Commercial Broker (NACFB Magazine) June 2023

Further Information

Norman’s Note

Norman Chambers Managing Director | NACFB

Welcome to the June edition of the NACFB Commercial Broker magazine . As I write these words, the team is gearing up for our highly anticipated Commercial Finance Expo. I can’t help but feel a buzz of excitement in the air.

To all the commercial broker delegates attending the NACFB Expo, I urge you to seize every opportunity that comes your way. Engage with all the exhibitor lenders present, forge new connections, and explore potential partnerships that can fuel your business growth. The fagship event is a melting pot of expertise, innovation, and opportunity, and I encourage you to make the most of it.

While you’re busy networking and exploring, don’t forget to swing by the NACFB’s own stand. Our passionate team will be there, ready to meet you, sharing exciting updates about your trade Association, and answering any questions you may have.

In this edition of the magazine, you’ll fnd a wealth of valuable content. We have information on how to enter your broker submissions for the prestigious Commercial Broker Awards, a real chance to showcase your achievements and be recognised for your broking excellence. Additionally, we have articles that delve into the intricacies of stress tests for lenders and shed light on the challenges commercial intermediaries face when navigating the complexities of third-party invoicing.

So, dear readers and NACFB Expo delegates, let’s dive into this issue with enthusiasm and curiosity. Embrace the wealth of knowledge and insights it ofers, seize the opportunities presented at the NEC, and let’s propel the commercial fnance industry to new heights together. The stage is set, the energy is high, and we’re ready to make lasting connections and shape a path toward success. Happy reading, happy networking, and here’s to an exhilarating month ahead.

Association updates for June 2023

Commercial Broker Awards 2023 - last chance to enter

Member brokers invited to submit entries across 15 categories

Returning for a fourth year, the NACFB Commercial Broker Awards is an opportunity for the trade body to recognise and showcase Member brokers. The deadline to enter a free submission has been extended until 5pm on Friday 23rd June 2023 –there will be no further extensions beyond this date.

Whether you are a sole trader broker, a regional player, or a national brokerage, the NACFB Commercial Broker Awards are the ideal way to demonstrate to your clients, peers, and lender partners that you have a track record of success alongside the skills and expertise to grow in the coming months and years.

Award winners will be announced and presented with their awards at an in-person ceremony on Friday 15th September at Lancashire Cricket Club, Manchester.

This year, there are 15 diferent categories to choose from:

• Asset & Leasing Finance Broker of the Year

• Broker Network of the Year

• Buy-to-Let Mortgage Broker of the Year

• Cashfow Finance Broker of the Year

• Commercial Mortgage Broker of the Year

• Deal of the Year

• Development Finance Broker of the Year

• Digital Broker of the Year

• Industry Ambassador of the Year (NEW)

• Invoice Finance Broker of the Year

• Rising Star of the Year

• Service Excellence Award (NEW)

• Short-term Finance Broker of the Year

• SME Champion Award

• Sole Trader of the Year

NACFB Members can enter short written submissions for as many relevant categories as they deem appropriate. The awards are open to all Member frms except for NACFB board directors who have elected to recuse themselves from participation.

The judging process is equally weighted and open to brokerages of all sizes, with the shortlist drawn on merit. The judging panel, made up of independent industry experts, will be looking for demonstrable evidence of broking excellence in each category. Once a shortlist has been produced, NACFB lender Patrons will also vote in each of the categories.

Early bird tickets, available to NACFB Member brokers only, are priced at £100+VAT each and £1,000+VAT per table of ten. The early bird discount for NACFB Member brokers is open until mid-July. Afer then, tickets will increase to the standard rate for Members to £180+VAT each or £1,800+VAT per table of ten.

Tickets for NACFB Patrons will also be available from next month and will be priced at £200+VAT a ticket and £2,000+VAT per table of ten. All tickets include a welcome drink on arrival, a three-course meal, and half a bottle of wine per person.

NACFB brokers can enter this year’s awards and secure tickets today via commercialbrokerawards.co.uk

It’s time to adapt or get left behind

Nick Voss Product Owner, Commercial Mortgages Allica Bank

The pace of technological change in the commercial finance sector is rapidly picking up. Having lagged behind the consumer finance space for some time, the use of the likes of real-time data feeds and automation are starting to transform what brokers and customers are coming to expect from a business lender.

