Issue 81 JULY/AUGUST 2020
Broker COMMERCIAL
The award-winning magazine for the National Association of Commercial Finance Brokers
22 AN ERA OF INNOVATION The community needs to embrace post-pandemic lending efficiencies
30 AFTER THE MAELSTROM The coronavirus crisis and its lasting impacts for non-bank lenders
They think it’s all oVAR... Lessons from football’s tech transformation
44 THE FUTURE-PROOF BROKER The market is changing, but intermediaries remain an adaptable bunch
46 AN ASSET TO THE SECTOR Now is the right time for new asset brokers to break through
Contents
In this July/August issue NACFB News
Special Features
4 6 8 10-11 12-14
22-23
Note from Norman Chambers Updates from the Association Note from Lloyds Bank Industry news round-up Patron news
24-26
28-29
30-32
34
36-37
Landbay: Post-pandemic efficiencies NACFB: They think it’s all oVAR… Nucleus Commercial Finance: Cometh the hour Hadrian’s Wall Capital: After the maelstrom CapitalRise: Widening broker scope Praetura Asset Finance: A glass half full?
Industry Insight 38-39
40
42
Catalyst Business Finance: Walking alongside your clients Peritus Corporate Finance: The evolving art of valuation Aldermore: Showing your mettle
Opinion & Commentary
22 Case Study 16
Shawbrook: Fuelling UK racehorses
44-45
46-47
48-49 50-51
52 54
Claratus Commercial Finance: Future proofing the broker Asset Finance Policy: Be an asset to the sector Mind: Looking after you Purbeck Insurance: Shoring up defences Listicle: Transforming young lives Five minutes with: Ian Galbraith, Head of Broker, Paragon
Compliance Update
The Leasing Foundation: Mike Randall – The future for asset brokers
KIERAN JONES Editor & Feature Writer
33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk LAURA MILLS Graphic Designer
33 Eastcheap | London | EC3M 1DT Laura.Mills@nacfb.org.uk
Magazine@nacfb.org.uk MACKMAN Design & Production T 01787 388038
Ask the Expert
Further Information
MAGAZINE ADVERTISING T 02071 010359
18-19 NACFB: SM&CR – Six months on
20
42
50
mackman.co.uk
NACFB | 3
Welcome
Norman’s Note L
et’s be honest, this wasn’t the summer any of us were expecting. If you’re anything like me, there’s been more than a few sporting holes left in the calendar for the sunnier months. Not even the return of the Premier League has helped fill the greater void. Watching the country battle the pandemic, followed by a collective reassessing of embedded cultural values through the Black Lives Matter movement, has been a sobering experience. Be in no doubt, history is being written around us. During these times, nothing is immune to change. The very foundations of our society are shifting, and as agile finance professionals, we must move with them. Returning briefly to football, this month’s cover feature (p.24) explores how the use of VAR is analogous to our own communities’ experiments with technology – another example of the seeds of change.
Norman Chambers Managing Director | NACFB
The Association has adapted quickly to change too. You will recall back at the start of the pandemic we made an early decision to impose a Member fee moratorium for four months. As of August, this will come to an end. I am extremely proud of the way the NACFB was able to step-up for our Members, and I remain grateful to the hundreds of Members and Patrons I have spoken with who shared with me their recognition of our efforts. With social restrictions easing, we are inevitably assessing what route commercial lending will take. I foresee sizable change here too. Your trade Association will steer the industry in such a way that it places greater emphasis on the role of the finance intermediary. Indeed, we are maintaining our lobbying efforts with key stakeholders to place our Members at the very centre of business finance solutions for UK SMEs. We look to share more good news with you soon. Thank you to all of the Members and Patrons who have stood by the Association, as we, in turn, have stood shoulder to shoulder with them. We are truly at the dawn of a new era, one that places the responsibility of Moving Britain Forward at our feet, and I am proud to say the NACFB will be with you every step.
4 | NACFB
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NACFB News
Association updates for July/August 2020
Association passes 2,000 Members for first time Record numbers of commercial brokers working to keep Moving Britain Forward
T
he number of NACFB Member firms has increased significantly in 2020 and, for the first time in its 28-year history, the Association now works with the direct support of 1,104 commercial finance firms – a 9% increase on this time last year. The total number of Registered Individuals (RIs) has also passed the milestone of 2,000 Members – all operating their brokerage under the NACFB logo. This 11% increase is an all-time high and a record for the Association. The NACFB has grown by an extra 90 membership firms in 2020 alone, ensuring that it remains by far the largest independent – and not-for-profit – trade Association dedicated solely to commercial finance professionals. The news comes as the Association’s four-month fee moratorium comes to an end. In total, the freeze on membership fees for existing Members has saved each firm a minimum of £240 throughout the lockdown period. The NACFB’s managing director, Norman Chambers, reflected on how the Association’s Members have stepped-up throughout the pandemic: “To see such continued growth in our membership, as well as our Member’s continued eagerness to engage with Patron lenders demonstrates two things. “Firstly, that resilience is not just a by-word for riding out a challenging period, our Members truly have the staying power to service their clients in the toughest of times. Secondly, it is clear 6 | NACFB
that more and more brokerages are appreciating the value of being recognised and accredited by a national and independent trade body.” The Association’s growth in membership follows a month after the NACFB staged its first ever Virtual Expo, which saw over 1,700 finance professionals engage with the range of exclusive content on offer. The NACFB Virtual Expo will remain in perpetuity and can be re-watched at any time via commercialfinanceexpo.co.uk The NACFB will be returning with another Virtual Expo later in 2020, opening up the platform to all confirmed exhibitors for next year’s event.
“
Resilience is not just a by-word for riding out a challenging period, our Members truly have the staying power to service their clients in the toughest of times
With you every step nacfb.org
#MovingBritainForward
Note from our Sponsor
​COVID-19: Brokers are weathering the storm For UK SMEs, intermediaries can be a beacon in the dark
Andy Bishop UK Director, Commercial Broker Development Lloyds Banking Group
A
s many businesses pause their original plans for 2020, and potentially their longer-term plans while they work through the impact of COVID-19, brokers have found themselves playing a crucial role.
and for brokers in the next six to 12 months as businesses come out of the transition relief provided by government schemes, and start thinking about repayment. Some businesses may find themselves cash constrained because of their repayment commitment and may want to seek refinance to create surplus cash flow to take advantage of opportunities to expand. This will give brokers an opportunity for refinancing and restructuring. Businesses will also need to review their working capital requirements as they start to recover and trade again. That will create opportunities for brokers to recommend and support working capital facilities for regrowth.
As well as providing guidance around accessing government business support schemes, brokers have been helping SMEs access the wider range of COVID-19 support; for example, around furloughing staff, VAT, tax deferment and rent relief.
Also important is making sure businesses have sustainable, long-term finance structures in place.
The National Association of Commercial Finance Brokers has done an amazing job, both in terms of getting high-quality guidance out to their broker members, and also by corralling the activities of the wider funding market, so brokers have been fully informed in terms of availability and types of finance out there.
As we turn towards the future, I believe that the opportunity for brokers will be huge, in terms of restructuring and refinancing, but also in supporting businesses to create and capture growth opportunities.
Emerging opportunities It has been a tough period for many brokers because the type of business they have been transacting has changed markedly. And at the same time, they have seen a reduction in lead flow. However, brokers now have a real opportunity in terms of supporting their clients to make the right financial decisions as we go into 2021 and beyond. There will be immediate opportunity for some strong business now, 8 | NACFB
Looking forward
Lloyds Bank will be there to fund the future. We remain committed to working with brokers and recognise the value that they bring to their clients. Equally we recognise that they have been through a difficult period, but that there is wider opportunity out there. For more information on how we can support, get in touch with your business development manager.
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Industry News
Industry News 2. FCA extends payment holiday The Financial Conduct Authority (FCA) has told banks and credit providers to extend payment holidays on overdrafts, loans and credit cards until October as people continue to feel the financial impact of the COVID-19 pandemic. While a policy that allows those whose income has been hit by the lockdown to defer payments was expected to be wound up at the end of July, the watchdog has proposed an extension of the support window.
3. 1,067,340 businesses take out government-backed loans
1 1. BoE pumps an extra £100bn into the economy The Bank of England (BoE) has announced a new stimulus package for the economy to mitigate against the impact of the coronavirus crisis and lift inflation from the current 0.5% and closer to the 2% target. The Bank confirmed a fresh £100 billion in quantitative easing, with this following a £200 billion boost announced in March. This £100 billion takes the BoE’s asset-purchasing programme to £745 billion, a figure equivalent to around a third of GDP. 10 | NACFB
The lending sector has supported more than one million businesses through the three main government-backed lending schemes in just over three months, figures published by HM Treasury have revealed. 1,067,340 facilities worth £45 billion have so far been approved through the CBIL, BBL, and CLBIL schemes. This includes 1,013,410 Bounce Back Loans worth £30.93 billion, 53,536 loans worth over £11 billion through the Coronavirus Business Interruption Loan Scheme and £2.58 billion through the Coronavirus Large Business Interruption Loan Scheme.
3
4 4. UK debt worth more than the economy The UK borrowed £55.2 billion in May, nine times more than in May 2019. May’s borrowing took total government debt to £1.95 trillion – or 100.9% of GDP, with national debt now worth more than the economy for the first time since 1963. While government spending included funding for support measures rolled out amid the coronavirus crisis, income from tax, National Insurance and VAT fell, with HMRC data showing tax payments were down £16.2 billion – or 43% – on the same period last year.
5. Specialist lenders call for parity with big banks Non-bank lenders met with Treasury officials as they lobby for access to ultra-cheap funding from the Bank of England and the same loan guarantees provided to big banks. Stephen Haddrill, director general of the Finance & Leasing Association (FLA), warned: “Non-banks are stretched between providing forbearance, satisfying the people they get their funding from, and trying to satisfy demand for new lending.”
6. Risks to non-bank financial sector to be probed
9. Business Secretary announces new takeover laws
The Bank of England governor, Andrew Bailey, has told the Chancellor that shadow banks could face tougher regulation after calling on central bank assistance during the peak of the market panic in March. “Where appropriate, the assessment will identify gaps in resilience in the non-bank financial sector and the potential measures that may be taken to increase resilience,” Mr Bailey wrote in a letter to Rishi Sunak.
