare for Brexit and beyond,” outlining the resources a lender must provide including web resources, fact sheets, videos and workshops and face-to-face advice.

Precise Mortgages have started accepting HMO applications within Scotland. The enhanced HMO range highlights will be available for personal ownership or Limited Company applications in properties up to eight bedrooms. Tier 1 and Tier 2 products are available with rates from 2.79%. Valuation fees will fall in line with their standard Buy-to-Let range.

The third seeks to help support an application and signpost other options if needed, stating the lender will describe what they expect in an application. The fourth ensures lenders treat customers fairly at all times and explain their commitment to this and resolving disputes.

Ian Boden, sales director at LendInvest, said: “Scotland has always been a priority market for us as a lender; for a location with such huge potential, it’s surprising that the Scottish market continues to be undersupplied by active mortgage providers.”

12 | NACFB

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Patron News

Patron News 1pm: Borrowers to benefit from new and extended facilities

Paragon’s profit rises on strength in commercial lending

1pm has secured new and extended facilities to provide further funding for UK SMEs. The NACFB Patron said the new facilities were primarily to be used for its loans division, with an increase on the current £7.5 million secured Medium Term Note (MTN) programme to £25 million.

Paragon’s commercial lending division led new business growth for the banking Group in 2019, the Group’s annual results reveal.

In addition, it said a further £5 million of funding specifically for its loans business had been established with some of its long-standing funders. First established in 2017 through LGB Corporate Finance, 1pm said the new programme offered loan notes to institutional, wealth management and private investors. The MTN programme would continue to provide the group with the flexibility to issue notes with a range of maturities, repayment profiles and fixed interest rates, the board explained. Alongside the increase in the MTN programme, 1pm said it recently negotiated increased block discounting facilities totalling £5 million with a number of existing funding partners. “I am delighted that the group has further strengthened its relationships with a number of key block discounting funding partners as well as reaffirming and significantly expanding the MTN programme,” said 1pm’s chief financial officer James Roberts. 14 | NACFB

Their commercial lending division, which includes development finance, SME lending, structured lending and motor finance, reported a 36% increase in new lending volumes to £968 million and a 28% expansion in the loan book to £1.45 billion. Overall, underlying profits for the Group increased by 5% to £164 million for the twelve months to 30th September 2019, up from £157 million in 2018. The combination of the Group’s original property development finance team with Titlestone, acquired in July 2018, raised new lending to developers from £137 million last year to £363 million. SME lending, including asset finance and loans advanced by the Iceberg professions finance operation acquired in December 2017, grew to £407 million, 15% up on the £355 million for 2018. Dave Newcombe, managing director of commercial lending at Paragon, said: “Strong growth in Paragon’s lending, particularly to UK SMEs, is truly reflective of our commitment to support British businesses – helping them to grow and achieve their ambitions.”

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Case Study

Mining for millions Unearthing finance solutions Ric Simmons Sales Director Praetura Asset Finance

very interesting deal came our way at Praetura recently, one that showcased just how much of an ‘asset’ our industry can be to SMEs.

One of our partner brokers, XL Finance, got in touch having received a call in response to a refinance email he’d sent to prospective clients. The call came from someone whose accountant had recommended they seek specialist advise. The client wasn’t one company, it was two (two well-established mining and quarrying companies), who were looking to join forces to buy-out and take-over a competitor. This would increase their market share within the industry and enable both companies to grow. In order to make this happen, they needed to raise in excess of £3 million. It is at this point that XL Finance got in touch with Praetura, because of the reputation we’re proud to have built over the years for the specialist expertise we offer, particularly with refinance deals. The first step was to find out more, so both our sales director and credit director went to visit the owners of the two businesses that were looking to raise the funds together. This wasn’t just to find out what they were looking to do ‘right now’, but to understand their history, how they were looking to work together moving forward and what their future plans and aspirations were. The deal was going to be far from straight-forward, but without wanting to blow our own trumpet, that’s what we’re good at, and that’s why Praetura took the role of lead funder; sourcing the syndicated partners, liaising with FRP Advisory and negotiating with all parties to ensure everything was in place at the correct time, to allow the sale and take-over to go through. 16 | NACFB

The syndicated deal was a combination of both asset and invoice finance worth £3.2 million. Focussing on the PAF portion in particular, through a refinance deal of more than 30 assets, £1.6 million was raised. The refinance of both encumbered and unencumbered assets was specifically structured in such a way as to raise the amount of cash required, without increasing the company’s monthly outgoings. So that’s £1.6 million raised, with no initial outlay needed, no additional risk incurred, no loss of equipment or productivity and no increase in the monthly outgoings of the company being taken over. What other funding channel could offer you that? In our opinion, this is just another example of the massive difference that all of us working in our industry can make. Trying to raise £3.2 million through traditional lending channels would have been no easy feat. But because we take the time to understand, to configure, to offer more flexible options and structure deals in different ways, the alternative finance channels are able to say yes more often. We just need to keep banging the drum to make sure as many SMEs as possible are aware that these funding routes are available to them.

“

The deal was going to be far from straight-forward, but without wanting to blow our own trumpet, thatʼs what weʼre good at

Patron Profile

Milestones in the rear-view mirror For some, 2019 will be remembered as the year of uncertainty, but we’ll remember it as the year of the milestone Benjamin Davis Chief Executive Officer Octopus Real Estate

ctopus Real Estate is a leading UK specialist real estate lender and investor. We are also part of something bigger – Octopus Group – a group of entrepreneurially minded businesses investing in the people, ideas and industries that will help to change the world. Octopus has over £8.3 billion funds under management, over a quarter of which is managed by Octopus Real Estate. We have over 100 experienced and specialist professionals, who currently manage over 800 live property loans. Over the last decade Octopus Real Estate has lent over £4.5 billion, across 3,600 loans. Our team is multi-disciplined, combining lending, investment, development, operational and healthcare expertise. This unique combination gives us deep market insight and the ability to be agile in an increasingly uncertain world, from the initial development stage through to long-term asset ownership and portfolio management.

Better together In May last year, we took the decision to merge two of our businesses to create Octopus Real Estate: Octopus Property, a non-bank lender to UK property investors and developers, and Octopus Healthcare, which invested in and developed UK care homes and retirement communities. The decision was made to maximise our growth 18 | NACFB

potential within the UK property market, with a focus on capitalising on our combined expertise to support our customer base. Since this merger we have been very busy. We have been focussed on bringing together our teams under one structure. We have undergone a huge amount of integration work, ensuring we are able to share expertise across teams. Our underlying businesses continue to perform strongly and most importantly customers have already started to reap the benefits.

Lending book In 2019 we broke the £100 million lending barrier for a single month and in October we completed £127 million of property lending. In the same month the commercial team, led by head of commercial property Ludo Mackenzie, almost doubled its lending record. This lending volume highlights that there is still appetite in the real estate

“

In 2019 we broke the £100 million lending barrier for a single month and in October we completed £127 million of property lending

“

North and South property deals are similar in characteristics and needs, but as a lender we have acknowledged that qualifying criteria shouldn’t necessarily be a blanket level across the country

market to transact, and although not entirely insulated from the current climate, it is a resilient asset class.

Look North In 2019 we opened our first regional office, in Manchester. Our Manchester office can process deals end-to-end, from initial enquiry, through to credit and underwriting. A senior team have moved from the London office, complemented by new colleagues with experience in the Northern region. North and South property deals are similar in characteristics and needs, but as a lender we have acknowledged that qualifying criteria shouldn’t necessarily be a blanket level across the country; we have responded to this and have tailored our Northern lending criteria.

Our people The year also saw D’mitri Zaprzala promoted to the newly created role of head of residential. We created this role in response to our clients’ needs, and it acknowledges our continued commitment to the residential property sector. Dan Murray, head of sales, will ensure that our broker network continues to receive the best service in the industry. Gavin Eustace, head of residential development, continues to lend on development projects across the country. We continue to lend to the student accommodation sector, and we are looking at the emerging model of co-living.

What makes us different As a non-bank lender, we can make lending decisions in situations where others won’t. We work to keep the market moving. We have discretionary capital from institutional and retail investors, which enables us to be as fast and flexible as our customers need us to be. This, combined with good compliance and governance around our lending, will help us continue to support our customers at every stage of the property lifecycle.