It’s often the challenger banks and lenders like Allica Bank that lead the way here. High-street competitors – despite having infinitely greater resources – are bogged down with so much technical debt and legacy technology that adopting these innovations can take years. In some cases, it may be nigh-on impossible.

This gap is only going to become more acute as brokers and customers start to accept these advances as the norm.

For specialist and challenger lenders, it highlights the importance of having strong technical foundations able to adapt quickly in response. In Allica’s case, our aim is to provide the best broker experience in the market by leveraging technology to provide a fast and eficient service, whilst enabling us to build stronger relationships.

To do this, there are two key pillars that I think will be critical.

Future-proofng

As a digital bank, Allica has been built from day one to be scalable and fexible. It’s thanks to this that, in response to broker feedback, we have been able to build and launch our instant decision-in-principle (DIP) tool in just a few months.

By using real-time data feeds for information-gathering and automating the decision-making, it allows brokers to get a DIP instantly. It has also cut thousands of admin hours for our staf, meaning they can focus instead on full applications, adding value, and building relationships. Since launching in December 2022, we have seen over £310 million of enquiries through our instant DIP tool, saving thousands of hours for our broker partners, their clients and our colleagues.

A culture of continuous improvement

Secondly, it’s vital that we can continuously update our proposition to meet the changing needs of the market. At Allica, our technology team have two-week release cycles, meaning brokers will notice regular updates to our Introducer Portal, such as making it easier to track your cases, or improving functionality.

It’s thanks to this two-pronged approach that Allica Bank is well-positioned to provide the best broker experience on the market. As the years pass, the gap between those able to adapt and those that aren’t will become increasingly obvious. I’m proud to be part of a bank doing the former.

Industry News

1. MPC turns the screw for ‘no good reason’

Economist Prof. Trevor Williams says increasing Bank Rate to slow UK infation will not work. Prof. Williams explained that supply-side problems due to war in Ukraine were the problem and not wages to which the Bank of England eludes. Money supply growth was just 1.1% at an annual rate in March, down from 13.7% in March 2021, shrinking in the last three months. He said: “That suggests price defation in two years’ time.”

3. Bank lending to rise in 2023

Lending is expected to rise this year, with total bank loans expected to increase by 1.2% in 2023, refecting an extra £29 billion in lending. The EY Item Club predicts that bank lending will rise by a further 2.1% in 2024 as confdence among businesses and consumers continues to improve. The combination of stronger economic growth, falling infation, and the sharp drop in wholesale gas prices has boosted optimism among businesses that conditions will continue to improve this year.

4. Cost of living and strikes weigh on growth

The UK economy grew by just 0.1% in the frst three months of the year, according to fgures from the Ofice for National Statistics, with strikes, cost of living pressures and wet weather all dragging on growth. The fgures showed that while the economy grew slightly over the frst three months of 2023, in March it contracted by 0.3%, with car sales and the retail sector having a bad month. The economy is still 0.5% smaller than pre-pandemic levels, the ONS said.

2. Hospitality industry faces economic damage

The Bank of England raised Bank Rate to 4.5% in May, the highest level since 2008, causing concern for small businesses in the hospitality industry. Rising interest rates will cause “economic damage” and “severely curtail” small businesses from growing, according to industry leaders. The Federation of Small Businesses has accused the Bank of England of being “out of touch” with frms in the UK. UKHospitality chief executive Kate Nicholls warned urgent action is needed for hospitality businesses.

5. Insolvency surge sees misconduct rise

The Insolvency Service launched 36% more investigations into the alleged misconduct of directors of insolvent companies in 2022 compared to the previous year, rising from an average of 142 to 193 per month, according to data from international law frm RPC. Corporate abuse cases more than doubled during the same period. RPC’s James Wickes said that with insolvencies on the rise, more instances of fraud and other types of misconduct can be expected to come to light.

6. Hubs to link small frms with AI technology

Three hubs attached to the universities of Cardif, Newcastle and Ulster are to provide around 250 small companies with access to the latest artifcial intelligence and supercomputer technologies to help them to innovate and solve business challenges. The three-year £4.5 million governmentfunded initiative will link the hubs with the supercomputing, data analytics, visual computing and AI expertise of the Hartree National Centre for Digital Innovation, based near to Warrington with the aim of targeting support locally and laying foundations for a larger support ecosystem.