Alok Sharma, the business secretary, has shared how the law will be changed to allow the government to intervene more easily in takeovers of UK companies if the acquisition is deemed to impact the UK’s ability to combat public health emergencies. Mr Sharma calls for a new law to lower the threshold for intervention on turnover and share of supply; these three areas will give government the oversight it needs.
10. Think-tank suggests share plan to support SMEs
7 7. Commercial landlords left out of pocket Commercial landlords received just 18.2% of the rental payments they were owed in late-June, the quarterly rent collection date. The collection rate was lower than the 24.3% collected on the March quarterly rent day, according to Re-Leased. The cloud-based commercial property management platform worked out the figures based on more than 10,000 commercial properties and 35,000 leases on its UK platform.
A report for the Social Market Foundation, by MP Bim Afolami, suggests that the government should invest £15 billion in SMEs in exchange for shares that would one day be sold to the public. The Unlocking Britain report proposes that the Recovery Fund would be floated on the London Stock Exchange. Mr Afolami, who is expected to raise the idea in Parliament, says the £15 billion could be borrowed and invested via the government's British Business Bank.
11. Economists warn of day of reckoning Paul Johnson, director of the Institute for Fiscal Studies (IFS), has warned of likely tax rises because of a coming recession. He said getting the UK's £2 trillion debt mountain under control will take decades and is likely to require the Treasury to raise an extra £35 billion to £40 billion a year once the immediate crisis subsides. He added: “The time to pay for this will come, but not this year and not next.”
8. Funding applications from female entrepreneurs halve Figures have shown the number of applications from women to Virgin StartUp, which provides funding for entrepreneurs, has halved since the start of the coronavirus lockdown, while for men applications were down just 17.5%. Dame Jayne-Anne Gadhia, the former boss of Virgin Money, said that there should be a tax incentive for ‘relevant City firms’ to set up funds especially for female innovation as the ‘old boys network is alive and kicking’.
11
12. ‘Perfect’ time for brokers to stand out
10
Matt McCullough, national sales manager of intermediary mortgage distribution at Aldermore, says that now is the ‘perfect time’ for the intermediary market to stand out. He added that one of the things the firm is really campaigning for is for brokers to get closer to their full-time, self-employed landlords, saying as an intermediary they are “…potentially becoming an indirect business partner of a landlord.” NACFB | 11
Patron News MFS issues over £30m in loans during lockdown
Hope Capital records huge June spike in enquiries
Market Financial Solutions (MFS) has deployed over £30 million worth of bridging loans during the COVID-19 lockdown so far.
Hope Capital has recorded a stronger June performance than for the same month last year, fuelling growing optimism that the market is bouncing back strongly from the coronavirus freeze.
MFS arranged these bridging loans between 23rd March and 30th June, including both residential and commercial bridging finance. With access to in-house credit lines and a team of experienced underwriters, the NACFB Patron has remained open for business throughout the lockdown. The loans deployed reflect its commitment to supporting growing demand for specialist finance, which has gathered pace in recent months. Paresh Raja, CEO of MFS, said: “We have experienced a notable increase in enquiries from brokers in need of bridging loans for their clients during lockdown. Not only are brokers requesting loans that can be tailored to meet the complex needs of their clients, they are also after loans that can be deployed quickly to ensure deadlines are met and transactions are completed. “That’s why with lockdown measures easing, I am confident the energetic demand for specialist finance will remain high. As highlighted by the value and volume of loans we have completed so far, bridging lenders like MFS will continue to play an integral role supporting property transactions in the UK.” 12 | NACFB
Although many restrictions remained in place, the NACFB Patron received a 189% leap in enquiries from the previous June’s figures. This includes an increase in enquiries from brokers the firm has not previously worked with. The number of formal loan offers also increased by 20% compared to June 2019. At the same time, Hope Capital has delivered even faster response times, with application and underwriting three times faster than in the first quarter of 2020. Over the first six months of 2020, the firm has seen a 14% increase in loans accepted by underwriting and a 31% increase in loans accepted by clients. Jonathan Sealey, CEO of Hope Capital, commented: “These figures are evidence that demand for short-term finance is strong, and growing. With lockdown easing, there is a pent-up demand for borrowing as projects that were put on hold in spring are put back in motion. “The strong demand we have seen also reflects the range of products we have made available to meet borrowers’ diverse needs in the post-lockdown world.”
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Patron News
Patron News Shawbrook Bank launches broker podcast series
Aldermore unveils senior commercial appointments
Shawbrook have launched a new podcast series, titled ‘A Conversation with Shawbrook’. The podcast will provide a platform for the broker community to share their voice and their experiences of conducting business in the current climate.
Aldermore has announced two senior hires with the appointment of Iain Bryson as its new head of development and specialist property within its commercial real estate team, and Lee Rhodes as the commercial director for asset.
In the first episode, Phil Gray, managing director of Watts Commercial Finance – and NACFB Board Director – joins Emma Cox to discuss how the Watts family navigated the coronavirus crisis: the property market restrictions, the challenge of moving to a remote environment, and the main issues facing the broker and investor community as the focus shifts to the UK’s recovery.
Iain has over 35 years’ experience in the commercial sector. In his new role, Iain will help strengthen the NACFB Patron’s specialist real estate offering across sectors including hotels, healthcare, and student accommodation. He joins from Europe Arab Bank, where he was head of real estate finance. Prior to working at Europe Arab Bank, Iain held roles at Santander, Deutsche Bank and Bank of Scotland, where he worked for over 20 years.
Emma Cox, sales director of property finance at Shawbrook Bank comments: “Over the last few months we’ve spent a lot of time thinking about how we adjust to support our friends and colleagues in the broker community. “This podcast is about creating a forum to connect with brokers and hear their views on the market, the challenges they face, and the lessons learned as focus turns to how we emerge through these unique times stronger for it. Partnerships are such a big part of our business and it was a pleasure to catch up with Phil and get his perspective on the future, as restrictions ease.” 14 | NACFB
Lee is promoted to the position commercial director for asset following Patrick Jelly’s decision to leave Aldermore. The NACFB Patron took the decision to combine his current role (commercial director, asset finance sales) with the commercial director wholesale finance role – creating a new position. Lee has been with Aldermore for over six years, he has an extensive background in asset finance and in recent years has grown their wholesale business from scratch. Patrick Jelly will leave Aldermore in September for a new opportunity.
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Case Study
Not waiting around furlong Funding a heat pump to fuel UK racehorses Chris Russell Business Development Shawbrook Bank
A
family run farming business famed for its organic milk, hay and straw production, AW Brandreth & Sons, was seeking to diversify its business by implementing a £1.6 million 4Mw Ground Source Heat Pump (GSHP) as it looked to supply high-quality feed to the UK’s racehorse industry. The Warwickshire-based, third generation farming partnership has invested in the GSHP to dry Lucerne hay, which is in demand from the UK’s equestrian industry where it is used to provide energy, good quality protein and a source of fibre to the specialist diet of performance racehorses. Our specialist agriculture and renewable energy team here at Shawbrook Bank were able to provide the funding facility to AW Brandreth to finance the project, with the GSHP pump installed by Omi Heat and Power Ltd. We were introduced to this project by Justin Amos of Portman Asset Finance. After being approached by Justin and the team, we quickly realised that this was a superb opportunity for the business and one that we whole-heartedly supported. This was Shawbrook’s first heat pump project of this size and it came with several potential challenges, as most project finance transactions do. But by working closely with Justin and his team, we were able to work through those obstacles and put a facility together that will help AW Brandreth further diversify and protect their business for the future. Sixty acres of Lucerne seed has been planted already which is scheduled for harvest in August. The heat produced by the new GSHP will also be used to produce organic dairy grade Lucerne hay as well as other forms of straw and hay. Joe Brandreth, of AW Brandreth & Sons, shared his feedback 16 | NACFB
with us: “Shawbrook understood the long-term value that the GSHP would provide our business by unlocking the Lucerne hay opportunity for us. “As a specialist lender, Shawbrook offered us a facility that was ideal for the project and the dynamics of our business. We are really pleased to be working with them and looking forward to seeing how the investment in GSHP will help us unlock a new market and grow AW Brandreth for the future.” AW Brandreth & Sons is a family-run farm business consisting of almost 600 acres of owned and rented land. The farm has 140 dairy cows producing organic milk with a long-term milking contract. Its other main income is driven through its hay and straw business, where they produce swaths of hay which is then baled and stored then sold to clients in the UK and Europe. The project now means AW Brandreth & Sons qualify for the commercial Renewable Heat Incentive (RHI), a government financial incentive to promote the use of renewable heat.
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By working closely with Justin, we were able to work through those obstacles and put a facility together that will help AW Brandreth further diversify and protect their business for the future
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Compliance
SM&CR – Six months on Brokers should be taking the right steps and be able to evidence them Dean Williams Compliance Officer NACFB
I
t’s been a little over six months since the implementation of the FCA’s Senior Managers & Certification Regime (SM&CR) came into effect. By now, NACFB Member firms should have established their SM&CR frameworks for ongoing compliance. Last month, the Treasury agreed to delay, from 9th December 2020 until 31st March 2021, the deadline for solo-regulated firms to have undertaken the first assessment of the fitness and propriety of their Certified Persons. This should not however lead to complacency and where firms are able to meet the original deadline, they are encouraged to do so. The obligations are not too overbearing. We will step through those expectations for Members, focussing on those deemed a ‘core’ firm by the FCA. As a reminder, a core firm is a brokerage with full permissions (not limited) and with intermediary regulated business income of less than £35 million, calculated as a three-year rolling average. From the outset, the SM&CR was designed to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence. This places an onus on senior personnel to take reasonable steps to ensure compliance with regulatory standards and ensuring fair outcomes are always achieved for customers. 18 | NACFB
Having had time to implement SM&CR frameworks, firms should be able to ensure they are meeting the following requirements:
1. All senior managers should now have been identified and approved by the FCA. Any subsequent senior management appointments made following the 9th December 2019 should also have been notified to, and approved by, the FCA. Firms can check existing senior manager approvals remain up to date with the regulator by visiting the FCA Register (register.fca.org.uk). When there have been internal changes, these too should be confirmed with the regulator without undue delay. This can easily be done via the FCA’s Connect portal.