What’s next? We don’t have a typical loan type; we can lend on complex loans and we see every loan as different. In a rapidly evolving and growing market, our nimble yet established approach enables us to adapt our products for our expanding customer base, something traditional lenders remain unable or unwilling to do. We have a strong track record of delivery on behalf of investors and clients, and we’re here for the long-term to partner with clients through uncertain times. We have a history of being an early mover in adjusting our lending products in response to external environmental factors and will continue to evolve our product offering in response to changes in the UK real estate sector. We’ll continue to work closely with brokers, to support borrowers and investors in delivering their residential, commercial, development and healthcare schemes across the UK – so bring on 2020. NACFB | 19

Compliance

The signal and the noise The regulator is in a state of flux, and their focus is shifting to a more outcome-based approach James Hinch Senior Compliance Officer NACFB

n approach that puts the needs of clients at the centre of what brokers do, will far better meet future challenges. This is the message that has formed a central tenet to recent signposting from the regulator. The good news is that they’re attempting to adopt a much more agile and far simpler approach, one that will no doubt be welcomed by many, which should enable them to not only better respond to market pressures but proactively anticipate fresh challenges. An October speech from Christopher Woolard, executive director for strategy and competition at the FCA, was both frank and telling. In a moment of corporate introspection, he pondered whether the FCA’s current regulatory model is still the right one, and openly questioned whether they are ready to respond to the changes they see coming down the track. He made one thing very clear. The FCA are moving away from narrower compliance with the rules and are instead shifting to a focus on delivering the outcomes they want to see for the users of financial services. Woolard has set the regulator’s stall: “The demand from the public is clear, they don’t care if a set of rules has 20 | NACFB

been followed, they care about the outcome they receive,” – and the regulator is aligning itself to this view. So, how have we found ourselves here? And how has the regulator reached this existential crossroads? They themselves posit several theories; competitive pressure being prioritised over consumer protection, the failure of lighter-touch regulation seen a decade ago, as well as the sheer volume of regulation and the way it has overloaded some firms. Some see detailed rules as the only way to harmonise an increasingly global system. Others argue the rules are too prescriptive. The answer, they believe, lies in a clearer duty of care.

“

The NACFB’s challenge will be to demonstrate to the regulator that our industry is still capable of successfully self-regulating and we will all need to respond to the FCA’s refocussing accordingly

“

The notion that any changes to future regulation, and their impact on our community, will be led by grand sweeping overhauls is a misguided one. The truth is that meaningful change will be rooted in the small, routine actions

So, what does an outcome-based approach look like? And what practical outcomes will the regulator want to see? The market is enjoying higher levels of liquidity currently and, in historic contexts, it is relatively easy for debt to be placed through the intermediary channel. This though does not always mean it is appropriate to do so, or indeed in the client’s best interests. Factors such as client suitability, product appropriateness as well as vulnerability are only going to increase in their relevance.

making them more accountable to borrowers, brokers and lenders alike – for being explicit about the outcomes they’re aiming for will help all stakeholders judge if they’re efforts are indeed effective. But the notion that any changes to future regulation, and their impact on our community, will be led by grand sweeping overhauls is a misguided one. The truth is that meaningful change will be rooted in the small, routine actions that most finance professionals undertake all the time.

The FCA’s increasing focus on aspects such as customer vulnerability and mental capacity were early signs of such a shift. Physical and mental health as well as personal relationships were once considered well beyond the remit of a finance professional, but this is changing. A stronger focus on outcome-based approaches will result in a move away from the broker’s role as merely transactional and place greater emphasis on the provision of a service that is fair, clear and not misleading, whilst paying due regard to the information needs of clients.

The NACFB’s challenge will be to continue to demonstrate to the regulator that our industry is still capable of successfully selfregulating and we will all need to respond to the FCA’s refocussing accordingly. We will be engaging with the FCA on their upcoming consultations to ensure that the voice of the broker community is heard, here we will need to evidence that brokers and lenders are aware of this refocussing demonstrably through their actions.

The overarching visions and strategies we hear in communications from the regulator are not untethered, their impact trickles down and are already directly influencing working practices. This has been most overt in the motor finance sector and the FCA’s focus on certain commission structures, that in their view, have resulted in a tangible detriment to the consumer. We welcome such noises and movements and are encouraged by this clarity of vision from the FCA. We believe it will play a critical part in

As a trade body we too are faced with similar existential choices. We are here to serve UK intermediaries, but we are not naïve, and we know the direction of regulatory travel is heading in only one way. Such clear signposting from the regulator, coupled with some early actions, should not be ignored. We believe that the brokerages and lenders that most readily understand what the regulator is after will gain the agility to respond quickly and effectively, ahead of any competition, and we will be partnering with all our stakeholders to see that this approach is adopted. NACFB | 21

Ask the Expert

IR35 and off-payroll working

Q Emma Rawson Technical Officer Association of Taxation Technicians (ATT)

What is IR35?

The IR35 rules were introduced twenty years ago to address concerns that people were saving tax by providing their services through an intermediary, typically their personally owned limited company (a personal service company or PSC). They apply where a contractor performs services for a client, but instead of engaging directly those services are provided through a PSC. The key test is that if the contract had been directly with the client, the contractor would have been regarded for tax purposes as an employee. If they would have been genuinely self-employed, IR35 does not apply. Until recently, the responsibility for determining whether the IR35 rules applied – and therefore if income tax and NIC should be deducted under PAYE – always sat with the PSC.

Are all contractors affected by the IR35 reforms?

rules are not working effectively, and that non-compliance is widespread. To tackle this, new off-payroll working rules were introduced for the public sector in April 2017. From April 2020, they are scheduled to be rolled out to the private sector. These new rules take responsibility out of the PSC’s hands completely. Instead, the client is required to determine whether the rules apply and the fee payer (which may be the client or an agency depending on the arrangements used) is required to apply PAYE and NICs as appropriate.

extra information provided. The client then has 45 days to respond, either amending or upholding their earlier decision. If the contractor still does not agree, their options are limited. The only way they can challenge the position is through their self-assessment return – they should speak to a tax adviser before doing this.

How will the off-payroll rules work in reality?

No – being classed as an employee for tax purposes does not necessarily mean that an individual is an employee for other purposes, as the tests for employment and tax law are different.

The client will provide the contractor with a copy of their decision as to whether and why the rules apply. If the rules do apply, the PSC must be paid net of income tax and NICs. The PSC does not pay any further tax on that net receipt and the contractor can take it all out of the PSC without paying further income tax. If the rules don’t apply, the PSC will be paid gross, and the contractor will have to fill in tax returns and pay tax in the usual way.

No. Only those who work through a PSC (or other intermediary) and would have been an employee if engaged directly.

Clients are required to look at both existing and new contracts from April 2020. We understand that some have decided that, going forwards, they will say upfront when advertising for a contract whether they believe the off-payroll rules will apply.

Off-payroll working – how has IR35 changed?

What if the contractor disagrees with the client’s decision?

Despite the long time that IR35 has been around, HMRC remain concerned that the

The contractor can ask the client to review their decision, taking into account any

22 | NACFB

If a contractor is deemed to be an employee for tax purposes do they qualify for employment rights such as holiday pay?

What steps should clients and contractors take?

Clients should ensure that they have reviewed all current contracts which will be in place on 6th April 2020 so that they can make and issue all necessary decisions. Contractors who will be affected should speak to the relevant agency and/or client to check what their plans are. Upon receiving notice of a client’s decision, contractors should check it and raise any necessary questions with the client. They should also consider speaking with their tax agent if they have one. Contractors need to understand the cash flow impact of these rules – their taxes will be deducted when they are paid for their work rather than payable in lump sums under self-assessment.

Finding solutions for financial needs You’ll find Accredo refreshingly flexible when it comes to providing secured finance for your clients, often lending when others won’t. We’ll look at bridging, interest-only and fully amortising options while keeping all the facts of each case in mind. And we offer commercial loans and leases from £25,000 to £1,000,000, terms from 3 months to 10 years. Seasonal and deferred payments can also be considered. Financial flexibility – Accredo Send your proposals to props@accredoltd.co.uk or call us on 01444 255915 for more details.

Special Feature

Advertising Feature

Establishing stronger broker ties Enhancing our regional presence will enable us to meet greater demand Mike Davies Head of Business Development YBS Commercial Mortgages

roperty market conditions in the UK are currently under the influence of significant political factors in the shape of post-General Election fallout and Brexit. By the time this article is published we will know the result of the election and, maybe, there will be a clear view on the final shape of Brexit. At YBS Commercial Mortgages we are aware that the political situation has influenced many business and acquisition decisions, often deferring investment. We believe that this has had the effect of a stacking of demand for transactions. As we go into 2020, we are anticipating that this pent-up demand will lead to an increase in transactions. We are planning to meet this increase in activity by expanding YBS Commercial Mortgages’ regional presence and the size of our existing lending team in Peterborough. We have £300 million committed to growing our portfolio of Commercial Mortgage and Buy-to-let products in 2020. This is an increase in activity for YBS Commercial Mortgages historically, but we are confident that this is the right time to commit to the property sector, our customers and introducers. Our award-winning service offers our customers a lending partner who is committed for the long-term. We can offer terms of up to 25-years for all product types. We operate with maximum lending limits of £10 million for commercial investment property and £5 million for Buy-to-let transactions. Supported with a maximum 24 | NACFB

LTV of 75%, YBS Commercial Mortgages offer a range of solutions to satisfy the needs of a wide range of investors and business. There are plans to expand sector reach and we will be working closely with our broker and introducer partners to understand where there is demand for a long-term, stable lender to provide stable, long-term support. We want to build long-term relationships with our borrowers and also the brokers that work with us. Every transaction we receive is reviewed individually by a member of our lending team. The same person will liaise between introducer and customer to shape the transaction and develop a proposition which supports our customers’ needs and provides introducers with a genuine two-way relationship. We view each new mortgage we provide as the start of a long-term relationship between YBS Commercial Mortgages and our borrowers. We value the relationships that are developing between brokers on our revised broker panel. Since relaunching in June 2019 YBS Commercial Mortgages has added 30 brokers to our new panel

“

We want to build long-term relationships with our borrowers and also the brokers that work with us

and we are ambitious to increase its overall size. We are seeking to develop long-term broker relationships where introducers can have confidence not only in YBS Commercial Mortgages’ products, but also in financial stability and our long-term commitment to the UK commercial property sector. We understand that commercial finance brokers need lending partners who respect the relationship between a broker and their client.