Figures from the National Residential Landlords Association indicate that about 35% of landlords are planning to sell a property this year, with many forced out of the market by rising mortgage costs, higher taxes and increased regulation. Research by UHY Hacker Young has revealed that there are about 2.75 million landlords in the UK, down 3.5% in the past year. 70,000 fewer buy-to-let landlords means the rental market lost 116,000 buy-to-let properties and tenants saw rents rocketing.

7. A third of landlords to sell up this year

8. New capital rules will stife lending

UK banks are lobbying the Bank of England to ensure the latest round of Basel rules will not lead to reduced lending to small businesses. The rules would see UK banks forced to hold billions more than their US and EU rivals due to their strict implementation by the PRA. UK Finance has led the backlash against the PRA’s approach, regarding a quirk in the Basel framework that means secured lending to small businesses is currently deemed riskier than its unsecured equivalent.

9. BBB appoints MD for small business lending

The British Business Bank has appointed Louise McCoy as commercial managing director for small business lending, efective from May 1st, 2023. McCoy previously worked at the Start Up Loans Company, which is now part of the British Business Bank, where she was commercial director. In her new role, McCoy will be responsible for aspects of both Start Up Loans and the Bounce Back Loan Scheme. McCoy’s appointment will help the Bank achieve its objectives more efectively with its lenders, business support partners and smaller businesses.

10. Small businesses prioritise sustainability

New research by Novuna Business Finance shows that 90% of small business leaders prioritise the sustainability credentials of potential suppliers, stakeholders, or partners. The desire to work with green suppliers is on the rise, but so is scepticism of bold green claims. The Competition and Markets Authority and Financial Conduct Authority has introduced new measures to ensure green claims made by companies do not mislead. Almost half of small business leaders would check for an oficial certifcation that recognises organisations meet certain standards.

Membership News

Assetz Capital targets £2bn lending milestone

Assetz Capital recently announced a move away from retail funding of its lending to an institutionally funded lending strategy. The NACFB Patron will continue to focus on its core areas of expertise including ground-up residential housebuilding, residential refurbishment, and support for funding Purpose Built Student Accommodation (PBSA).

Assetz recently delivered its largest deal to date, a £13.3 million PBSA scheme in Nottingham. Now having delivered over £1.7 billion of funding to UK developers and SMEs, it has the £2 billion milestone firmly in its sights and has recently widened its lending appetite to include property-backed loans from £1 million to £50 million.

Andrew Charnley, managing director, commented: “With the £2 billion milestone now rapidly approaching and our model focusing on larger loans, we have now appointed Andrew Fraser as our chief commercial oficer.”

Andrew comes with more than 20 years’ experience in the UK and Ireland property lending sector and has gathered a strong team of experienced and development focused relationship directors.

Andrew Fraser, newly appointed chief commercial oficer, said that the lender wanted to hear from: “Experienced property advisors/ brokers wanting certainty of delivery of funding for their clients.”

Assetz has an experienced origination team who have worked in the property sector, with some having also worked inhouse with developers.

VAS Panel launches service for £5m+ valuations

VAS Panel has further strengthened its quality control procedures with the launch of QC+, a free, in-depth additional audit overview of valuations where the value is over £5 million.

The NACFB Partner’s new solution builds on the company’s existing market-leading audit procedures which review over 100 core areas. QC+ delves deeper into the key variables which can impact the valuation, with a QC+ audit report presenting the fndings to clients, providing an added risk management tool for lenders on larger value properties and their inherent complexities.

A chartered surveyor is also available to talk through the valuation in greater depth with the client once it has been submitted. As usual all reports go through VAS Panel’s internal quality control process which follows a red, amber and green rating system to determine if the report needs further reviewing by one of its auditors, then it moves into the additional QC+ system.

QC+ has been trialled through several leading lenders over the last six months and will now be incorporated across all clients.

David Morris, director, real estate credit risk for Shawbrook Bank, said: “We find the QC+ process very helpful as it adds an important layer of oversight to the valuation process on the larger transactions.”

He said that the combined process culminates in a safer lending decision.

Helping you go further

Redefning relationship-led banking

Kevin Barrett Managing Director, Banking Arbuthnot Latham

In an industry saturated with financial institutions, we stand apart as the UK’s leading service and relationship-led human scale bank, seamlessly blending the power of modern technology with a deep-rooted commitment to personalised client service. We take immense pride in sharing that our client-centric approach has earned us an industry-leading net promoter score (NPS) of 64%, a testament to the trust and satisfaction our clients place in us.