2. Each of your appointed senior managers must have a clear and concise Statement of Responsibilities (SoR), outlining their roles and responsibilities within your organisation. Do note, these documents should be self-contained and not refer to other documents.
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By now, NACFB Member firms should have established their SM&CR frameworks for ongoing compliance
“
From the outset, the SM&CR was designed to reduce harm to consumers and strengthen market integrity by making individuals more accountable for their conduct and competence
3. All prescribed responsibilities required by the FCA should have been assigned and now owned by an appropriate senior manager, as reflected within their SoR. If a senior manager’s role and prescribed responsibilities has changed significantly since submission of their SoR to the FCA, you should have updated your internal SoR and notified them of such changes.
4. If you have appointed a new hire to a senior manager role since 9th December 2019 (this does not include internal hires), you should have obtained regulatory references from past employers, and also have completed criminal records and competency assessments and be readily able to evidence them.
5. You should have by now identified all certified staff within your organisation, namely those that perform a function which could pose a risk of significant harm to the firm or its customers. For NACFB Members, this will typically include those roles subject to qualification requirements, for example, mortgage advisers.
6. You should also have established systems and controls to allow you to complete annual fitness and propriety assessments on all senior managers and certified staff, confirming their ongoing honesty, integrity and reputation, their competence and capability, and finally financial soundness. Once again you should be able to evidence such assessments.
7. You have trained all relevant employees in respect to their obligations relating to the SM&CR conduct rules, are able to evidence such training and have established a means of recording and reporting such breaches to the FCA when required. This is within seven business days for senior managers and annually for other individuals.
The NACFB Compliance website maintains a dedicated SM&CR hub containing a range of materials for download, including: • Template documentation, including Statements of Responsibilities as well as certificates of fitness and propriety; • Guidance documents on the application of prescribed responsibilities and certified functions; • Steps Member firms should take when considering an individual’s fitness and propriety; • Conduct rules and breach reporting guidance; • A summary of FCA materials and guidance, such as the FCA guide for solo-regulated firms.
The Association would expect Member firms to have systems and controls proportionate to the size of their organisation and appreciate that smaller firms may find it difficult to determine what is proportionate. Accordingly, we wish to invite all Members to contact our compliance team with any SM&CR related queries. The Association’s compliance team remain on hand to answer all queries individually and maintain an up to date SM&CR FAQ compliance hub for the benefit of others. NACFB | 19
Ask the Expert
Asset finance broking in the brave new world
Q& A Mike Randall Chair The Leasing Foundation
How has COVID-19 changed the asset and leasing landscape?
COVID-19 has changed everything. A large proportion of business has been suspended whilst the pandemic plays out. There is a percentage of firms in essential services that have kept their doors open and seen business increase, but many companies have furloughed their staff and therefore are not purchasing assets at this time. Businesses are waiting to see what happens once lockdown finishes, and things start to recover before they think about investing again. They will also need to consider how they can restructure their finances post-pandemic.
What are the main issues that have faced the sector during this time?
The key challenges for brokers and lenders are centred around trying to understand how to deal with a pause in the economy. This includes a decrease in credit appetite in certain sectors from a lending perspective which obviously leads to cashflow issues. In addition, all lending businesses are looking at ways to partner with potential government schemes to help SMEs.
How does today’s situation differ from the crisis of 2008/09? What can we learn from that time? It is all to do with supply and demand. 20 | NACFB
This crisis differs because in 2008 there were supply issues in terms of people’s liquidity. Now it is a demand issue. Supply is there but there is no demand as the economy has been ‘shut down’. Also, in 2008, the government took far longer to support the SME liquidity issue. This time around the government acted far quicker with the likes of the CBIL and BBL schemes.
How can brokers and lenders respond and protect themselves?
From a lending perspective we need to be there for our customers, guide them through forbearance and help them apply for the government support schemes. From a broker perspective, it is all about sticking close to customers in this time of need and partner with funders to work through the scenarios together. Customers are at the centre of this and if all parties work together, there will be a better outcome post-pandemic.
What do we expect to see in the coming months?
What we would like to see is the number of COVID-19 cases and deaths reduce significantly, no second wave, businesses going back to work successfully and maintaining the safety of everyone involved. This is the beginning of innovation – how companies work together in the future to help business come alive again.
Are there any positives we can take from this situation?
The last four months have been very tough
for all businesses. But the situation has probably made every business look at itself in terms of how it operates and how it can make the safety of its people a priority. It will also have made companies look at their tech capability and how to be more innovative which helps all customer journeys.
What are the successes and failures of the last four months? The key success is the way all funding businesses have stepped up to serve customers remotely. The industry has helped customers with forbearance in numbers never seen before. However, should we, as an industry, have been better prepared for a crisis of this scale? That will be the question. All businesses have business continuity and disaster recovery plans, but could we have done any better in our planning?
Are there any other practical steps that we should be taking?
Aside from working closely with customers to ensure that their businesses’ cash flow can stand an economic slowdown for a period of time, we should try and be part of the core management team of a company – helping customers decide how to operate post COVID-19. It’s all about being part of their journey and in the engine room of decision making. Operational models are likely to look very different in the future and we are here to help them through this process.
BRO KER Our Business Development Managers understand that every deal is unique. That’s why they work with you and take the time to understand your client’s needs, providing tailored funding solutions to drive business forward.
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Barclays Bank UK PLC. Authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No 759676). Registered in England. Registered no 9740322. Registered Office 1 Churchill Place, London E14 5HP. Barclays Bank UK PLC adheres to Standards of Lending Practice monitored and enforced by The Lending Standards Board. Further details are available at www.lendingstandardsboard.org.uk Item Ref. 9917163_UK. July 2020.
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A new era of innovation? The community should embrace post-pandemic efficiencies John Goodall Chief Executive Officer Landbay
significant lenders had a lot of problems, just being able to enable home working with the lack of technology and, while everyone’s got there now, it’s not ideal for many.
Positives from the pandemic
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t is without doubt that the current pandemic has changed the way we work. At hardly any other time in history has the rate of change been what it has been over the past few months.
However, many companies, not just in financial services, had the unexpected surprise that staff performance did not drop off in the way most expected with staff working from home. In fact, many companies have changed their future plans as a result with some, such as Twitter, declaring they may keep staff working from home indefinitely.
Landbay was in a very fortunate position in that it has state-of-the-art technological platforms on which to run the business. So, we made the transition to home working relatively easily and brokers should have noticed little or no difference, but I know that for many banks and lenders this was an altogether more challenging time.
Whilst I suspect, long-term, the default option for many lenders will be working from the office, there may be some exceptions and there will be changes.
The challenge for the industry was that we hit a period of economic stress at the same time that people were being told to put their business continuity plans in place, which may not have been tested to anywhere near this extent. Lenders were in a completely unprecedented situation with staff working from home, often with reduced staff numbers if some were unwell. At the same time, there was unparalleled demand from borrowers to access the different government schemes, not least of which was payment holidays for both homeowners and buy-to-let landlords. On top of this they needed to ensure they still complied with all FCA and Treating Customers Fairly regulations. As a regulated business it is harder to comply with all the rules with staff working from home. For example, being able to carry out remote call recording as seamlessly as you can if you are doing it from one central place. Early in lockdown, several reasonably 22 | NACFB
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We will see new initiatives from existing specialist lenders and also other providers to the industry. If anything, COVID-19 is going to stimulate these to come onboard more quickly
We will see innovation which should make the mortgage process both quicker and more efficient. We have seen significant developments with property valuations in the last few weeks and there are mortgage innovations in the pipeline that are likely to catapult into place. The pandemic is accelerating the shift to digital which had been happening before in a lot of places but incredibly slowly. This will streamline processes, leading to a more digital process.
Market agility The innovations will come, but those innovations are unlikely to come out of the larger banks and companies. The innovation is likely to be linked predominately to specialist and wholesale-funded lenders, as, if you look back at the history of the mortgage market, that tends to be where the innovation arises. It does not come out of the large systemic banks because it does not really suit their wholesale industrialised models. So, we will see new initiatives from existing specialist lenders and other providers to the industry. If anything, COVID-19 is going to stimulate these to come onboard more quickly. For example, at Landbay, we brought in a new application process days before lockdown. A Decision in Principle now only takes two minutes and uses intuitive technology. The buy-to-let mortgage application to completion is now just nine simple steps and the whole process is completely paperless end-to-end. It was designed to be better, faster, and more intuitive, using broker focus groups to test the system and recommend changes such as the order and flow they thought the application process should go through. This will make brokers’ lives easier and dramatically speed up the application process.
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Borrowers may no longer want to meet brokers face-to-face and brokers will need to have the technology in place to embrace this
Raising expectations What we did by choice, through months of broker workshops, I think we will see other lenders now doing out of necessity. Lenders do not have teams of people sitting together any more so will need to find ways for efficient mortgage processing even if people cannot work together in the same way. But it will not only be lenders that will need to become more efficient it will affect brokers too. Borrowers will now also be used to doing everything remotely, researching and buying things online and having things happen seamlessly and quickly. They will increasingly expect the same from the mortgage process, including advice. Borrowers may no longer want to meet brokers face-to-face and brokers will need to have the technology in place to embrace this. For those that do, lenders with a seamless end-to-end process will be a necessity. And all will want to know what is happening at every step of the process. Online tracking of everything from a mortgage decision to searches and conveyancing will become the new normal. NACFB | 23
Special Feature
They think it’s all oVAR... The beautiful game is changing beyond recognition, with lessons for closer to home Norman Chambers Managing Director NACFB
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s the pubs start to fill and huddles begin to form around long-since dormant office water coolers, you can guarantee it will not be too long before the universally divisive issue of football’s VAR returns. A colleague of mine was recently bemoaning the impact VAR is having on the game and I realised that there were learnings from its failings that directly apply to our own sector. Indulge me for one moment...