Allan Griffiths is appointed as regional director for the South West and South Wales region. Allan will be supported by relationship manager Sue Lewis. Allan and Sue join YBS Commercial Mortgages bringing experience from both Lloyds Bank and Santander respectively. They will work out of the new YBS Commercial Mortgages Lending Centre in Bristol.

As part of our commitment to delivering tailored, individual service to customers, YBS Commercial Mortgages can now announce the arrival of two new regional teams based in Manchester and Bristol. We’re expanding our services nationwide and our increased presence is a positive step in a plan to support customers at a more local level. Sarah Prescott will lead the team based in Manchester and will cover the North West and North Wales. Along with relationship manager Paul Bagnall, the YBS Commercial Mortgages team in Manchester brings a combination of banking and broker experience to bear in support of the customers and broker panel.

To discuss potential lending opportunities you can contact Allan at AGriffiths@ybs.co.uk and Sue at SLewis@ybs.co.uk Leading our commercial mortgages strategy, Tom Simpson, managing director shared: “This is an exciting time for YBS Commercial Mortgages and our broker partners. We have chosen to invest in our products and systems and are extending our reach nationwide through some high-quality recruitment. These structural changes are matched by the £300 million we have committed to the UK property sector in 2020. This is the start of our journey and I am looking forward to building stronger than ever relationships with our broker partners and customers.”

To discuss commercial lending requirements for the North West and North Wales contact Sarah at SPrescott@ybs.co.uk and Paul at PBagnall@ybs.co.uk

For additional information visit the YBS Commercial Mortgages website ybs.co.uk/commercial or call us on 0333 414 1171.

NACFB | 25

Special Feature

Where do we go from here? Analysing the results of the NACFB's 2019 broker survey Victoria Skeat Senior Project Manager NACFB The response we had from NACFB brokers was overwhelming, with a majority of the Association’s brokerages submitting a response. Such a considerable sample size provides us with a robust dataset, which further enables us to approach lenders, the regulator and the government with a clear - and evidenced-backed - agenda.

ast year, we approached the NACFB membership seeking to better understand how 2019 had been for them. We wanted to develop a clearer picture of the intermediary-led lending industry, in an attempt to establish where growth areas were and understand how each sector is shaping up at the start of 2020.

The renewed certainty, clarity and clout with which we can engage with our stakeholders, means that when your trade body starts a conversation, others will sit-up and listen.

2 12%

88%

There are currently 1889 individual brokers operating under the NACFB logo – a +19% growth in membership in 2019

Overall the gender split of our broker membership is 88% male to 12% female

3 There are 140+ lender Patrons on the NACFB panel

NACFB | 27

5 The average age of an NACFB broker in 2019 is 48 All NACFB brokers who are over 65 are men, although the gender split in younger age groups is nearing parity

24%

The NACFB membership in 2019 was made up of brokers from an increasingly diverse background, from fresh-faced new entrants to more seasoned brokers

22% 16%

17% 13%

Q | In what age category do you fit? Less than one year 1-3 years 4-8 years

18-24: 1% 65+: 5%

25-34: 10%

55-64: 26%

35-44: 24%

9-12 years 13-19 years 20+ years

6 Where were SME clients based in 2019? SCOTLAND:

30%

45-54: 32%

NORTH EAST:

NORTHERN IRELAND:

35%

17%

18-24

40%

25-34

22%

35-44

17%

YORKSHIRE &THE HUMBER:

60% NORTH WEST:

36%

41%

78%

WEST MIDLANDS:

83%

GREATER LONDON:

45-54

43%

11%

55-64

89%

93%

54%

EAST MIDLANDS:

43%

EAST OF ENGLAND:

WALES:

65+

32%

39%

100% MALE FEMALE

SOUTH WEST:

45%

SOUTH EAST:

52%

(PERCENTAGE OF BROKERS WHO PLACED A DEAL IN EACH UK REGION)

7 Top five UK regions by Finance sector in 2019

Unsecured Finance

Trade Finance

Short-term/ bridging Finance

Greater London

West Midlands

East of England

Residential

Leasing & Asset

Factor & Invoice Finance

South East

South West

West Midlands

South East

Greater London

Yorkshire and the Humber

Greater London

West Midlands

Greater London

South East

South West

North West

Greater London

South East

East Midlands

West Midlands

South West

Yorkshire and the Humber

East Midlands

South East

East of England

East Midlands

Greater London

South East

South West

East of England

South West

Greater London

East Midlands

Yorkshire and the Humber

North West

East Midlands

West Midlands

North West

West Midlands

1 2 3

Development Commercial Finance Mortgages

Buy-to-Let Finance

8 24%

15%

34%

10% 0.2% 4% 4% 5% 4%

Pension-led: 0.2% Cashflow: 1% Other: 4% Unsecured Finance: 4% Factor & Invoice Finance: 4% Short-term & bridging loans: 5% Development Finance: 10% Buy-to-let Finance: 15% Leasing & Asset Finance: 24% Commercial Mortgages: 34%

The primary areas of business activity for the NACFB membership in 2019

NACFB | 29

Most popular secondary areas of business activity per Finance sector in 2019

1 2 3 4 5

Unsecured Finance

Trade Finance

Cashflow Finance

Commercial Mortgages

Unsecured Finance

Factor & Invoice Finance

Leasing & Asset

Buy-to-Let Finance

Development Development Finance Finance

Short-term/ bridging Finance

Residential

Leasing & Asset

Factor & Invoice Finance

Development Commercial Finance Mortgages

Buy-to-Let Finance

Commercial Commercial Mortgages Mortgages

Unsecured Finance

Leasing & Asset

Short-term/ Short-term/ bridging bridging

Commercial Mortgages

Factor & Invoice Finance

Unsecured Finance

Commercial Development Mortgages Finance

Shortterm/ bridging

Cashflow Finance

Commercial Mortgages

Buy-to-Let Finance

Development Finance

Buy-to-Let Finance

Development Development Finance Finance Unsecured Finance

Factor & Invoice Finance

Commercial Mortgages

Cashflow Finance

Unsecured Finance

Buy-to-Let Finance

Cashflow Finance

Shortterm/ bridging

Short-term/ bridging

Leasing & Asset

Factor & Invoice Finance

11 10. Deal count NACFB brokers introduced at least 217,903 deals to lenders in 2019

A breakdown of the average number of deals introduced by the entire NACFB membership in 2019

21%

20%

19%

£ 13%

500-999

250-499

150-249

100-149

50-99

20-49

0-19

3% £

4% £

2% £ 2000+

10%

1000-1999

14 12. Deal size The average deal size for the entire NACFB membership in 2019 was £450,145

13. Total broker value

14.9

In 2019, NACFB brokers introduced deals to a value of at least £14.8 billion

The average number of deals alongside the average deal value in 2019, broken down by a brokerages' primary area of business activity Type of broker (primary sector)

Average number Average value of deals introduced of each deal in 2019 introduced (£)

Development Finance

£1,570,774

Short-term & bridging loans

£544,318

Commercial Mortgages

119

£516,029

Factor & Invoice Finance

168

£371,667

Buy-to-Let Finance

132

£355,599

Residential

461

£243,214

Unsecured Finance

107

£139,737

Leasing & Asset Finance

468

£51,091

Cashflow

148

£50,000

15 Total deal value per sector £5,128,103,000 Type of broker (primary sector) Commercial Mortgages Leasing & Asset Finance Buy-to-Let Finance Development Finance Short-term & bridging loans

£3,325,889,000 £2,029,128,000 £1,885,463,000 £993,029,000

Factor & Invoice Finance

£752,899,000

Unsecured Finance

£375,889,000

Residential Cashflow

Total deal value, per business sector, introduced by NACFB brokerages in 2019

£276,120,000 £26,845,000

NACFB | 31

17 Average size of the largest single deal introduced by NACFB brokers in 2019, broken down by Finance sector

The average number of lenders on a broker’s panel is 101

16 18 Development Finance: £9,704,762 Short-term & bridging loans: £6,463,636 Factor & Invoice Finance: £5,688,889