At our core, we believe that our business is unlike any other. Combining a rich history of tailored client service with the agility and expertise to thrive in an ever-changing world, we are committed to helping our clients go further. As Members of the NACFB, we understand that commercial brokers like you have witnessed clients navigating economic changes, technological advances, political shifs, and societal swings. This frst-hand experience has given you invaluable insights into the unique ambitions, circumstances, and challenges individuals and businesses face.

Tailored solutions for every need

We recognise that each client is on a distinct journey, driven by their aspirations, and faced with ever-evolving circumstances. That is why our approach is deeply personalised. We take the time to understand each client’s specifc needs, forging collaborative partnerships to co-create solutions that empower them to achieve their goals. We thought it best to use this space in Commercial Broker magazine to share a high-level summary of our core services that can cater to your clients:

• Commercial banking: We ofer dedicated banking and unregulated lending facilties designed to support UK owner-managed and independent businesses with a turnover ranging from £1 million to £25 million. Additionally, our expertise in real estate fnance (£1 million-£40 million) allows us to craf tailored solutions for clients seeking to develop or acquire rental or commercial properties as a valuable source of income or investment.

• Specialist lending (non-banking): For SMEs and lower mid-market corporates with a turnover of £5 million or more, we provide secured unregulated asset-based lending and cash fow solutions. Whether your clients require fnancing for business acquisitions, reorganisation, refnancing, debt restructuring, or turnaround strategies, our assetbased lending approach ofers the support they need. Moreover,

our unregulated asset fnance solutions enable clients to acquire new or used equipment while preserving their capital and unlocking additional cash through loans secured against existing business assets.

• Private banking: With our comprehensive range of personal banking and dedicated lending services, we cater to the unique needs of high-net-worth clients. Whether they require deposits, investment opportunities, or loans exceeding £500,000, our private banking services provide the utmost care and attention.

• Wealth management: Our wealth management oferings encompass both wealth planning and investment management. Through comprehensive wealth planning services, we protect our clients’ business interests, optimise asset growth, enhance tax eficiency, and provide fnancial security for their businesses and families. Moreover, our personalised investment management service utilises discretionary portfolio management and a platform portfolio service (MPS) to ensure our clients’ fnancial goals are met.

A commitment to long-term stability

Unlike institutions driven solely by short-term gains, we embody a focus on long-term stability. This unwavering commitment is refected in our recent capital raise, which experienced overwhelming demand, further strengthening our fnancial standing. With ofices located in London, Manchester, Bristol, and Exeter, our team of bankers is always within reach – just a phone call, email, or meeting away from collaborating with you to create tailored solutions for your esteemed clients.

As the fnancial landscape continues to evolve, we believe that a relationship-led approach, driven by genuine care and personalised solutions, holds the key to unlocking your clients’ true potential. With our unwavering dedication to empowering their success, we invite you to embark on a transformative journey with us – a journey that will redefne the boundaries of what’s possible in modern banking. Together, we can go further.

Meet us at the NACFB Expo

We are delighted to announce our participation in the upcoming NACFB Expo on Wednesday 14th June. Visit us at stand E28, where we will be showcasing our expertise in asset fnancing, commercial banking, and real estate fnance solutions. We eagerly anticipate the opportunity to connect with you and explore how we can forge mutually benefcial relationships to drive your clients’ success.

Stressed out?

Assessing operational resilience amidst market instability

Charlotte Mathieson Compliance Manager NACFB

Depending on which analyst you speak to, for the global banking system, the first quarter of 2023 saw alarm bells begin to sound, some market turbulence, or just slight corrections. Post-2008, tracking the sector’s health has been something of an inexact science, but we would be remiss not to examine recent developments and review the UK’s ability to stress test lenders and assess their operational resilience.

A few months afer the collapse of Silicon Valley Bank (SVB), there is still no consensus on whether the ensuing fnancial stress in North America and Europe has run its course or is an indication of worse to come. Against the backdrop of still high infation, central banks in advanced economies were quick to demonstrate containment eforts and untether the fallout, removing the perception of wider systemic failures.