Don’t mention the VAR Following a trial of video assisted referees (VAR) at the 2018 World Cup, the English Football Association (FA) deemed the technological advances both practical and suitable enough to implement more widely across their flagship Premier League. Supporters were promised faster and more accurate decisions and an implementation that would aid, not undermine, the on-field referee. All whilst providing for an overall better fan experience. Gone would be the frustratingly glaring errors, gone would be the agonisingly unjust decisions, gone also would be the wider confusion. This ‘silVAR bullet’ was set to revolutionise the game as we knew it.
But way back when this, now elongated, football season began, there were some early signs that all was not as promised. It started with confusion. Initially this was put down to teething problems in adapting to both the new technologies and processes, but as the season progressed, the objections grew. Now, as the season is finally drawing to a close, you won’t find many football fans that will disagree with you when you say that VAR’s implementation has been nothing short of an unmitigated disaster. The system’s application has been the subject of scrutiny even amongst those who were broadly in favour of its deployment. In short, verdicts are taking much longer to arrive at, and justifications are not always clear or indeed visible to those in the stadium. Referees are clearly not yet comfortable with the system and ultimately decisions are still being made remotely by a human, and therefore still prone to error, albeit to a lesser degree. Most supporters, and those invested in the game, simply want match officials to be assisted in reaching the correct decisions – and not to take all day about it. VAR struggles in both regards and too often fails in the first. For all the investment and all the ceremony, the decisions are largely still reliant on human interpretation – and the technology has seemingly hindered as much as it has helped.
Am I reading the right magazine? If you’re not a fan of sporting analogies that are stretched well beyond recognition, you may want to stop reading here – but I would encourage you to stick with me; for there are some interesting parallels that are worth exploring. Here in the lending community we are all familiar with drives for technological aids and new platforms to help make decisions faster, with greater accuracy whilst providing a better experience for both broker and client. Similar
trials, akin to the first VAR World Cup, have been launched by some well-intentioned lenders and technology platforms, but they would do well to learn from the FA’s mistakes. The lenders (in this case the FA) are keen to ensure that processes are kept efficient and reputations remain intact. Funders are putting pressure on the brokers (the referee) to adapt to new technologies and this can sometimes have the knock-on effect of undermining their experience, skills and knowledge. Furthermore, with one platform yet to emerge above all others, brokers are forced down a route of maintaining logins to various portals with varying requirements just to upload the basic client information. This is not so resource intensive if you’re a bigger (or Premier League) Member, but for the NACFB’s sole trader Members this time and resource is arguably more valuable.
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Similar trials to the first VAR World Cup have been launched by some well-intentioned lenders, but they’d do well to learn from the FA’s mistakes
NACFB | 25
Finally, you have the client (the fans) and this is where experience really matters. If there’s one thing we can takeaway from the lockdown games, it’s just how vital fans are to the game. It’s a little like ‘bad toupée syndrome’, in that a great wig would never look like a wig, but we’ve all seen incredibly bad ones in our time. That’s how technology should feel in the lifecycle of a commercial deal, it should be seamless and largely unnoticed. VAR’s well-intentioned introduction forgot about the crucial element of experience. Even the most sophisticated algorithm is very unlikely to be able to account for the myriad factors that are considered when making a commercial underwriting decision, and the broker’s knowledge and insight at this stage remains critical. Being able to communicate clearly to a client why a request has been turned down is best done through a human, rather than an auto-generated email of a simple rejection note on a platform. Brokers do not want their clients to be left confused, unsure of what verdict has been arrived at and why or experience lengthy delays before a decision is made. The broker can help both reduce and negate this. If we tip the balance too far away from the adviser, we enter a netherworld that makes nobody’s boat go faster.
Where can technology aid the process? There are though some sports where technology has aided both the accuracy of decisions and the fan experience for the better. Take tennis and cricket. Here, the Hawk-Eye advances have generally been warmly received. Perhaps the closest direct comparison to football’s VAR, is rugby’s introduction of the television match official (TMO). At the risk of contorting this analogy yet further, I see rugby’s use of technology as more comparable to the residential mortgage market; in that it already exists in a well-regulated environment. Football, like commercial lending, can require subtler interpretations and, dare I say it, the financial stakes are often even higher. The challenge, and it is critical more than ever in a post-COVID world, will be to embrace the technological solutions that complement the existing processes. Much like the footballing offside decisions that rest upon a millimetre of a player’s shoulder, automated underwriting processes that do not consider the full complexities of a business and it’s cashflow will likely be a recipe for disaster. 26 | NACFB
Harmonising two cultures Okay, let’s talk more clearly now, and step outside of the sports arena. Simply put, technology has its place in the intermediary-led commercial market, there are parts of the process that can no doubt be aided through technology, be it document collection, background checking or regulatory reporting, but there must always be a space for the trusted broker adviser. The broker community should not be seen a luddite one though. Far from it. We are seeing many of our Members make huge technological strides, through a variety of apps, back office software and online lending aggregators. Progress will always have a large impact on the relationship between the client and intermediary. But brokers remain resilient and adaptable, and, backed by a forward-thinking and independent trade body like the NACFB, our Members will continue to provide their clients with the choice, the advice, and the expertise through whatever available avenue. As a trade body we always want to see greater lender and broker collaboration, it’s one of our core remits. Just like how it’s in no one’s interest to see an on-field referee undermined and lose control of an outcome, brokers should remain central to the development and implementation of new technological advances.
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It’s a little like ‘bad toupée syndrome’, in that a great wig would never look like a wig, but we’ve all seen incredibly bad ones in our time. That’s how technology should feel in the lifecycle of a commercial deal
Special Feature
Cometh the hour Stepping-up for your clients will help see them through
Chirag Shah Chief Executive Officer Nucleus Commercial Finance
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uring a crisis like the one we currently find ourselves in, change suddenly becomes a non-negotiable part of everyday life and helping to protect your clients from the implications that arise is and has always been our top consideration. According to data from Startups, more than 85% of small businesses are worried about their operations during COVID-19, and the vast majority of companies have two main concerns right now… how to survive the present and how to best prepare for the future.
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Sticking to the status quo will not help your client during this tumultuous situation, so consider alternative lenders alongside the banks, rather than just as an afterthought
Listen when no one else will Most SMEs find themselves in limbo, with no clear guidance about when the lockdown will end or when normality will resume. The here and now demands they make tough decisions about addressing their furlough situation, and for some, potentially making unwanted but forced redundancies. Worrying about what their business will look like post-lockdown is the main concern for your clients, so helping to alleviate the challenges they may face once restrictions are lifted is the best way to support them in the current economic climate. For those of us offering financial services to businesses, we need to communicate effectively with our customers – and often. We must listen, understand their problems, and identify viable solutions for what the business picture will look like once the lockdown is fully lifted. 28 | NACFB
Cast a wider net to pinpoint every opportunity Cash flow will be a point of contention for almost all of your clients, as recent data found that over a third of businesses are concerned about their day-to-day cash flow, and a further 47% are worried about a drop in sales. But not all funding was made equal… Working with lenders that offer multiple products will help provide the exact type of finance your clients need, as bespoke funding tailored precisely to their business needs means you can help tick every box.
It is important to allow enough time to get funding in place, so apply for both CBILS loans and non-CBILS loans simultaneously to reduce delays in accessing desperately needed funds. Sticking to the status quo will not help your client during this tumultuous situation, so consider alternative lenders alongside the banks, rather than just as an afterthought.
Using technology to combat the virus Innovation through technology has played and will continue to play a massive role in the success of businesses, which means that both your business and clients need to invest to avoid being left behind. With the majority of businesses having to adjust to fully remote working, it is likely that organisations have already started to adopt additional digital processes. Technology has proven to be key for lenders, with true fintechs finding the transition a lot smoother than their less technologically advanced counterparts. At Nucleus, we comfortably adapted to working from home, and this is undoubtedly due to the focus we have put on becoming a real fintech player in recent years. The role of technology is almost unfathomable at a time like this, but what we can be sure about is that businesses armed with the right technology stand a much better chance at survival emerging from this pandemic. Time is of the essence right now, and the ability to find and secure finance at speed for your clients is imperative during such a turbulent period. Open Banking is a fundamental part of business lending right now, and both lenders and brokers should embrace this process as it enables far quicker decisions. Additionally, digital documents should be implemented wherever possible as that is a crucial requirement during times like these.
be at the forefront of every broker’s mind, and despite the lockdown rules, due diligence must still be performed. Nucleus is among the many lenders who already use e-KYC, and the process takes minutes to complete. No one was truly prepared for such an economic downturn in 2020, but with the right resources and finance in place, businesses are likely to face a more optimistic future.
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The role of technology is almost unfathomable at a time like this, but what we can be sure about is that businesses armed with the right technology stand a much better chance at survival emerging from this pandemic
KYC screening is a critical step in the lending process for brokers and lenders alike. Regulation compliance and preventing fraud should NACFB | 29
Special Feature
After the maelstrom The crisis and the lasting impacts for non-bank lenders Marc Bajer Chief Executive Officer Hadrian's Wall Capital
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hen the torrent came upon us, I had already just weathered, what now seems by comparison, a dripping tap. I have always fancied myself rather hardened by my experiences over the last 42 years. But it has taken quite a number of crises before I realised just how resilient I was. Indeed, how resilient we all are. My father used to tell me, ‘Don’t panic just yet kiddo. I’ll tell you when.’ Well, he never did. In this article I will share some observations and provide some remarks on the challenges facing non-bank lenders (NBLs). I will also suggest possible approaches which may prove helpful in our joint effort to persevere and then thrive in the post COVID-19 world.