Commercial Mortgages: £4,940,359 Residential: £4,035,714

Average number of lenders on a broker’s panel in 2019, broken down by Finance sector Type of brokerage (primary sector)

Average number of lenders on panel

Residential

182

Cashflow

168

Development Finance

156

Short-term & bridging loans

116

Buy-to-Let Finance

111

Unsecured Finance

111

Commercial Mortgages

110

Factor & Invoice Finance

109

Leasing & Asset Finance

Unsecured Finance: £2,705,263 Buy-to-Let Finance: £2,304,225 Leasing & Asset Finance: £1,295,227 Cashflow: £800,000

Type of brokerage (primary sector) Average size of largest single deal of 2019

A breakdown of where NACFB brokers got their leads from in 2019 Direct enquiries: 45%

ÂŁ

Other

Sector suppliers (i.e. construction firms and product suppliers): 7%

Lead source % breakdown

Professional services (i.e. lawyers, accountants and estate agents): 19%

On average in 2019, 65% of deals brought to lenders by NACFB brokers were new business, with 35% of clients seeking to refinance

Referrals from lenders: 2%

Through marketing initiatives: 7% Referrals from other brokers: 11%

37%

18%

16%

11%

Lowest rate

Certainty of funding

Previous positive experiences

Best fit for client

Speed of initial decision

Speed to completion Ease of application submission

Term flexibility

Lower additional fees

An NACFB brokerâ&#x20AC;&#x2122;s most common reasons for selecting a lender in 2019

NACFB | 33

22 Sector is deemed too risky: 25%

According to NACFB brokers, these are the most common reasons a lender will turn away a deal

Poor credit history: 28% Not enough collateral: 17%

Debt utilisation too high: 8%

Amount too high: 10%

Inadequate business plan: 1%

Incomplete application/ paperwork: 1%

Lack of strong cashflow: 11%

% breakdown

The regulatory changes NACFB brokers would most like to see in 2020

23 Q | What regulatory changes would you like to see in 2020?

34 | NACFB

Regulatory changes

% breakdown

Simplification of compliance processes

65%

More regulatory protection for SMEs

Greater clarity of the FCA's perimeter

16%

Expansion of FCA's perimeter

Greater SME coverage from FOS

Other

24 Top five SME business growth areas according to NACFB brokers in 2019

Top five SME business areas in which NACFB brokers predict growth in 2020

1 Property investment 2 Construction 3 Manufacturing 4 Retail 5 Professional Services 1 Property investment

2 Construction

Top five SME business areas in which NACFB brokers have seen a slowdown in 2019

1 Retail Property 4 investment

3 Manufacturing

4 Healthcare

2 Manufacturing 5 Hospitality 3 Construction

Professionals 5 Services

2018 VS 2019 77% of NACFB brokers said they introduced more deals in 2019 than in 2018 75% of NACFB brokers said their average loan size in 2019 was bigger than in 2018 79% of NACFB brokers said the total amount of debt they placed was bigger than in 2018

76% of NACFB brokers said they had a higher percentage of new clients than in 2018 67% of NACFB brokers said they had a higher percentage of clients seek to refinance in 2019 than in 2018 74% of NACFB brokers said the largest single deal they placed in 2019 was bigger than in 2018

The results of this survey are accurate to just over 95% confidence, plus or minus three percentage points.

36 | NACFB

Out with the old Try a better Buy-to-Let. Our online technology saves on paperwork in our Buy-to-Let applications. While our use of Open Banking and digital signatures increases speed to offer.

Get an instant quote: lendinvest.com/intermediaries

Call us on 020 3846 6838 or visit lendinvest.com/intermediaries. LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). ICO number ZA179467. Your clientâ&#x20AC;&#x2122;s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.

Special Feature

It’s about time Top tips for getting a deal with us approved quickly and smoothly John Hall Business Development Manager Dan Carter Business Development Manager Redwood Bank

he pressure is on, time’s against you, and you need to get a credit backed agreement over the line quickly and seamlessly. As the broker, it’s your client who is relying on you. How do you make sure the deal gets approved and more importantly drawn, in a time frame that’s ahead of your client’s initial expectations? The award-winning team at Redwood Bank, is challenging the status quo by delivering a personal service in a technology led age and has put together a list of top tips to help brokers get their deals approved with a minimum of fuss and in double-quick time.

Be clear and upfront Getting a deal done quickly is about being as transparent and upfront as possible with all of the parts of a case. If there are any skeletons buried in the deal, rest assured they’ll come out at some point, so make sure that the client reveals all from the beginning. The broker needs to provide a full synopsis of the deal from day one, including the client’s experience, portfolio, individual net worth, asset locations, terms of any leases etc. The more information, the better.

Use professional advisers Having an experienced commercial solicitor acting for the client can make a tangible difference to how the deal progresses. The biggest time delay with a case is often the legals; keep those delays to a minimum and cut through the jargon to enable the client to fully 38 | NACFB

understand the language of a commercial lender.

Be both flexible and human Redwood is open-minded in considering the options and the complexities with any deal. Its traditional, relationship banking approach encourages a conversation with clients and brokers. Some lenders rely on automated online systems to just say yes, no, or maybe. We say, call us and speak to us, and how can we help you? It’s old school banking in the modern world.

Highlight the issues What are the potential issues with your deal? Redwood understands the challenges with some deals, especially if the applicant has been declined loans from the main High Street Banks. It may have been a failed business or the deal may have some “wrinkles” that exclude them from some lenders; whatever the case, the worst thing to happen is for the bank and broker to find this out later – so find out and tell us at the start, so we are put fully in the picture. It builds trust and certainty to relationships. Since its inception two years ago, Redwood Bank’s focus has always been on the customer, the broker, service excellence and technology that supports speed and transparency. The bank regularly secures over a 90 per cent satisfaction rate from its customers. We’ve gone from strength to strength, delivering in accordance with our Strategic Business Plan and having opened more than 2,500 savings accounts (£160 million) for businesses and charities, and recently surpassing the £150 million lending milestone. We believe we offer a real alternative for small and medium-sized businesses looking to either expand their organisations or simply save for future growth.

Finance for the pace of change

Whether your clients need finance for software, hardware or services, speak to our specialist technology team today. At Shawbrook we offer finance solutions designed for technology investment, including variable payment terms from 1 to 5 years and finance to cover 100% of hosted or delivered software as well as variable license agreements.

01277 892 281 technology@shawbrook.co.uk shawbrook.co.uk/technology

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Special Feature

Maintaining profitable landlord clients Landlords need specialist lenders and brokers with appetite and capability

John Heron Managing Director of Mortgages Paragon Bank

he Buy-to-Let market held up well in 2019, with overall lending set to tip £37 billion by the end of the year. While far in excess of many predictions made back in January – and highlighting that Buy-to-Let remains an important component of the UK mortgage market – the shape of the Buy-to-Let market has changed significantly, with important implications for intermediaries and advisers.

More complex business One of the big trends to take hold in 2018 and 2019 was the step-up in portfolio and complex Buy-to-let business and this looks set to continue. Tax changes have forced landlords to look for more efficient ways to structure their business, driving an increase in demand for mortgage products for incorporated and limited liability partnerships. For example, research from BVA BDRC in Q3 2019 shows that 63% of landlords planning to purchase new property intended to do so in a limited company, up from 38% at the beginning of 2018.

On top of this, the PRA’s more detailed underwriting approach for portfolio landlords – those with four or more mortgaged properties – has led many mainstream lenders to limit their involvement to landlords with smaller scale portfolios.

at targeting switch products towards customers coming out of their initial fixed period.

Specialist lenders, in contrast, have adapted well, developing their product range and service offer to cater for these more specialist requirements.

This means the opportunity for remortgage business could become less frequent in future and intermediaries looking for growth in Buy-to-let may want to refocus back on house purchase, boosting their familiarity with the segments of the market most likely to expand and the lenders best equipped to assist.

More tenant-friendly regulation

Larger scale landlords more likely to buy

The Private Rented Sector (PRS) provides a home for one in five households today. Driven by a diverse range of factors from population growth to limited investment in social housing and tighter mortgage affordability, demand for PRS property is not going to go away.

While there’s no doubt the overall Buy-to-Let purchase market is much smaller since the introduction of the Stamp Duty surcharge in April 2016 and subsequent tax changes – down by 35–40% from around 100,000 to 65,000 transactions per year – research shows not all segments of the market are moribund.

Comprising 5.4 million properties today, with a further 1.2 million homes needed by 2023 to satisfy tenant demand, the next government – regardless of who forms it – knows that PRS landlords play a vital role in meeting the UK’s housing need.

Indeed, our own research highlights that larger scale landlords are three times (11%) more likely to consider buying than their smaller scale counterparts (4%). And, when they do buy, these larger-scale landlords are looking for opportunities to maximise yield, whether through property refurbishments and reconfigurations or the purchase of HMOs (homes in multiple occupation).