Transatlantic stress

Last month in the US, the Federal Reserve warned that the recent banking turmoil could well fuel a broader credit crunch that risks slowing the US economy, as lenders told the central bank they plan

to tighten lending standards due to worries about loan losses and deposit fight. Concerns mounted that the March collapses of SVB and Signature Bank and the more recent failure of First Republic would lead to pullbacks in lending and drive down asset prices.

When the US catches a cold, Europe tends to sneeze, and fear soon spread across the pond, where failures of risk management and a series of scandals at Credit Suisse caused deposits to ebb away. The Swiss authorities quickly brokered a takeover by arch-rival UBS, while in the UK, the Bank of England (BoE) secured a takeover of SVB’s troubled UK subsidiary by HSBC for just £1.

Operational resilience

Whilst these events may seem far removed from the day-to-day operations of some lending institutions, there are important lessons

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When the US catches a cold, Europe tends to sneeze, and fear soon spread across the pond

to be learned; lessons that can help inform commercial intermediaries – protecting both their business and their clients’ long-term outlook.

The frst key learning is the importance of stress testing and assessing operational resilience. In the wake of the 2008 fnancial crisis, regulators around the world implemented new rules and requirements to ensure that banks and other fnancial institutions were better prepared to withstand shocks and disruptions. Here in the UK, the BoE sought to develop a rigorous stress testing regime that assessed the ability of banks to withstand a range of adverse scenarios, from economic downturns to cyber-attacks.

For many lenders, stress testing and operational resilience may seem like a daunting task. However, there are practical steps that can be taken to ensure that a business is better prepared for unexpected events.

Reducing risk

For most fnancial institutions, at the heart of all risk considerations is the need to conduct regular stress tests. Even if an organisation is required to undergo formal stress testing, it’s a good idea to periodically assess a business’ ability to withstand shocks. This could involve scenario planning exercises, such as simulating the impact of a sudden increase in interest rates or a major cyber-attack. By identifying potential weaknesses and vulnerabilities, fnance professionals can take steps to address them before they become a problem.

Post-crisis clarity also revealed the need for lenders to diversify their

funding sources; this was a key lesson for some big banks. Those that rely too heavily on one source of funding, such as deposits or wholesale funding, are the most vulnerable to sudden disruptions. Diversifcation of funding lines reduces risk, it doesn’t eliminate it entirely, but does lower a loan book’s risk profle.

Another key consideration is the need to build functional, transparent, and proactive relationships with regulators. Some lenders may view regulators as a burden, but it is important to see them as partners in maintaining a safe and stable fnancial system. By building relationships with regulators and staying abreast of regulatory requirements and expectations, lenders can not only remain compliant but are then well-positioned to assess prevailing legislative winds and weather any regulatory changes.

In addition to these practical strategies, it’s also vitally important to establish a proactive culture of risk management and operational resilience throughout the sector. This means not only having policies and procedures in place, but also ensuring that all employees understand and prioritise risk management as a key part of their job.

Ultimately, the collapse of big banks and lenders should serve as a vibrating alarm for all fnancial institutions, regardless of size. Not yet a decibel shattering klaxon, but an alarm, nonetheless. By taking proactive steps to build resilience and prepare for unexpected events, lenders can not only protect themselves and the intermediary community, but also continue to provide critical funding to small businesses.

For many lenders, stress testing and operational resilience may seem like a daunting task

Mutually benefcial

Martin Richards Director Tower Insurance Brokers

In reaction to continually increasing Professional Indemnity (PI) insurance premiums, coupled with reductions in cover, last year, the NACFB took the bold but necessary step of launching the NACFB Mutual as an alternative to conventional insurance. Available exclusively to NACFB Member brokers, ten months on, we spoke to Tower’s Martin Richards, who administers the Mutual, to find out more.

Why do brokers need PI cover?

It protects the brokerage and certain individuals against the costs of defending claims made by third parties for alleged negligent advice. Further, if liability is accepted or a court rules in the claimant’s favour, PI insurance also covers the cost of settling claims. Without this cover, the cost of claims could severely damage the financial health of the business and may even lead to insolvency. Whether all brokers need PI insurance is moot, as attitudes across the industry vary. PI cover is almost universally held by property finance brokers, particularly as many lenders will not pay commissions to brokers who are not protected. Some asset and leasing

brokers deem it not necessary, although the NACFB’s best practice opinion is that all finance brokers should have PI cover.

What is the NACFB Mutual?