A sustainable model? We’ve been lending to NBLs for quite a while now and we’ve always thought of our clients, and others we consider financeable, as an elemental feature of the vibrant and robust SME lending industry in the UK. But that conclusion has always relied upon the presence of three pillars: a sustainable and survivable financing structure, a disciplined credit-underwriting and operational lending infrastructure and, most importantly, some true believers running the joint. The second and third of these are aspects which we, as decision makers, can more or less, directly influence. The first is more of a conundrum. Pay less and live for today or pay more and live to fight another day. I know that my long-suffering clients have had to put up with my endless harping on this particular point – so you guys can look away now. It is at this very moment, however, when the NBLs are in it, quite 30 | NACFB
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It is at this very moment, however, when the NBLs are in it, quite frankly up-to-theirnecks, that they must all decide what they are going to do next with their still evolving, yet very well built, machines
frankly up-to-their-necks, that they must all decide what they are going to do next with their still evolving, yet very well built, machines. I know that we are all doing what needs doing every single day; and it is a real slog. However, I think we may also, all of us, agree that the real challenges still lie ahead of us, after the storm has passed. There are a number of the current conditions at play, and there is much to divine from them. NBL equity, already scarce, is becoming more so, as value has been eroded due to this period of acute systemic distress. Simultaneously, wholesale senior debt funding has also become constricted. Add to this that many NBLs have struggled to obtain broad recognition and reinforcement from the government (although slow progress is being made) for their key role in restarting the UK economy. How to respond to these arduous structural conditions will be no easy task. New sources of senior debt funding with survivability features will be required and these will cost more. More equity,
or hybrid equity, will need to be procured and these equity sources must have their interests aligned with those of the senior management teams. The possibility of combinations and acquisitions will now need to be attentively considered. These strategies may need to be reinforced with modifications to lending and servicing criteria, operational and staffing requirements, and newly enhanced business interruption planning. Current conditions should be viewed as an opportunity to improve market positioning, operational capabilities, and financing structure.
Compounding factors But that’s not the whole picture. We also have the status of the mainstream lending banks who, although having the appearance of increasing lending to SMEs, may simply be benefitting from (as I would) risk-diminished or risk-free government programmes. Moreover, the banks, although subject to substantial credit distress in existing loan books, are also able to partially offset this distress via a substantially reduced cost of funds and indirectly, lower capital charges, via government sponsored lending schemes. Further, they will now be rightly contemplating the adjustment of their risk criteria and lending appetites for SMEs and NBLs to account for the short to intermediate-term consequences of credit performance arising from the current troubles. Therefore, we could reasonably suppose that the terms and conditions on offer from banks for wholesale NBL funding, including duration, callability, rate variability and covenants may become more stringent, as a rule, in a post-COVID world. As an NBL, I would not necessarily expect, nor would I plan for a return to pre-pandemic banking arrangements as the effect of the crisis is likely to have been hardwired into new internal banking procedures meant to deal either with imminent or possibly, future associated risks. All of this is likely to introduce, directly or indirectly, an uncertain and conceivably more competitive climate for NBLs where the SME risk/reward dynamic may shift, resulting in alterations to both the available configuration of credit opportunities and the power to price such credits.
In addition, institutional investors, who have been stepping into the lending market for quite a while, had already been winged by the evolution of market conditions over the last 18-months before our current predicament. These have now been piled upon by the current crisis. Add to this the inevitable missteps which will naturally occur in the early stages of a direct lending, or any new investment strategy and you have a problematic institutional investor decision-making framework. Now in my experience such wounds are by no means fatal, but they hurt. Nevertheless, they might produce an interruption in strategic institutional investing behaviour at the very moment when a reset, such as this, should prompt the contemplation of longer-term SME and other direct lending strategies.
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Institutional investors, who have been stepping into the lending market for quite a while, had already been winged by the evolution of market conditions over the last 18-months before our current predicament
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Institutional investor confidence There can be little doubt that without the full involvement of the institutional investor community, it will be difficult for NBLs to produce the timely and durable deployment of the financial resources which will be required in order to move the economic needle and return to calmer conditions. As a consequence it will be necessary for the NBL and corporate finance intermediary community to build a clear, transparent and ongoing flow of SME credit performance, market penetration and industry evolution data in order to win and then retain the confidence of institutional investors in, what is for them, a still relatively new investment proposition. Then we must consider lending metrics across industry groups, sectors, and geographies. We may all safely assume that initial recovery and performance improvement from today’s level of macro distress will occur at irregular rates and magnitudes among these classifications. This dynamic will produce a formidable challenge for NBLs who, while seeking to provide funding for those sorely in need, must also contemplate the effect of credit decision-making on their own performance, or even survivability. The resulting client triage will come at a heavy cost to certain borrower categories, but there is no avoiding it. I should also mention again the position of current government support models, but in this case, their direct relevance to the NBL industry. I believe these programmes have likely achieved, what was always going to be, their limited objective. But we must continue the effort to convey to the government the growing importance of the NBL industry in the SME financing value chain so that, going forward, NBL’s form a core component, not only of national policy, but of specific industry remedies. We must not, however, place undue or strategic business reliance on such government measures but only insure our seamless access to them in time of need.
Market durability Further, and as I have written previously, we live in a country that 32 | NACFB
has, unlike many others, a highly developed, specialised and widely dispersed NBL and corporate finance intermediary infrastructure. This is a singular advantage when trying to rebound from our current difficulties and I have already observed that the pipeline of NBL inquiry still appears to be outstripping the supply of funding available to them. And all this while NBLs, as a group, appear to be demonstrating acceptable relative performance and, I have remarked, a cool intrepidity under fire. Finally, it is of the utmost importance that NBLs assess their strategic objectives fully with due consideration given to the importance of commercial durability, balance sheet stability and the measured pursuit of long-term success. Arising from such assessments, NBL decision-making regarding partnership choices, balance sheet structuring options, product criteria and pricing, corporate finance activities and strategic market positioning, must carefully note that existential threats are never expected but always seem to materialise, are not easily measured but always carry enormous cost and, as always, arise in limitless variety.
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We live in a country that has, unlike many others, a highly developed, specialised and widely dispersed NBL and corporate finance intermediary infrastructure
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Special Feature
Widening a broker’s scope COVID could see brokers expand their panel of property development funders Lyndon Miles Lending Director CapitalRise
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OVID-19 has presented an unexpected opportunity for alternative investment providers. Empowered by resourceful and experienced brokers, we are able to fulfil a clear finance gap left by traditional lenders who have hit the pause button during this period of uncertainty. As a specialist lender to prime property developers in London and the South East we regularly work with brokers across the space that connect us with their network of experienced developers. For some brokers, the pandemic has pushed them to widen their scope to include a new type of lender. Long before the coronavirus crisis, the dynamic between lender and broker was changing anyway. Since the 2008 financial crash, many banks have withdrawn from property lending, reduced leverage or made requirements to secure loans more troublesome. As a result of this, a number of alternative (non-bank) property lenders have emerged. While, previously, borrowers may have had only one or a few sources of funding, there are now numerous ones, each offering a plethora of different funding options. With this wide range, it is the job of the broker to look beyond traditional sources to get the best deal for the borrower. As we service a very particular area of lending, the prime property market, often our role can be to guide brokers on the nuances – including the risks, opportunities – distinctive in this space. While remaining an aspirational and fruitful market, the prime market is specialised and requires highly specialised knowledge. It is not an easy market to just jump into. The time and effort required to fully understand this market is considerable, relative to the rewards available of course. There are unlikely to be brokers specifically catering for prime, however this space is unique, a niche within an already niche market you could say, which means 34 | NACFB
it presents unique benefits and we’re proud to work with brokers who do the leg work and understand this sector. A key change has been the pandemic’s impact on credit criteria. Leverage has been reduced and pricing has increased, overall, it has become more difficult to get lenders to lend. The only expectation in the changing situation is more changes. In recent weeks, some LTVs are increasing to pre-lockdown levels and some lenders that had fallen over and withdrawn have returned to market. Time to closing is looking to reduce after it increased with the impossibility of site visits, another recent development. The broker is playing a crucial role of navigating these circumstances on behalf of the perhaps concerned borrower. COVID-19 has changed the dynamic between lenders and brokers. This situation has been unpredictable, and many lenders were not prepared to adapt and exercised exaggerated caution. Committed lenders have even pulled out of deals at the eleventh hour, which has left brokers scrambling for effective solutions. With fewer lenders, and some of those that do remain demonstrating a reduced appetite, brokers have had to approach lenders they may have previously overlooked. For us, and other alternate finance providers, this is good news as we build new business relationships.
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Committed lenders have even pulled out of deals at the eleventh hour, which has left brokers scrambling for effective solutions
HELPING MID-SIZED BUSINESSES RISE TO THE CHALLENGE
CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME CBILS loans from £1m-£5m Now open to new borrowers
As one of the first non-bank lenders approved by the British Business Bank to provide term loans through CBILS, we are opening the scheme to new borrowers. Mid-sized businesses impacted by coronavirus can now benefit from our bespoke funding solutions including government payment of the first 12 months’ interest plus legal and lender fees.
Funding for: • Working capital • Investment • Growth capital • Refinancing existing loans • Acquisitions (exc MBOs, MBIs) Find out more at thincats.com/businesses/cbils
Helping the mid-sized thrive The Coronavirus Business Interruption Loan Scheme (CBILS) is managed by the British Business Bank on behalf of, and with the financial backing of the Secretary of State for Business, Energy and Industrial Strategy (BEIS). Borrowers remain fully liable for the debt. Full details on CBILS and the list of participating CBILS lenders can be found at www. british-business-bank.co.uk. ThinCats is a trading name of the ThinCats Group, c/o ESF Capital Limited (Registered in England and Wales No. 09707863) 2nd Floor, Newlands House, 40 Berners Street, London W1T 3NA.
Special Feature
The glass is half full The COVID crisis has driven greater efficiencies and outcomes
Ric Simmons Sales Director Praetura Asset Finance
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ithout doubt, the last few months have been unlike anything that any of us have experienced before. There have been challenges and a necessity for a whole host of changes to be made. But there is a lot we can learn from these experiences. Many of the changes we have had to make will form the foundations to how the asset finance industry evolves. At Praetura, along with everyone else, we had to adapt to a new way of working very quickly when we closed our office doors back in March. We were fortunate to have previously invested heavily in our systems and technology, so the transition to all our staff working from home was a relatively smooth one. But other challenges presented themselves, with a raft of payment holiday requests and team members needing to be seconded from other departments to help these be processed. Not just where we work, but the whole ethos of how we operate has had to change too. Amends to credit policies were made swiftly so that we could accept virtual assets inspections, documents could be witnessed on video calls and scanned versions of agreements became the new norm. Fortunately, we have never had to walk away from a deal because of the government enforced restrictions, we have always found a way.