However, with such a large proportion of the population now reliant on the PRS for a home, a shift towards more tenant-friendly regulation – from the ban on letting fees to the proposed abolition of ‘no-fault’ evictions – means landlords need to be more strategic in their approach than ever before and could drive less well organised investors out of the market.

Refocus on purchase business Record low interest rates have encouraged many landlords to remortgage on to products with an initial fixed term of five years or more, tipping the balance away from shorter-term fixes which have held sway historically. Across the mortgage market as a whole, for example, five year plus fixes have grown from just above 30% to close to 50% of new business since 2015. Alongside this, lenders are now generally much more organised

Specialist expertise All of this increased complexity and growing professionalism has – and looks set to continue to – supported the role of the specialist Buy-to-Let lender. Unlike small-scale landlords, those with larger-scale property portfolios are simply no longer well-catered for by the mainstream lenders and, increasingly require more specialist mortgage advice as well. Looking ahead to 2020, we can expect to see Buy-to-Let become an ever more specialist market, with landlords and intermediaries looking for specialist lenders with the appetite and capability to support their needs. NACFB | 41

Special Feature

Building an SME bank NACFB brokers will be critical to our success

Jason Oakley Chief Executive Officer Recognise

ecognise’s journey towards gaining a banking licence, has been understandably long, and the bar is set very high, as it should be. We first met the regulators in Q1 2018, initially to talk through our plans at a high-level and establish why we felt there was a significant gap in the SME market. Over the last 18 months, we have built a comprehensive regulatory business plan, built detailed capital and liquidity plans – where we simulate significant stresses – testing how the bank may cope. We are now well advanced in building our state of the art IT architecture, supported by Mambu and nCino, outsourcing our deposit management to the UK market leader – Newcastle Strategic Solutions, whilst designing our back office in the Midlands and making key hires in readiness for becoming a licenced bank. We will initially operate three hubs in London, Birmingham and Manchester. We submitted our licence application in November 2019 and hope to trade as a licenced bank under restriction by summer 2020.

Why do we need another SME Bank? Recognise commissioned research with over 430 SMEs – reinforcing what we knew from speaking to clients: businesses were being forced into call centres by the big banks, with no relationship, no 42 | NACFB

continuity, no access to decision makers, nor any feeling of being recognised as a key part of the backbone of the UK economy. Technology innovation for SME banking over the last decade has been at best anaemic, with regular stories of SMEs avoiding any approach to their bank, as the process is often bureaucratic, impersonal and protracted.

Why is the NACFB so important? My personal association with the NACFB goes back over 25-years when, as part of the RBS Business Banking team, we were the first commercial bank to become a Patron. That was in the days of Keith Heron. Since then, the Association has strengthened its effectiveness and reach, in so many ways: the standards applied in the code of practice, the need for PI, the training and support of its Members, its lobbying capability, and critically, regulatory support to ensure adherence to SM&CR. Any lender serious in support of commercial finance brokers, simply has to be a Patron of NACFB.

Why are commercial finance brokers important? The denuding of SME banking skills in the branches of the top five banks has led to the increasingly critical importance of the NACFB and of the circa 1,850 commercial finance brokers, the Association comprises. SMEs can be complex, they are certainly time poor, and need streamlined access and professional support. Recognise knows the critical role brokers play. I was fortunate enough to found Mantra Capital and become an NACFB Member, after I left as managing director of commercial banking at Metro Bank in June 2015. The three founders built what we called ‘bankers working for youʼ, bringing back intimate relationship banking. Mantra has been very successful in procuring hundreds of millions of pounds of debt over the last four years.

“

Technology innovation for SME banking over the last decade has been at best anaemic, with regular stories of SMEs avoiding any approach to their bank, as the process is often bureaucratic, impersonal and protracted

Being on the other side (so to speak) has given me a unique insight, into both the role and pressures of being a commercial finance broker and what is really important: •

Ability to execute – ‘certainty of outcome’ is hugely important to both the client and the broker. Quick decisions are key as well as speed of drawdown.

•

A broker portal that puts the broker in control – having good access to real time information, the ability to submit cases easily and having real time communication with both relationship directors and senior decision-makers. Our SLA will be to provide decisions within 24-hours.

•

Speed of payment of procuration fee – itʼs very frustrating for a broker to be waiting a month or more for the fee, when a deal closes. Our onboarding allows a payment to be made on the day of drawdown.

• A seamless approach to a blended credit solution – both short-term, senior debt and asset finance.

SMEs make up over 99% of all private sector employment, they employ circa 16.3 million people (nearly 60% of all private sector employment) and contribute a combined turnover of approximately £2 trillion (52% of all private sector turnover). I have worked in SME banking for 34 years and feel passionately about these customers, the incredibly important role they play, indeed, they are the mightiest force in our economy. They are agile, ambitious, innovative, they have immense potential and we want to play our part in helping them one ambitious business at a time, and the communities they operate in. Our partnership with NACFB will see them thrive.

“

…businesses were being forced into call centres by the big banks, with no relationship, no continuity, no access to decision makers, nor any feeling of being recognised as a key part of the backbone of the UK economy

NACFB | 43

Industry Insight

When the cracks start to appear Brokers can add greater value by recognising when a business is in trouble Phil Reynolds Restructuring Partner FRP Advisory

o look at the news headlines, you’d be forgiven for thinking that the UK is experiencing something of a crisis in terms of the number of businesses going into administration. While sectors like retail, construction and healthcare continue to struggle for their own systemic reasons – be it changing consumer demands or low margins providing minimal room to manoeuvre – the health of the wider UK market is generally less turbulent than it might appear. In fact, while we have seen an uptick in insolvencies since 2016, despite the current economic and political uncertainty the level of businesses going under remains far lower than the peaks we saw ten years ago, in the aftermath of the financial crisis. But, nonetheless, risks remain – documented by a 0.4% rise in insolvencies in the last quarter.

As brokers are often tasked with representing higher risk lending propositions, they should be alive to the nuances of supporting businesses in distress. Put simply, lenders appreciate brokers who present good opportunities. By proactively addressing potential queries from the lender, you will immediately increase the likelihood of finding the most suitable finance for your client, the speed at which the lender can pass credit and, potentially, increase the amount that your client can borrow – boosting your commission in the process. It’s clear from speaking to those lenders that, more than ever, they are looking for brokers to act as more than just an intermediary – particularly when interacting with SMEs.

Look to the book The numbers rarely lie, which is why brokers need to be diligent and instructive when presenting a client’s performance. It’s very easy for a lender to spot a red flag but less easy to see the underlying causes. Providing context is, therefore, critical.

The role of the broker

This is particularly important when dealing with new businesses given the increased risks of failure – a quarter of businesses that fail do so within the first three years of trading, making lenders understandably more cautious when looking to support businesses in their infancy.

I spend a lot of my working life advising lenders on deals that have gone wrong and also in carrying out pre-lending reviews where the lender feels that it has not received sufficient information or needs more assurance over the forecasts provided.

Lenders will look for four tell-tale symptoms of financial distress in their initial assessment. The first is deteriorating results, be that a decline in sales, significant ‘exceptional’ costs, late accounts or adverse performance against budget.

44 | NACFB

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Poor management is the number one reason why most businesses fail, ahead of finance issues and external factors such as loss of market share, bad debts or the domino effect

Against the balance sheet they’ll look for issues such as increasing working capital requirement, creditors increasing faster than business growth, and poor credit control. Cash flow is also a major ‘tell’ with tight overdrafts, time-to-pay agreements with HMRC, and borrowing from tertiary funders (particularly if from a number of them) all likely to raise alarm. Operational factors should be considered as well when assessing when a business might be in, or heading for, distress. Has the business recently lost its credit insurance, had difficulties fulfilling orders on time or to the expected quality, and is management time being taken up fighting fires or managing stakeholders? More anecdotally, there are other warning signs to look out for – ones that you’re likely to have a gut feeling about. Whether that is the company being run as a ‘lifestyle’ business, or an excessive focus on outward appearance rather than concentrating on internal issues. It is this human analysis and ability to provide context that enhances the role of the broker in the eyes of lenders.