The NACFB Mutual is an FCA-regulated, Hybrid Discretionary Mutual (HDM) with insurance backing. It currently offers PI and is only available to NACFB Members. Essentially, low value and predictable claims are covered by the Mutual on a pooled basis, with larger or more unpredictable cases transferred to the wider insurance market where they belong.

can assist the wider industry in mitigating the impact of such claims.

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What sets it apart from other schemes?

Price! We know that NACFB Mutual members have made like-for-like savings of up to 30% by switching from alternative providers. All management and administrative fees are included in the contribution so there are no insurance broker fees or commissions on top. Also, the Mutual’s cover wording contains no automatic lenders’ liability exclusion. Such an exclusion appears as standard in other insurers’ policy wordings in the sector.

It is owned by the members who, through a board of directors, have a say in its management. There are no shareholders demanding short-term profits, so any trading surplus stays within the ‘mutual family’. This allows the managers, under the direction of the board, to keep premiums low and stable and ensure that the scope of cover is fit for purpose.

The NACFB Mutual gives members the right to approach the board to use their discretion (the ‘D’ in HDM) to pay claims that may fall outside of the strict terms of the cover wording. Its unique ethos enables it to be ahead of the curve in respect of new sources of claims. The NACFB Mutual, which is recognised by the Association of Financial Mutuals,

Has it been popular with Members?

Very! Having been trading only since August, we are proud to say that nearly 60% of NACFB Members have joined the Mutual.

What’s new about the NACFB Mutual?

We’ve been working on some fat fee solutions that are tailored to asset and leasing fnance brokers, particularly the smaller brokerages with turnover less than £500,000. The Association will be sharing more details of these shortly.

Request a quote for your PI cover today via nacfb.org/mutual

Advertising Feature

SME-tailored fnance

How our multi-product ofering is powering small businesses

our expertise, technology and multi-product ofering. Here’s a little bit about how we could help your clients if they need fnance this year.

Your clients can apply for a loan risk-free

SMEs faced a number of challenges in 2022, with small businesses naming rising costs and inflation as their biggest barriers in our recent Economic Impact Report.

However, despite the dificulties in the economy, we’re proud to have still helped so many businesses invest and grow, as well as support and create opportunities in their local communities.

Last year, outstanding lending through our platform helped to contribute £6.9 billion to UK GDP, generate £1.4 billion in tax revenue, and support almost 106,000 jobs around the country. Our introducers were a big part of this success, contributing £840 million to GDP, generating £160 million in tax and supporting 12,800 jobs.

It means that since 2010 our introducer community, which includes fnance brokers, accountants, business advisors, banks and enterprise partners, has collectively lent over £4.8 billion to SMEs through our platform.

As the economy continues to change, it’s likely that fnance will remain crucial for businesses – whether they’re planning ahead or looking for short-term solutions – and we’re proud to be able to help them with

By designing our loans around the needs of SMEs, we’ve been able to lend to over 135,000 businesses since 2010. We’re still offering fxed-rate loans of up to £500,000, as well as our short-term loans for businesses who are not eligible for a standard loan or have only been trading for one or two years.

However, we recently improved our eligibility criteria and rates so we can support even more businesses going forward, including loans for non-homeowners and longer, six-year terms.

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The new, multi-product world we’re working in will only make the process of supporting businesses with fnance smoother and easier

Jeremy Crinall Head of UK Introducer Partnerships Funding Circle

We’ve made the application process easier too. You can now apply on behalf of your limited company and LLP clients and get a quote without afecting their credit score – so they can decide if fnance is right for them with total peace of mind.

All you need to do is apply through the same application process and we’ll give your client a loan decision in as little as one hour, no risk, and no stress.

Introducing FlexiPay – our new line of credit

FlexiPay, our new line of credit, is now available for our introducers to ofer to their clients.

FlexiPay is a rolling line of credit that can be used to spread a range of business costs, including tax, rent and energy bills, supplier invoices, equipment, buying stock in bulk and more. Your clients can use their credit to make a payment upfront, and then repay in three equal monthly instalments – with no interest, just a fat 4.5% fee.

We have designed FlexiPay to work alongside our loans, so businesses can get access to short-term fnance when they need it, and better manage their cash fow.

So far, we’re getting great feedback from our pilot customers, with one telling us: “I signed up to FlexiPay as I had a payment due to a supplier and it allowed me to buy extra supplies which I needed. FlexiPay is one of the best ideas for small businesses and I will defnitely be using it on an ongoing basis and telling people about it.”