Consultancy is key Praetura was founded on the principles of a flexible client-focussed approach to lending. As a way of working, for the asset finance industry as a whole, this is going to become more prevalent as we move forward. We already know that no two businesses are the same. But also, no two businesses have been affected by the coronavirus pandemic in the same way. There have been different issues to face and obstacles to overcome for each individual company. Our industry’s approach to lending must reflect that. We must also take the time to understand the situation of each client, looking at the ‘whole picture’ and not just an individual immediate requirement. It is on this that our decisions should be based.
Rebuild with refinance I have no doubt in my mind that asset refinance will become a more widely used funding tool over the coming months. In recent years we have seen the popularity of these facilities increase and I would fully expect that to continue. We might see an increased nervousness around the unsecured loan market as a way of providing an immediate
injection of working capital into a business. Asset refinance is a way to make this happen with much less risk attached to it.
An efficiency evolution? Many of the changes we had to make quickly at the beginning of this, will stay with us. This will help make our industry more flexible and more customer-focussed than ever before. We are going to be more efficient with our time. We are going to take advantage of the range of options that technology makes possible; there will be less face-to-face meetings, but more video conference calls, we may continue to use virtual asset inspections as an option available to us and video recorded witnessing of documents too. This area of our industry will continue to adapt and develop as time moves on.
Relationships matter The role of a broker for an increased number of SMEs will take on a much greater significance. The importance of the role of intermediary advice will become more necessary and more widely used, to ensure SMEs are fully aware of the range of finance options that are available to them. There may be a need for some advisers to diversify into different sectors and increase the range of services they can offer their clients. If help and assistance is needed to find out more about hard asset funding, refinance or the benefits of working in partnership with a consultant lender, the team at Praetura Asset Finance are a resource I would want to actively encourage you to use. I am convinced that the asset finance industry will emerge from this stronger than ever before. We will adapt, we will move on and we will grow – both in terms of the support that we are able to offer SMEs and the funding we are able to provide.
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Many of the changes we had to make quickly at the beginning of this, will stay with us. This will help make our industry more flexible and more customer-focussed than ever before
NACFB | 37
Industry Insight
Walk a mile in your client’s shoes Lenders and brokers can march together alongside SMEs Martine Catton Chief Executive Officer Catalyst Business Finance
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keep hearing and reading the phrase ‘we are living in unprecedented times’ and of course this is in relation to how COVID-19 is having an undeniably huge impact on our lives. By now, it is clear that this virus isn’t going away anytime soon and, like me, I’m sure you are closely following the news tracking the race to find a vaccine and of course the threat of a second wave. COVID’s impact on the economy is undeniable too, with figures showing it shrank by over a fifth in April – the largest monthly contraction on record. But the government has responded to the coronavirus crisis swiftly, by introducing various state-guaranteed loan schemes such as CBILS and BBLS along with the much-heralded furloughed scheme. However, these are recognised as hugely expensive short-term fixes and the focus is rapidly shifting to how the economy is going to recover. SMEs are going to play a major role in this recovery. I believe brokers, and NACFB Members in particular, have a hugely important role to play in supporting them by ensuring they have access to the right financial solutions. Just put yourself in the shoes of a typical UK SME. They may well have had access to the government-backed loans that will have helped them deal with a major loss of income. They are now faced with reopening and introducing all the necessary safeguards for staff and customers. In many cases they will have no option but to 38 | NACFB
change their business model and invest in the machinery and infrastructure needed. Every single business will be facing different challenges and the last thing they will need is what I call a ‘quick fix’ solution as businesses will be highly leveraged and cash will be king. This is where I believe commercial finance brokers can really add value by: •
Taking the time to really understand the issues a client is facing; how new funding arrangements are going to work alongside existing commitments and assist in establishing plans for rebuilding/transforming their business;
• Thinking more creatively and having a clear understanding of the facilities available to clients, linking the right asset to the right funding, and providing whole solutions. To achieve this there needs to be a closer and more dynamic relationship with lenders who are set-up to have real conversations with clients. Such conversations are designed to help fully understand a whole range of issues such as: true working capital requirements, order to invoice cycle, cashflow shortfalls and getting to the heart of business plans and challenges. This cannot be achieved through simply filling in an online finance application form for your client. Post-COVID financing will become much more complicated for SMEs and the only way to put all the pieces of the jigsaw together, so you deliver the best solution, will be three way conversations between clients, brokers and lenders. There will inevitably be a significant increase in insolvencies due to
the level of debt taken during the pandemic and here I see brokers acting like a GP; bringing in the specialists to help businesses that have been badly affected by the crisis but have found a way to survive. I am a glass half full type of person and I can see a golden opportunity for brokers to work hand-in-hand with lenders in a much changed and more challenging world. I am extremely optimistic about what I am describing as a far closer and more dynamic relationship between brokers and lenders. My optimism is based upon mutual trust, respect, and a shared passion for providing clients with long-term solutions that will enable them to help drive the post COVID-19 recovery.
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To achieve this there needs to be a closer and more dynamic relationship with lenders who are set-up to have real conversations with clients
A bank of knowledge not simply a bank of money Our support for your broker business goes beyond finance. We can connect you with the right people, with the right knowledge, to boost your clients’ businesses and help them grow. Search: NatWest Brokers
NACFB | 39
Industry Insight
Redefining the art of valuation How COVID is rapidly accelerating valuation progress Stene Jacobs Operations Director Peritus Corporate Finance
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ver the last four months we have all experienced extraordinary changes in how we operate commercially, not only in the real estate sector but in most other industries due to the effects of the worldwide coronavirus and a subsequent lockdown in the UK in mid-March. Real estate development is a very collaborative process which relies heavily on specialist advice by a wide cross-section of professionals in the sector. Valuers in this market are crucially important to lenders as these red book valuations are crucial to the underwriting procedure. By mid-March most surveyors had stopped doing physical inspections and were therefore unable to complete detailed valuations for lenders and developers. Along with this, valuers guided by RICS were encouraged to insert ‘material valuation uncertainty’ clauses which resulted in a lot of lenders pulling out of the market – especially in certain key asset classes. To mitigate a drop in potential GDV the lenders that remained, reviewed – and in most cases lowered the leverage they were prepared to lend on, and generally across the board pricing remained similar to previously higher leveraged loans. This period resulted in closer collaboration across all professions, and in my personal experience, the industry has adapted well to overcome these problems encountered at the outset of the virus. There will always be a role for physical inspections on more complex developments by valuation surveyors, but on the less complex residential schemes automated valuation models have been put to good use and accepted broadly by most lenders considering the environment we find ourselves in. Embracing technology was also more prevalent over this period with some valuers using drones to do site inspections, and there was greater reliance on big data 40 | NACFB
through proprietary technology platforms and the use of AI in algorithms for additional support. In many senses we were already heading this way in 2017 when Savills produced the ‘Future of Valuations’. Here they earmarked the role of technology with a heavy emphasis on AVMs and technology platforms aiding the process of aggregating quality data from multiple sources. This was further reinforced in February 2019, by Newmark Knight Frank’s ‘How technology is redefining the art and science of valuation’ where they go into detail on how technology will reshape our industry. The main point is that this was the direction of travel anyway. Some schemes were definitely put on hold where this technology fell short, but for the most part transactions were still being concluded albeit at lower volumes. One positive about the last four months is that everyone was forced to adapt to working from home and relying on all this technology in our ‘new normal’ at the same time. This wholesale uptake would have taken years to reach the same level of absorption into our daily lives on a personal and commercial level if not for COVID-19 and the lockdown. I do not want to gloss over the hardships and challenges experienced over this time, but looking back we have to acknowledge and be thankful for the positive changes which we’ve gained in 2020. Let’s face it, we need to bank the positives we can now more than ever.
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To mitigate a drop in potential GDV the lenders that remained, reviewed – and in most cases lowered the leverage they were prepared to lend on
Not the end, nor the beginning of the end. In our 60 years of pioneering Asset Based Lending we’ve seen our share of ups and downs. As we all move to unlock we are still here and ready to help you and your clients come back stronger. Let’s talk: 0208 572 7474
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Industry Insight
Progress born from adversity Lenders, brokers and SMEs are showing their mettle Tim Boag Group Managing Director, Business Finance Aldermore
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he COVID-19 pandemic has forced businesses across the UK to face into an environment with uniquely challenging conditions. Never in living memory have business owners had to adhere to government advice recommending employees keep two metres apart and work from home where possible. Unfortunately the nature of this situation means that many small to medium-sized enterprises (SMEs) are now facing serious threats to their future. Our focus at Aldermore is to continue to do everything we can to back the UK SME economy through this hugely testing period. We have looked to examine the effects COVID-19 is having on SMEs, in particular, analysing the outlook and resilience of businesses. Aldermore’s research shows that the average SME has lost a third (34%) of its income as a result of the pandemic. One in ten SMEs (11%) believe their business will suffer long-term damage or even closure, if conditions do not return to normal within the next five months. While much of our research makes for gloomy reading, there are glimmers of light. For example, our research highlights how many SMEs have swiftly adapted to these difficult trading conditions and are now navigating these turbulent times. 72% of SMEs 42 | NACFB
surveyed have taken steps to reduce costs as part of their business plan. Cutting costs could involve strategies such as utilising the government’s financial support for businesses, or reducing operational costs and discretionary spending. Although these are the most difficult times for many, it has been truly inspiring to see examples of businesses finding innovative ways to support the national effort during this crisis, but also looking to increase revenue during the pandemic. Some of the more innovative ways SMEs have done this include shifting more business online and investing in new technology to operate remotely. Two out of five (39%) SMEs state they have adjusted their business plans to reflect the ‘new normal’, with some SMEs even pivoting to an entirely new market in an effort to drive business.