Why businesses fail Poor management is the number one reason why most businesses fail, ahead of finance issues and external factors such as loss of market share, bad debts or the domino effect. In assessing management capability, there are a number of key questions to consider. Are management too inward looking or focussed on the past? Is there sufficient visibility and understanding of the business’ working capital cycle? How engaged are the board of directors and is there a fully worked up strategic plan in place? Helping your clients to proactively address the likely questions and points of challenge from a proposed lender will ultimately boost the chance of a positive lending result. As restructuring advisers, we often see businesses whose challenges have become insurmountable. However, with the right support from brokers, and the right approach to funding, it may never need come to that. NACFB | 45

Industry Insight

We need more innovative funding models Incentives need rethinking before they have a discernible impact on access to capital Damon Walford Chief Development Officer ThinCats

arlier this year, the Bank of England governor, Mark Carney, made some insightful comments on how fintech and Artificial Intelligence can help unlock finance to SMEs across the UK. Innovation is leading to better services and banking supervision, but more importantly it can provide credit to SMEs that either no longer trust banks or find their application processes opaque and unwieldy. The speech resonates to lenders like ourselves as recent figures (Q3 2019) from the Bank of England’s credit conditions survey shows banks are already tightening their belts in the business lending space. In the past year, we saw several providers battle for the RBS Alternative Remedies Package. £425 million was made available to help promote competition in the banking market to SMEs. The problem is that while some of this money may lead to challenger banks improving their current account technology, it does not fundamentally improve access to external funding for UK entrepreneurs. If businesses are moving to a bank that doesn’t or is unwilling to offer them a lending facility, then the underlying problem of the funding gap is not being addressed: moving a bank account in itself, has little economic benefit. Many of the competing banks pledged that they would increase the 46 | NACFB

number of SMEs they could support if they received the funding. However, because of capital adequacy rules, lending to SMEs requires banks to hold more capital on their balance sheets than for many other types of lending, such as mortgages. Ironically, challenger banks have to put aside proportionately more capital to protect their deposit holders than the traditional banks. The response from banks to date has been to focus on lending that satisfies regulatory demands in a way which is best for their shareholders. Whilst SME lending may be riskier than other forms of lending, the way it is structured simply disincentivises banks from lending at all. No one is blaming those for applying for the Banking Competition Remedies money in the first place (ThinCats made an application), but the reality is that it will barely make a difference to improving access to external finance for SMEs. The question therefore is whether the response and indeed the solution may come from the banks at all? We are beginning to see professional institutional investors allocating patient capital to business loans as part of their wider fixed income asset allocation. Fund managers and alternative lenders are at an advantage to banks, because they do not need to hold capital against their loan books to protect depositors. With the alternative lending model, the risk is a pure investment risk borne by the institution providing the debt capital. It’s clear that a mixture of innovation and an alternative funding model will allow SMEs to get the funding they need – and one that is less reliant on the banks. As more customers reap these benefits, it will be interesting to see how the banks choose to respond, or if they are even able to.

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Industry Insight

2020 vision Our outrageous predictions for the year ahead Kevin Vendel Head of Sales Spotcap

time to focus on new business development, client retention and customer service.

Outrageous prediction 2: Businesses go completely digital

ith banks remaining increasingly risk averse, there is still a lot of potential in the business finance market – but how much exactly? Will new players disrupt the market? What will happen in a few years’ time once everyone has fully embraced technology? And will we (finally) solve the Brexit riddle? Check out my outrageous predictions below.

Outrageous prediction 1: New broker software disrupts the market Most of us will be familiar with the variety of accounting software small businesses use day-to-day for invoicing, inventory, payroll, and expense claims. But have you ever thought how this kind of software could revolutionise business finance? Enter BrokerFin, an end-to-end software aimed at brokers arranging finance for retail and business clients.

The majority of businesses used to spend a lot of time gathering the relevant paperwork to complete a loan application. Not any more, as the ‘portable credit file’ is now up and running. Supported by the Bank of England, the platform – also known as PCF among seasoned brokers and lenders – brings together all the data and documents businesses need when applying for a loan. The platform works thanks to the latest API (application programming interfaces) integrations with banks, government departments such as HMRC, as well as a variety of other public and private sources. PCF is incredibly user-friendly and transparent. Businesses know at any given time what parts of their data is being shared, with whom and for how long. No wonder that almost all businesses use the platform when looking for finance. Ultimately, it has helped level the playing field and create a more competitive and effective market for business finance in the UK.

Outrageous prediction 3: Brexit gets sorted and we all move on

Thousands of UK brokers are already using the software to help their clients access the right finance. Sourcing relevant documents and sharing them manually with the different lenders is now just one tap away. Features like bank and accounting software APIs, a comprehensive lender database and integrated CRM management system are all intuitive and straightforward to use. With cumbersome loan applications now being a thing of the past, brokers have more 48 | NACFB

It has been an unknown variable for businesses, brokers and lenders since 2016, but – finally – a no-Brexit deal has been avoided. After three years, everyone breathes a heavy sigh of relief and gets on with their jobs. For many, this means finally purchasing the additional machinery, opening the second office location or acquiring a smaller company to compliment their offering. Further, it allows them to

plan for various time horizons, having confidence when it comes to investment, investing capital, resourcing and so on.

tax, supporting the self-employed and attracting talent from across the globe.

And with Brexit sorted, the UK government has finally time to start looking into improving conditions for businesses. These include â&#x20AC;&#x201C; among others â&#x20AC;&#x201C; addressing the issue of late payments, simplifying

New disruptors, new technology, new opportunities. My outrageous predictions might be a bit of a stretch, but better to start 2020 on a positive note.

Thatâ&#x20AC;&#x2122;s 3 more reasons to search: NatWest Brokers Thanks to everyone who voted for us!

NACFB | 49

Broker Voice

Building Britain from the ground up Property brokers can diversify their offering by financing integral machinery

John Evans Operations Manager Alternative Business Funding

hen starting up a construction company, there are a few essential items that are required before being able to start running a business. Due to the very nature of the industry, construction companies need immediate funding before getting off the ground. Cement mixers, power tools and even cranes are all essential assets for a functioning building firm – and these kinds of hard assets don’t come cheap. Applying for financial support for hard assets such as large machinery can be difficult, particularly when they’re needed quickly to help run the day-to-day business. Whether it’s a fleet of skips, or multiple commercial vans, securing financial support to run a construction business can prove tricky. Here we explore the topic of asset financing for hard assets and some of the common issues that can crop up when supplying funding for construction companies.

Asset finance remains vital for the construction industry When it comes to asset financing, whether itʼs hard assets such as cranes, or soft assets like software or data, they are typically a big investment for the company which is why financing is often the only real option. By splitting the costs of these large and expensive assets, over a few years, suddenly the investment seems more manageable to both finance company and the business taking the loan.

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Securing finance for hard assets allows freedom for construction businesses to focus on the other important parts of running their firm without worrying about disrupting cash flow or getting into debt

Breaking down the costs allows businesses to absorb the costs over time whilst continuing to maintain the day-to-day of the company without suffering the financial blow all at once – a factor that is particularly important in the construction industry. According to a recent industry survey, over 36% of SME construction companies openly admit managing cash flow is the biggest challenge they face when running their business, which means offering financial support can come at a risk, and cash flow isn’t the only issue construction firms face when it comes to securing finance. Securing finance for hard assets allows freedom for construction businesses to focus on the other important parts of running their firm without worrying about disrupting cash flow or getting into debt before work comes in. This means, they will need to borrow a sum of money with little or no proof of turnover – an early warning sign for many lenders.

The cycle of a slow economy Another issue that is often faced by the construction industry, is an ever-fluctuating economy within the UK. Construction firms rely heavily on investment from all types of businesses looking to spend money through expansion, often building new offices or building spaces. However, when the economy slows and businesses hold onto their money, construction firms are the first to feel the impact. Without the assurance of investment from expanding businesses, building firms can’t rely on consistent work, meaning any asset investment the firm has made, can become a concern as repayments will still need to be paid. As with any kind of financial plan, there is obviously an obligation to keep up payments or there is a risk of assets being seized. This directly impacts business as without the right equipment a construction firm can’t carry on trading. However, many asset finance companies recognise the need to offer seasonal repayment plans or offer their clients a flexible repayment plan, meaning the building firm can carry on through slow periods, without fear of their assets being seized. From complete financing, hire release for a limited time period and even capital release from the business, there are several options available when it comes to financing hard assets, to suit the business needs. Making the finance part more obtainable – and affordable – to firms within the building industry ensures they can continue to run a profitable business and make the repayments without default or delay. Offering more than two or three options, as a lender, is an important factor in an ever-changing landscape. By making hard asset financing more accessible and widely available, brokers are ensuring that the building industry remains prosperous and well-funded whilst encouraging new construction firms to enter the industry without fear of debt and general financial difficulties. Offering a variety of funding and repayment plans, asset management funding is often the most feasible and business-savvy option for any building firm looking to either expand or start-up. NACFB | 51

Opinion

A set-up for success How we’re helping to fix the £10 billion SME funding gap Colin Goldstein Commercial Growth Director iwoca

ast year, it was announced that we were one of just four companies to win £10 million as part of the Capability and Innovation Fund (CIF) – a fund put together to increase competition in the SME lending market. We really believe that small businesses across the UK deserve hassle-free finance, so weʼll be using this money to build them new lending and payment solutions. It goes without saying that this is a big opportunity for us to help fund more businesses than ever before, at least 150,000, while making £5 billion in finance available by 2023. Put simply, we believe we are the only SME lender in the UK with the scale, level of experience and technology to dramatically expand and transform access to finance for small businesses. Our proven track record of industry firsts includes integrating with eBay and Amazon, being the first business to offer a lending API, and the first SME lender to integrate with Open Banking. Winning the grant enables us to accelerate our mission to make finance available to one million SMEs. Working with our partners – and of course brokers – we’ve come a long way in a relatively short space of time. Since 2012, weʼve offered funding to 35,000 businesses in the UK. But thereʼs still a £10 billion gap in business finance because small business owners canʼt find the right options or struggle to access funds. The award, issued by The Banking Competition Remedies Ltd (BCR), is our chance to close the gap with new finance products, created just for small business owners. Our first project will be OpenLending – a customisable self52 | NACFB

serve or ʻplug & play’ platform weʼll roll out to lending partners. A big part of our OpenLending commitment is a new partnership with our friends at Xero, the UK’s leading online accounting platform. The BCR grant will help us work with them to find creative solutions to small business finance problems. The aim is to make our funding options more accessible to Xero’s UK subscriber base of more than 450,000.