Using technology for a safer customer experience

Innovation is at the core of Funding Circle, and we’re always looking at how we can make things simpler for our partners and customers.

We recently partnered with TrueLayer, an FCA-regulated service, that allows us to connect directly to a client’s business bank account and get one-time access to their statements – so there’s no need to upload them manually. They need to provide us permission, so it’s totally secure, and it allows us to read the documents we need faster and progress the application to the next stage.

Looking ahead

With our multi-product ofering and new benefts for customers in full swing, we’re hopeful that we can help even more customers get the funding they need to thrive in 2023.

Our introducer community has gone above and beyond to help us support even more businesses this year, extending over £400 million in lending to around 4,000 SMEs. The new, multi-product world we’re working in will only make the process of supporting businesses with fnance smoother and easier, so I’m excited to see what we can achieve over the next year and beyond.

To fnd out how Funding Circle can help your clients, email the introducer team on broker@fundingcircle.com or call 020 3667 2208.

Checking out

Maintaining market plurality through third-party invoicing

Norman Chambers Managing Director NACFB

Picture the scene. You’re leisurely strolling through your local supermarket, shelves laden with increasingly expensive groceries. Your shopping trolley brims with carefully chosen items, and you approach the checkout with anticipation. As you reach for your wallet to retrieve your trusty credit card, you’re met with an unexpected revelation: the supermarket’s new policy restricts you from using any credit card that isn’t their very own.

At frst glance, this policy may appear harmless, perhaps even convenient for the supermarket. The checkout assistant may even diligently step through a well-honed script outlining that their in-house credit card ofers exclusive perks, loyalty rewards, or perhaps even an expedited checkout process. But what about the customers who prefer to use their own credit cards, which may provide better interest rates, cashback options, or benefts tailored to their specifc needs? Suddenly, their freedom of choice is curtailed, and their shopping experience becomes signifcantly constrained.

This analogy serves as a lens through which we can understand the predicament faced by some fnance brokers and their clients. Just as the supermarket’s policy limits the payment options available to shoppers, some car dealerships – and even estate agents – have been denying consumers the ability to use third-party fnance providers, efectively strongarming them into accepting their preferred in-house fnancing terms via an afiliated provider.

The approach may seem like a rational commercial decision for the service provider, as dealerships and supermarkets aim to secure additional revenue through their chosen fnancial services.

Nevertheless, this practice raises signifcant ethical and consumer rights’ concerns. The concept efectively eliminates competition, preventing consumers from accessing potentially better fnancing options or benefting from more adaptable or tailored fnancial agreements. It also restricts the ability to shop around and compare rates, inhibiting the market’s natural equilibrium and potentially leading to higher costs for consumers in the longer run.

Clean-up on aisle fve

“At what point does the FCA intervene?” shared an irate asset fnance broker of more than 20 years via a LinkedIn post last month. His story neatly captures the frustrations of many intermediaries. He publicly shared how a client of his was looking to buy a car from a well-known dealer chain, the client agreed a rate directly with the chain at 13.9% APR – they did think this was a bit steep as they had a good credit rating. In parallel, the broker secured him a rate for the very same vehicle at 11.9% APR. But because this client wanted to use an outside fnance company to facilitate the transaction, the dealer added an extra £390

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Many dealerships remained steadfast in their intent to maintain closed conditional selling practices, disregarding the concerns raised by brokers

charge for using outside fnance, a £500 non-refundable deposit, and a £299 administrative fee for good measure. The comments beneath this particular fnance broker’s post revealed he was far from alone. What forces are driving this practice, and perhaps more importantly, how can they be curtailed?

Like most other areas of consumer credit, for professionals operating in the car fnance space, the Financial Conduct Authority outlines stringent guidelines for responsible lending and fair treatment of customers. However, when purchasing almost any car in modern Britain, a signifcant challenge arises, primarily due to the involvement of intermediaries – predominantly dealerships – between the fnance company and the end customer. Unlike most traditional direct commercial bank loans, where applicants directly interact with the lender, car fnancing ofen necessitates dealing with the dealership’s authorised representative, commonly known as the business manager.

