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Walk a mile in your client’s shoes
Lenders and brokers can march together alongside SMEs
Martine Catton ChiefExecutiveOfficer Catalyst Business Finance
Ikeep 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 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 isfacing;hownewfundingarrangementsaregoingtowork alongside existing commitments and assist in establishing plansforrebuilding/transformingtheirbusiness;
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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Redefining the art of valuation
How COVID is rapidly accelerating valuation progress
Stene Jacobs Operations Director Peritus Corporate Finance
Over 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 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. “ 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
Progress born from adversity
Lenders, brokers and SMEs are showing their mettle
Tim Boag Group Managing Director, Business Finance Aldermore
The 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 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. “ 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
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.