No PG loan and iwocaPay Thanks to the funding from BCR we can also confidently commit to creating new and innovative financial products, custom-built for small businesses. A key focus for us will be providing a flexible lending structure by introducing a ‘no PG loan’ – a business loan that won't require a personal guarantee. We also pledge to bring finance to where business owners need it most – at the point of invoice – by launching iwocaPay. Designed to help solve the problem of late payments forever, iwocaPay will fund both sides of the invoice (buyer and seller), allowing the option to extend flexible payment terms to buyers, while also ensuring prompt payments.

Matched funding Last but not least, weʼre also adding an extra £13 million to the £10 million CIF grant, creating a total pot of £23 million to fuel these projects. This investment will allow us to open a regional office with at least 50 staff outside of London. Now, working with brokers and the wider lending ecosystem, weʼre looking to the future – committed and ready to begin building what weʼve promised – to expand what’s possible for small businesses across the country.

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Opinion

Future credit insight How Artificial Intelligence is disrupting the lending industry Shyam Raval Broker Manager Esme Loans

hen Esme was first established in 2017, the process of obtaining a business loan was considered both lengthy and discouraging for many business owners. We reasoned that a business loan application shouldn’t be more complicated than obtaining a credit card or an overdraft, and so the idea of establishing the venture was born. Two years down the line, Esme is a digital lending platform, offering SMEs unsecured loans of £10,000 to £250,000 in under 30 minutes. Since launch, we have lent over £100 million to SMEs across the UK. But the progress the business has made wouldn’t have been possible without the technology, which is at the heart of our business model. For Esme, harnessing technology is the only way to stay on top of our competitors. Two decades ago, technology wouldn’t allow us to distribute loans solely through digital platforms. Today, the business has harnessed Artificial Intelligence and Machine Learning, to create an easy and hassle-free way of providing loans to SMEs.

What is AI? Before we jump into conclusions of how AI can help you grow, it’s helpful to explain what this term means, as it often causes a lot of confusion. 54 | NACFB

Artificial Intelligence, also known as AI, is the creation of intelligent machines that work and react like humans. You’re probably using AI more than you think. Examples of AI technology include the spam filter recognising which type of emails should be classified as irrelevant and classified as ‘junk’. Then there is the ability for Google Maps to predict traffic jams and suggest alternative routes, or the way Uber can match you with the closest available driver. All these daily apps and activities are already using AI to make the users life that little bit easier.

What is Machine Learning? Machine Learning is a subset of AI that uses statistical methods to enable it to improve with experience. At Esme, Artificial Intelligence and Machine Learning are revolutionising the way we interact with our customers. For example, we’re able to use software to analyse bank statements, this allows us to categorise income and expenditure to establish free cash flow to service debt. We also use machine learning to facilitate intelligent decision making, enabling us to accurately price loans instantly through our quoting tool. Integrating this type of technology into our application process makes our customers’ and brokers’ lives easier. To us, the real benefit of using AI is its ability to analyse the data in real time and augmenting it to deliver best-in-class solutions to our customers instantly.

Time saver Although there is an ongoing debate around whether Artificial Intelligence is ready yet to replace human marketing and sales

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We see this technology as a supportive, complimentary tool as opposed to a substitution for humans. If anything, Artificial Intelligence and Machine Learning can make it much easier for businesses to get things done for their customers or clients more efficiently

agents, it is certain however that AI can save you time. Some companies are finding success through using AI assistants. For example, you could use a digital assistant to answer FAQs that your clients present. Using AI, computers can scan data and process algorithms to serve customers with generic answers to frequently asked questions in real time. Chatbots can help with queries such as ‘What fees do I need to pay?’ or ‘Do I need a personal guarantee?’, leaving you more time to spend on client deals.

Better understanding your customers AI technology can help you profile your existing clients to better understand their long-term funding needs and communication preferences. The more data you can gather about your client base, the more opportunities it could present. For example, there are now tools in place that can produce accurate lead scores from data on your client base. Artificial Intelligence and predicative analytics can suggest when and how to contact clients and prospects by looking for commonalities in any number of variables including demographic, geographic, company and industry data. This means you can use it to pre-empt which businesses will need funding, how much they might require and at what time of year, allowing you to proactively engage with your clients and prospects at exactly the right time.

AI isn’t something to fear

and responsibilities of many in our sector. For us, we see this technology as a supportive, complimentary tool as opposed to a substitution for humans. If anything, Artificial Intelligence and Machine Learning can make it much easier for businesses to get things done for their customers or clients more efficiently, allowing them to provide a superior service and perhaps focus on other things. At Esme, we are continuing to harness this technology, to enable a simple, hassle-free and rapid process for SME funding.

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Although there is an ongoing debate around whether Artificial Intelligence is ready yet to replace human marketing and sales agents, it is certain however that AI can save you time

There has been a lot of speculation in the press on the potential risks of AI and the possibility that in the future AI could replace the roles NACFB | 55

Opinion

Getting UK businesses match fit Productivity is no longer just an academic pursuit Tony Danker Chief Executive Officer Be the Business

ou may have heard of the UKʼs ‘productivity puzzle’. After the 2008 crisis, UK productivity fell and continued falling. While our peer nations such as USA and Germany quickly recovered, the UKʼs productivity remained stubbornly low. This stagnation has now lasted for over twelve years, with productivity growth averaging 0.2% per year rather than the 2% per annum pre-recession. UK productivity growth is now at its lowest level since 1888 – and this is not the only indicator of poor performance. Over the past two years, the UK has fallen from sixth to ninth in the World Global Competitiveness Index. Of the G7, we now lag behind USA, Germany, France and Italy in terms of productivity. This productivity problem is often summarised in the common phrase that it now takes the typical British business five days to produce what a French or German firm will do in four. But why should we care about productivity? Productivity is something of a dusty corporate term, beloved by economists but meaningless to the majority of businesspeople. In a nutshell, productivity is the total output of UK workers per hour. It is important because it is the critical indicator of how competitive we are as a nation, and an increase in productivity is the surest way of delivering sustained wage growth and improving standards of living. 56 | NACFB

Both business and government recognised that the UK needed a serious intervention to prevent a slide into a productivity recession. In November 2017, Be the Business was launched to tackle this chronic productivity problem. Supported and funded by UK government and leading British companies our mission is founded on two fundamental insights about productivity. Firstly, that good management and technology implementation are major drivers of performance improvement, and secondly, that the UK is home to some of the world’s most productive firms, but many practices that drive high performance have not diffused through the wider business community. Based on these principles, we set about designing programmes for SMEs that have real impact on their performance, profits, and productivity. These programmes are delivered using the

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Every broker can take on the challenge of making a 1% productivity gain using the resources available on the website