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One in ten SMEs (11%) believe their business will suffer long-term damage or even closure, if conditions do not return to normal within the next five months
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Two out of five (39%) SMEs state they have adjusted their business plans to reflect the ‘new normal’, with some SMEs even pivoting to an entirely new market in an effort to drive business
One of our invoice finance clients, Didsbury Gin, halted gin production and started making hand sanitiser on a mass scale for the Greater Manchester Police and the NHS. Another invoice finance client Mauveworx, a family-run marketing materials manufacturer based in Dorset, mobilised their resources to produce urgently needed PPE, to support the NHS in their fight against COVID-19. These stories epitomise the entrepreneurial spirit and innovative thinking that we are proud to champion at Aldermore. During these extraordinary times, it’s encouraging to see such resilience and creativity from SMEs. At Aldermore, we are utterly focussed on ensuring colleagues, brokers and SME customers have the backing they need during this crisis. We are constantly looking at new ways or areas where we can help. Aldermore offers both the asset finance and invoice finance variant of the Coronavirus Business Interruption Loan Scheme
(CBILS). By training a large number of our intermediary partners on the intricacies of our CBILS offering, we have managed to support more businesses with the assets they need. Alongside CBILS, in asset finance we fast tracked the launch of our online broker portal, Asset Backer, to all our intermediaries. The new portal provides a paperless end-to-end process, with electronic proposals, documents and signatures, enabling intermediaries to comply with social distancing measures without hindering business. As a bank born out of the last financial crisis, we know the road ahead will be a difficult one. Businesses across the country have shown tremendous perseverance throughout this crisis and Aldermore will continue to support them with additional funding and services wherever needed.
NACFB | 43
Broker Voice
Future proofing the role of the broker Yes, the market is changing, but we are an adaptable bunch
Nick Ray Director Claratus Commercial Finance
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he advance of technology raises questions as to what the role of the broker is, presents opportunities to us, but also threatens our existence.
Are we just a function of lenders wanting low cost origination and businesses struggling to be serviced by mainstream funding options? Or are we a vital service, adding value, reviewing information, and ensuring lenders only receive proposals which are likely to meet their lending criteria and allowing businesses to access the most suitable funding? We believe those brokers without any distinct specialisms will struggle against lenders (in part supported by the Capability & Innovation Fund) leveraging technology to lower costs of winning new business, by reducing the cost of generating opportunities and time/cost to underwrite facilities. Why would customers who are able to directly access lenders choose to use brokers if they only add cost? If technology is the key to the future of the broker, then the industry could become akin to the consumer insurance market, where commoditised mainstream business is written through comparison sites. Brokers need to evaluate their USPs and seek to protect and enhance these. As more information and options become available, it becomes harder to collate and assimilate, leaving an opportunity for service-focussed introducers to take the role of trusted advisers. In our personal lives we are all familiar with the use of the internet to search for options comparing cars, technology, holidays, financial products, appliances etc., but as our lives evolve time becomes more precious. The greater pressures for our customers, with running a business and juggling family time, mean the value of advice to quickly find the ‘best’ option becomes much more important. One of the key values of a good broker must be saving clients that most precious thing of all: their time. The increased number of providers and products that have evolved since the financial crisis and their associated nuances in relation to lender’s risk appetite, rates, terms, commission etc. creates a real opportunity for the enthusiastic introducer. At Claratus we took the chance to move away from the ‘we have a product to sell, let’s find some clients’ approach to the solution approach: ‘what does our client want, how can we provide it?’ Our belief is this gives us the chance to build real relationships with clients and for us is a more satisfying model than sticking to one product and moving on to the next new client. As has been written before in these pages, the broker is increasingly replacing the role that a good bank manager would have fulfilled in the past. We believe it is imperative to research and understand all options available to our customers, running
a complex matrix of all lending options to make sure the customer gets the right product for their business. We therefore envisage a split of the market, where tech-savvy business with more standard requirements will go to one of a few larger players, whereas those with specialist requirements will still seek and require the services of a traditional broker, who will meet, collate detailed information, understand their business and even challenge them as to what type of finance is the best fit. At Claratus, we choose to remain in the traditional broker camp, but see technology as a means to enable us to improve customer service. E-sign documents, quotes, process automations, web forms integrating with our CRM system are all areas we use or plan to in future, but the focus isn’t to become a low touch offering, it’s to free up our resource to spend more time building deeper relationships with our customers and lending panel. With the number of lending offerings high, so increases the need for brokers to analyse and review their business to see where profits are made and where efforts should be focussed. From a regulatory perspective, it’s only going to become more important to demonstrate the option offered was the best fit for the client and the logic for selecting one product/lender over another was sound. The final opportunity we see for the industry is the most technologically savvy brokers running funding marketplaces, where brokers package fully for their clients, using a mix of credit data, open banking and financials, with some qualitative information. Lenders could then compete to offer the funding at the lowest cost, with the broker remunerated either on a fixed fee or percentage saving versus a baseline cost. In summary, future proofing the role of the broker will take two approaches: one of using technology to automate the customer journey and the other using technology behind the scenes to allow resources to be used to offer exceptional customer service and a personal approach. At Claratus, we’re clear it will be the latter.
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One of the key values of a good broker must be saving clients that most precious thing of all: their time
NACFB | 45
Opinion
Be an asset to the sector Now is the right time for new asset finance brokerages to break through ​​Julian Rose Director Asset Finance Policy
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or what, on paper, appears to be only a small part of the asset finance market, the broker channel attracts much attention. In this article, I explore why brokers are more important than they might first appear, and why the health and vitality of the sector is so important to the leasing industry’s future as we move out of the coronavirus crisis.
How important are brokers? According to FLA statistics, brokers generate around 20% of total new asset finance business. One reason this sector matters so much is that at least a third of the largest lessors, according to the Asset Finance 50 ranking survey, rely on the broker channel for most of their origination. This includes independents and smaller banks alike. However, the 20% figure only tells part of the story. Around 57% of the overall market is leasing to small and medium-sized businesses, which is where brokers predominantly operate. This would suggest that the broker channel accounts for around 35% of SME asset finance by value and given the smaller deal size compared to direct business, closer to 50% of all SME leasing transactions.
Who are the brokers? Since I launched Asset Finance Policy, I have aimed to maintain 46 | NACFB
the only comprehensive list of UK asset finance brokers. In 2014, I identified around 500 broking firms (firms, not individual brokers) that specialised in asset finance, together with around 100 general commercial finance brokers that appeared to have particular asset finance expertise. (I do not include all brokers, for example I exclude firms operating without websites or individuals acting as agents or appointed representatives of other brokers, but most other firms are included). That number has dropped over the past six years. My latest broker directory lists around 450 firms of which around 350 are dedicated to asset finance. That is a fall from around 500 to 350 specialist asset finance broking firms in six years, a net attrition rate of around 25 firms per year. To some extent, this is to be expected due to the demographics. Many brokers are former senior regional banking professionals who left the banks 15 to 20 years ago. Inevitably some of these highly experienced professionals have retired. Yet seeing the numbers of brokers fall is disappointing on several grounds. First and foremost, because asset finance brokers have such a vital role to play in supporting small businesses, offering face-to-face local support that is so lacking elsewhere in the financial services industry. Second, despite some high-profile exceptions where some of the largest brokers were able to sell their firms, typically with lengthy earnout periods for the key individuals, most brokers retire unable to pass on their businesses. There are not many professions where it is quite this difficult to pass on a well-established business. Third, it is unfortunate that some brokers appear to have decided that FCA regulation is too much bother. Despite the bureaucracy,
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Asset finance brokers have such a vital role to play in supporting small businesses, offering face-to-face local support that is so lacking elsewhere in the financial services industry
most independent brokers find that the FCA regulation is not too time-consuming and delivers some benefits too. Being FCA authorised should be business as normal for asset finance brokers.
What’s happening now? This crisis has been tough on brokers, with firms working incredibly hard to support their existing clients with little prospect of earning commissions for some time. There remains substantial uncertainty, although brokers’ resilience and dedication will help to see firms through the crisis. There are though, some positive signs: • Despite the overall fall in numbers, new broking firms are being formed, often by experienced people from asset finance lenders; • Many brokers have successfully diversified, offering a wider range of SME finance options, whilst retaining their asset finance roots; •
It’s early days, but lenders will be comparing their loss rates for broker-introduced business with vendor and direct channels. This is when the strong knowledge brokers have of their clients may really prove its worth.
And the future? The broker channel is even more important than the headline numbers suggest. Its ongoing health and vitality are critical to the leasing industry’s future. So, it is concerning that numbers of broking firms are steadily falling, and this seems set to continue without a concerted industry effort.
as an employee, agent, or appointed representative, but they would struggle to set up a new independent broking business. The question is, does it have to be that way? Are the barriers to entry logical and necessary? Should it be easier for brokers looking to retire to sell their firms? Does the current situation serve the best interests of SMEs that are likely to need brokers’ support in the recovery? With the prospects of there being highly experienced finance professionals leaving banks and other finance companies, now might be the right time to consider how to attract new brokers to the asset finance industry.
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It is concerning that numbers of broking firms are steadily falling, and this seems set to continue without a concerted industry effort
At present, it is tough for an individual from outside of the asset finance world to set up as a broker. They might join an existing firm NACFB | 47
Opinion
Looking after you Maintaining your wellbeing beyond lockdown Kathy Noble Wellbeing Services Manager North Kent Mind
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oronavirus has affected every aspect of our lives and the constant news about the pandemic can feel never ending. This is not only impacting our physical health but also taking its toll on our mental health too. The threat of this virus alone is scary enough, and many people are also facing stressful life challenges. Social distancing and self-isolating has meant avoiding seeing friends and family and many people are worried about vulnerable loved ones. There are many ways in which one can take action to maintain good mental health through this challenging time. So, we have compiled a checklist of productive things you can do.
Take care of yourself It is easy to slip into ‘lazy’ habits but looking after yourself is essential for your wellbeing. Even simple tasks such as washing your face can be difficult sometimes, but they can make a big difference to the way you feel. It is easy not to bother when you do not feel like it but make that effort and you will feel better that you did. Make sure you have enough food and supplies in, and have food delivered if you need to self-isolate. Drink water regularly, try to eat regular meals and keep a balanced diet. Get enough sleep and make sure you get fresh air – even sitting by an open window or in your garden can give you a boost.