“

Productivity is something of a dusty corporate term, beloved by economists but meaningless to the majority of businesspeople

expertise of leading UK firms such as Accenture, BAE, Siemens, Rolls Royce, McKinsey and Cisco. They are designed to be practical, focussing on small steps that SMEs can make in their business that will generate real bottom line improvements. Each Be the Business programme is evaluated by a team of economists to ensure that it has been effective and has had a real, measurable benefit for the SMEs that have participated. We have seen some impressive results thus far. An economic assessment of the first 100 SMEs to go through the Be the Business ʻProductivity through Peopleʼ programme, run in association with the universities of Aston, Bath, Lancaster and Strathclyde, found an estimated productivity uplift of an extraordinary £75 million across the participating companies. Some of the greatest success stories have come from SMEs that have implemented small changes to make big differences in their business. One typical example is from our Mentoring for Growth programme which partners senior executives from FTSE firms with ambitious SMEs to help to create a strategy for growth. Liz Smith the owner of a successful Birmingham-based family run printing company was partnered with mentor David Low of global pharmaceutical GSK. Finding she was constantly on a ‘hamster wheel’ running the business, having a mentor with the experience and insight of David enabled her to focus on the innovations and changes to business operations needed to become more productive and successful. Working in partnership, visiting each other’s premises and with David offering guidance, issues were identified and resolved, changes made and new targets set. As Liz says: “A massive positive is

that we have had our best year for over ten years. We achieved last year’s turnover in 11 months and have made a profit for the year. We have also been able to buy another little niche business this month through the cash generated in the improved profitability, which will further enhance LG Davis.” Mentoring for Growth, as with all Be the Business programmes, focusses on pragmatic, easily implementable steps that can have a big impact. Our goal is to make all the small improvements made by companies add up to an economy wide benefit. The Bank of England estimates the cost of a no-deal Brexit at £30 billion per year, and this is what weʼre all talking about, yet low productivity is costing the UK a whopping £250 billion per year. The broker community can play their part in this transformation in two ways. Be the Business is supported and funded by government and leading FTSE businesses so many of our programmes and resources are free for SMEs to use. Online tools that can help businesses to benchmark their productivity levels against their peers and signpost the types of changes that can lead to improvements are available on the website bethebusiness.com Every broker can take on the challenge of making a 1% productivity gain using the resources available on the website. The second way is to help their clients take on the challenge. When an SME starts to think about their productivity and how to improve their performance, it often helps them to think about their finances and opportunity for investment and growth more broadly. A conversation around how to simply and effectively increase business performance can be a helpful component of any discussion around financing and investment. NACFB | 57

Opinion

Funding with a purpose Commercial finance has the power to change lives Leanna McEwan Commercial Director Reliance Bank

hese are challenging times for businesses. However single-minded their mission and purpose, it can seem in stark contrast to the complexity of managing the finances in an uncertain world. Greater transparency, regulatory requirements, a move towards a cashless society, the rise in cybercrime and Brexit are among many factors that are putting additional pressure on the day job.

benefited society or indirectly through donating the profits to other organisations generated? What if this meant access to funding where only a reasonable rate of return was applied to enable costs to be covered and a fair rate of interest to savers paid? Maybe it’s time to consider one of a growing number of banks that takes this approach to working with money, where both social benefit and financial return are factors. If you are considering engaging with a social impact lender for a different approach to funding, then you will need to consider three areas; • Mission-focus — does your client’s organisation have a clear idea of what it is trying to achieve?

Bank of England governor, Mark Carney, recently cited the fact that, despite facing a £22 billion funding gap, almost half of all UK SMEs have no plan to utilise external financing sources. Under Basel III – the global regime under which banks are regulated – banks are obliged to hold almost twice as much capital against an SME loan as they are for, say, a Buy-to-let mortgage. Unsurprisingly, banks are naturally migrating towards activities that deliver more to the bottom line, to the detriment of SMEs in need of flexible funding.

• Organisational capacity — does the organisation have people with the right expertise and sound systems of governance?

It’s, therefore, time to celebrate the contribution of alternative business lenders.

Reliance Bank has been at the forefront of charity banking since 1890, when we were founded as the bank of The Salvation Army. Our mission is to serve customers and communities with compassion and integrity. We don’t see money as an end in itself, to be paid out in bonuses. We know the power money has to change lives. That’s why we prioritise our business lending to organisations delivering positive social impact. And we donate up to 75% of our profits to The Salvation Army International, where it’s used to support their evangelical and charitable work around the globe.

Social impact lens We only have to watch the news to see a distinct shift in how people are increasingly taking more interest in how we effect the world we live in. What if a lender was driven more by social impact and a shared idea about the world, we want to live in than profits? What if this meant their mission was to support organisations that directly 58 | NACFB

• Financial resources — does the organisation have the finances necessary to service the loan and meet its business plan objectives?

Giving money meaning

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Listicle

he corridors of power have rarely been under more pressure than they have in the last five years. Questions over parliamentary sovereignty, the role of the judiciary and varying constitutional interpretations have cast a shadow over what was previously considered a highly evolved – and broadly functional – representative democracy. It is important that where we see areas of legislation and regulation that are not operating as intended, or indeed perceived to be broken, we have in place mechanisms to seek practical resolution.

Ways to speak truth to power

2. Analyse where the power lies Before approaching your MP, it is certainly worth checking their voting record. Have they voted in favour of bills that benefit entrepreneurs? You can find out, in detail, your MPʼs voting record through the free and open source site theyworkforyou.com. You can also submit targeted freedom of information (FOI) requests to the relevant department for data to help share and steer your argument.

4. Understand the processes

As part of the largest trade body for commercial brokers in the UK, you and your organisation have a seat at the table and, utilising our latest survey data (see p. 27), we have up-to-date empirical data to back our assertions when seeking to positively influence those in power.

It is always worth researching what potential regulations are at the Bill stage of their life, checking if there are relevant Bills being debated such as SME access to finance initiatives, for example. You can then ask your MP to put forward an amendment before it becomes an Act of Parliament. These smaller changes to legislation can often have a disproportionate impact on what is passed onto the statute books.

It is vital that power and influence remains accountable so we’ve compiled five ways that individuals can successfully lobby your representatives for meaningful change.

1. Identity areas of support

3. Get the message right

5. Evaluate your success

So, you want to let your MP know that you think SMEs are not as aware as they should be of brokers as a pathway to finance? Well you’re not alone and it’s a desire we all share. Your MP is a good place to start but a single voice may get lost in the noise. You can also share your thoughts and ideas with your trade body who can help amplify and collectivise, lending greater resource and clout to your aspirations.

Once you’ve collated all the necessary information and you know who to target, it’s important to shape a clear, concise and appropriate message. Be realistic here, your contact will not be willing to push for demands for all SMEs to use a broker, but they may be more amenable in seeking to influence the relevant minister that more can be done to raise awareness of the intermediary as a route to finance.

There is a lot more to lobbying than just having your photo taken in front of Number 10. The aim of any action should be measurable through output and not just through access. It is all well and good getting airtime with a relevant minister but clearly defining measurable aims and ensuring actions are chased and followed-up are where the patience and hard graft come in.

60 | NACFB

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After more than 45 years and 59,000* bridging loans, very little fazes our experienced team. So no matter how complex the case, you can trust us to apply the same flexible and pragmatic approach we always have – meaning we can often accept cases that others struggle with. Whether it’s regulated or commercial lending your client needs, we’re the bridging loan experts you need.

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Five Minutes With

ive F Minutes with: Marios Theophanous Marios Theophanous Credit Manager London Credit Describe your role in ten words or less? Analysing cases with the target to make deals work.

In your view what are the key elements to a successful deal? Communication between all related parties, dealing promptly and successfully with any issues that may arise at any stage and provide detailed information to avoid misunderstandings and surprises.

What recent professional accomplishment are you most proud of? Organising a bonding weekend for the team which had very positive results in terms of identifying our strengths and weaknesses, building relationships and obtaining a collective understanding strategy.

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

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

Food – modern creative cuisine with a twist. I enjoy taking care of other people and satisfying their culinary needs.

Share all the information with the lenders upfront to avoid any misunderstandings and unnecessary delays.

What is your favourite SME success story?

What was the last great book you read?

Honestly? Ours. The group has been in operation since 1993, with a prominent presence in the European and CIS markets. Year after year we set higher goals, challenging ourselves to become stronger and we have achieved this with entry into the global market.

The Seven Habits of Highly Effective People by Stephen R. Covey.

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Where is your favourite place in the world? Wherever my daughters are.

What is the best live music experience you’ve ever had? The most recent one, Ed Sheeran’s concert on August 17th, 2019 at Roundhay Park, Leeds.

Who do you admire most and why? Jurgen Klopp who has managed to elevate my favourite football team, the players and the fans.

If you could have dinner with anyone from history, who would it be and why? Mahatma Gandhi. My favourite quote is: “First they ignore you, then they laugh at you, then they fight you, then you win.”

What’s happening now, that in 20 years people will look back on and laugh about? Our addiction to social media.

SPECIALIST LENDING SOLUTIONS BUY TO LET MORTGAGES

A new way for landlords to increase yield and capital growth Our Refurbishment Buy to Let product lets your customer take advantage of the flexibility of Bridging Finance with the surety of an exit onto a Buy to Let Mortgage once the property has been refurbished (providing there are no changes and the property meets the expected valuation following refurbishment). Take a look at our unique approach: One application, which we key for you One expert underwriter providing support for the entire case One valuer for both the bridge and Buy to Let Mortgage One conveyancer and discounted legal fees

Contact your local BDM 0800 116 4385 precisemortgages.co.uk

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Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549). Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.

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Owen understands

Owen Bentley understands that you are looking to work with an approachable, adaptable and dependable partner who will look for reasons to say 'Yes' to your proposals. That’s why in uncertain times our book stays open. • Responsive decisions at attractive rates • Flexible funding tailored to individual needs • Loans from the everyday to the extraordinary Owen is one of UTB's Business Development Managers - just one of our growing team of Bridging specialists working closely with broker partners across the UK to help them deliver flexible short term loans. T: 020 3862 1002 E: bridging@utbank.co.uk

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