Keep moving Getting moving can be difficult when you feel low or anxious, but it can significantly boost your mood. 48 | NACFB
If you are able, exercising at home can be simple and there are options available for most ages and abilities, including yoga videos or cardio workouts. Consider physical activity you can do indoors, like cleaning your home, going up and down the stairs, using bean tins as weights, or exercises you can do in your chair. There are many online exercise videos which you can follow. Have a ‘dance-off’ with people in your household – it is not only good exercise but is a lot of fun and will lift your mood.
Stay connected Keep connected with family and friends and regularly check in with people, either online or by phone. If you can, arrange video chats, or phone calls, messages, or texts. If you’re worried that you might run out of things to talk about, make a plan with someone to watch a TV show, live music or a film, at the same time. Or you could read a book separately and then discuss it with each other when you speak. Arrange a quiz using a digital conferencing facility. You could also set up a ‘buddy group’ with friends or family and arrange a regular time to chat.
Distract yourself It’s important to try to keep busy, whether that means going for a daily walk (even if it’s round your garden) or learning a new skill. It is useful to have a routine, but also to relax and do something creative that you enjoy.
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It is useful to have a routine, but also to relax and do something creative that you enjoy
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There are still plenty of activities you can engage with at home, including crafts, painting, reading, cooking, and baking, listening to music. If you feel low, keeping a journal can be a helpful way to unload emotions. Try and put something positive in at the end of each day. Although we want to know what’s going on, it can help to turn off the news from time to time too as this can sometimes fuel our feelings of anxiety. Practising something like mindfulness can help distract you from worrying thoughts.
Seek help If you feel you need more professional support and advice there are many reputable organisations with online and telephone advice and support. This includes the work we do at Mind, the Samaritans and the NHS.
Although we want to know what’s going on, it can help to turn off the news from time to time too as this can sometimes fuel our feelings of anxiety
Helping you fund UK business Welcome to the NACFB’s targeted lead generation platform findsmefinance.co.uk/broker
findSMEfinance is a trading style of NACFB Member Services Ltd which is authorised and regulated by the Financial Conduct Authority 734857. We are a broker, not a lender.
NACFB | 49
Opinion
Shoring up defences Building greater financial resilience Todd Davison Managing Director Purbeck Insurance Services
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s a business solely focussed on helping small business owners mitigate their financial risks through Personal Guarantee Insurance, Purbeck has been on the front line of the fall-out from COVID-19. The value of Personal Guarantee Insurance has really come to the fore in the last few months and this will remain the case as lockdown eases and the recovery process begins. Part and parcel of cover is mentoring and support services to firms in financial distress. It is as much in our interests to help businesses survive this crisis and indeed future challenges, as it is our clients.
Doubling of PGI enquiries In January, February and March, as the UK watched what was happening in China, Italy and other parts of the world, through the lens of the media and listened to stark warnings from our government, we saw applications for Personal Guarantee Insurance (PGI) double year-on-year. Small businesses were shoring up their defences and this strategy will have to continue as part of the recovery process. At this stage, a number of our customers have seen their business affected adversely although most of these businesses are mitigating these issues by proactive intervention (e.g. utilising the Job Retention Scheme, VAT deferral and payment holidays) to alleviate short-term trading concerns. While our insurance cover is available to businesses at any stage in their growth, our customers are 50 | NACFB
generally running well-established businesses with ten or more years of trading under their belts. The launch of the Trade Credit Insurance guarantee should also mean small businesses (particularly those in the construction and manufacturing sectors) can continue to access affordable insurance to support trading with other businesses and provide confidence within the supply chain. It will be critical for policymakers to work closely with insurers, funders, and businesses for the scheme to work effectively and to promote liquidity within these markets.
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From 1st December this year, HMRC will become a preferred creditor in a business insolvency for certain HMRC debts, moving from sixth position to third in the list of creditors to be paid following a business collapse
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In short, it looks set to become harder, costlier and riskier for small business owners seeking new finance for growth
There is little doubt that the government’s support measures have been vital, but they not only have a shelf life, they may impact a small business’s future ability to borrow. It is therefore important that we start to look forward to how businesses can begin to recover and rebuild. It is also worth remembering, not all businesses have been severely affected, in fact some that have pivoted fast have found new trading opportunities.
Demand for personal guarantees to grow Many businesses will want to invest in marketing, technology, machinery – it may be slow but there will be a demand for finance to support this recovery and growth. However, all the signs suggest that access to finance will not be easy. The demand for personal guarantees by lenders was already on the up based on a survey we conducted last year amongst commercial brokers – 47% of brokers said they had seen a rise in demand for personal guarantees as part of a new business finance package. That demand is only going to grow as lenders become more risk averse.
The impact of CBILS and BBLS If businesses have already secured loans via CBILS or BBLS, when they start looking for additional finance, they will have to prepare loan interest/repayment serviceability to demonstrate they are able to repay their obligations with these loans in place. The additional factor to consider is the change in insolvency rules. From 1st December this year, HMRC will become a preferred creditor in a business insolvency for certain HMRC debts, moving from sixth
position to third in the list of creditors to be paid following a business collapse. Fixed charge creditors are first on the list, insolvency practitioners’ fees and expenses are second. This leaves less funds in the pot to settle any outstanding business loans and offset the personal guarantee following business failure and again could force lenders to get tighter on requiring personal guarantees. This applies to where Personal Guarantees are attached to business finance facilities with floating charges and where personal guarantees are attached to unsecured business finance facilities.
Restricted credit appetite It is also likely that there may be a good number of lenders who will, for some time, operate on a restricted credit risk appetite and focus on existing clients and forbearance measures. Furthermore, many non-bank lenders who are institutionally or wholesale funded may also be resistant to allow funds to be advanced to small businesses particularly if the lender has a credit impaired loan book. On balance, therefore, there is a possibility of a lack of available credit in some areas and this may also increase the cost of borrowing for businesses as well as increase the demands for security. In short, it looks set to become harder, costlier and riskier for small business owners seeking new finance for growth. Where finance is offered on the condition of a personal guarantee, Personal Guarantee Insurance should therefore be considered. It can be a key tool in helping businesses build their confidence and financial resilience as part of the recovery process. NACFB | 51
Listicle
Five ways to help save young lives
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4. Make a night of it
harities across the country are facing imminent collapse owing to the impact of coronavirus. Sector bodies have estimated that the third sector will miss out on at least £4.3 billion of income throughout the worst of the crisis, though the true figure is likely to be a lot higher.
Whilst Zoom and Teams have their limits, a formal online dinner with a few drinks could provide you with a much-needed excuse to don your glad rags. You would be surprised just how much dressing up and enjoying a semi-formal dining experience can improve your outlook, and, knowing a small donation will go to charity will leave participants with a shared feel good factor too.
The NACFB’s charity partner, CLIC Sargent, has been far from immune to the impacts. Cancer is not stopping for coronavirus. CLIC Sargent are seeing a 60% drop in their income, while the number of families in crisis increases rapidly. Young cancer patients and their families truly need you now, more than ever. So, we have compiled our top ways you and your organisation can help support them remotely. Most of us will never want to partake in another virtual quiz ever again, whilst there are other ways to raise much needed funds for a worthy cause, here are just five.
1. Share your knowledge We all know something someone else does not. Whether it is a musical instrument, green-fingered expertise or the secret of a great risotto. Now is the perfect time to share that knowledge with the wider world. For a nominal donation, you could set-up a virtual tutorial and share your unique insight with friends, family and colleagues.
5. Spring clean auction
2. The 2.6 challenge The pandemic has had a catastrophic effect with the cancellation of thousands of events and the loss of billions in income through fundraising events. The 2.6 Challenge can be any activity you like – from running 2.6 miles to holding an online workout with 26 of your friends. Whatever your age or ability, you can take part. Charities are not looking for superheroes, but all would welcome the efforts of home heroes.
3. Virtual guided tours Being house bound for as long as we have been has resulted in an inevitable sense of wanderlust. Whilst we may not be able to travel too far, you could record a guided tour of your local area, complete with unique historical insight. It is a great way to help people see the world through your eyes and could inspire future excursions once restrictions are eased. 52 | NACFB
Spending so much time at home can inevitably make one crave something of a spring clean. Why not kill two birds with one stone and auction unwanted household items for charity? From old clothes and books, to records and even furniture, the feeling of an uncluttered existence – coupled with the proceeds supporting a worthy cause – will no doubt help boost your esteem.
You can find out more about the NACFB’s chosen charity partner, as well as ways to donate by visiting: clicsargent.org.uk. Alternatively you can make a donation via: justgiving.com/fundraising/nacfb
Five Minutes With
ive F Minutes with: Ian Galbraith Ian Galbraith Head of Broker Paragon Bank Describe your role in ten words or less? I motivate and lead the team to deliver for our brokers. How do you make a difference? I take ownership to ensure we deliver what we say we will deliver.
In your view what are the key elements to a successful deal? The key element is finding a solution that works for the customer, broker, and Paragon.
What is your favourite SME success story? Completing a re-finance of hard assets to support a management team in buying their own business.
What recent professional accomplishment are you most proud of? Delivering CBILS to support businesses struggling though COVID-19. 54 | NACFB
What are the key elements to maintaining a strong lender/broker dynamic? Good open communication, honesty, hunger, support, and finding solutions to get things done.
What is your favourite piece of management/leadership advice?
of guitar lessons!
What changes do you hope to see in the new normal? More use of Microsoft Teams.
Which person has inspired you the most? My father.
Always be open to keep learning and see the value of a strong diverse team.
What has been your lockdown essential? Nespresso coffee capsules and a sense of humour. At the start of lockdown the business did a fantastic job getting almost all staff set up working from home within a few days. However controlling our three children at home being taught remotely has been an additional challenge especially when conducting business calls whilst battling against the sound
What was the last great book you read? Tell No One by Harlan Coben. This is one of Coben’s older books but one of his best. It still keeps you guessing all the way through with sudden twists and a turns. It’s an easy read for your holidays.
Who do you admire most and why? Sir Andy Murray. He’s resilient and always gives 100%.
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