In this arrangement, the business manager efectively assumes a dual role as both an agent for the fnance company and a salesperson for the dealership. While the dealership may operate as an agent for a car manufacturer, it is typically owned by a separate entity. Once the dealership successfully sells the car and the customer drives away, any potential default on payment is efectively no longer the dealership’s concern. The responsibility then falls upon the fnance company to address the issue. If a customer returns to the dealership, revealing an inability to aford the payments, the dealer ofen seizes the opportunity to sell them a cheaper car, thereby earning an additional commission. If this option proves unfeasible, the dealer may redirect the customer to the fnance company.

This intricate web of accountability and responsibility tends to put pressure on individuals and dealerships to sell more cars and increase car fnance transactions. Consequently, this emphasis can ofen outweigh the obligation to engage in responsible selling and lending practices, as stipulated by regulatory standards.

The complexities of the car fnance process, coupled with the multiple parties involved and their divergent interests, create a situation where the desire for increased sales takes precedence over the need to ensure responsible lending. As a result, it is crucial to address these challenges to promote a fair and transparent car fnance system that safeguards the interests of customers while complying with regulatory requirements.

Keep the change

The practice of reducing point of sale market competition is sadly not one unique to the asset fnance industry. There have long been reports of property agents adopting a similar pathway. In March, The Times reported on the growing concerns from independent mortgage brokers over a perceptible increase in what it termed ‘conditional selling practices’ within certain corporate estate agencies. The negotiators at these agencies had been accused by brokers of intimating to prospective buyers that their ofers to purchase a property would not be put forward for consideration to the seller unless they agreed to additional in-house services ofered, such as mortgage advice or legal services. Given that housing market conditions are slowing somewhat –with fewer property transactions taking place – more estate agents are likely to become more reliant on fnancial services and seek

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The concept efectively eliminates competition, preventing consumers from accessing potentially better fnancing options or benefting from more adaptable or tailored fnancial agreements

to earn more in broker and solicitor fees, procuration fees from lenders and potential commissions for home insurance and life insurance, by insisting that buyers use their in-house advice service.

Responding to The Times’ article, respected asset fnance expert Julian Rose drew parallels between the emergent conditional selling practices of some estate agents and the more longstanding practice impacting asset fnance professionals. However, Julian optimistically placed much stock in the practice being usurped by the FCA’s new Consumer Duty rules that come into efect at the end of July. He shared his belief that, “…this sort of practice should stop”, as fnance brokers and lenders will soon be required to both support customers in pursuing their fnancial objectives, whilst acting in their interests without unreasonable barriers. Although the Consumer Duty rules could well give some dealerships and agents pause for thought, some concern remains that those engaging in conditional selling will continue to evade regulatory accountability in much the same manner with which they have done for some years already.

Did you fnd everything you were looking for?

Rather than placing all eggs in a Consumer Duty shaped basket, the NACFB is keen to proactively combat the practice, but it wouldn’t be the frst time the trade body has tried to do so. Five years ago, the NACFB made available to Members a letter – drafed by our then legal advisers – that could be presented to dealerships, highlighting the detrimental efects of closed conditional selling practices. By directly highlighting such anti-competitive practices, the NACFB sought to promote fair and transparent business dealings within the industry. In an ideal world, the letter would serve as a tool for brokers to advocate for their clients’ interests and push for a more level playing feld.

However, it became evident that the letter had limited impact on dealerships. Many dealerships remained steadfast in their intent to maintain closed conditional selling practices, disregarding the concerns raised by brokers. These dealerships, driven by their own interests, were unwilling to embrace more open and fair practices. While the NACFB’s provision of the letter was a commendable step towards addressing third-party invoicing challenges, it highlighted the need for more comprehensive and concerted eforts to efect meaningful change.

Recognising this ongoing struggle, the NACFB continues to explore alternative strategies to tackle the issue, seeking collaborations and legal remedies to ensure a more equitable commercial fnance landscape for brokers and their clients. Just last month, the Association’s head of compliance James Hinch sat down with both asset brokers and their lender counterparts in a bid to collate hard evidence of consumer detriment. From this, the NACFB will soon be establishing a working group of relevant industry parties to compile a dossier that can be presented to the regulator, accompanied by a clear call for action.

It remains in the shared interest of both fnance professionals and consumers to strongly advocate for transparent and fair practices that empower buyers of all kinds to exercise their preferences. Ensuring that market dynamics remain healthy and competitive are foundational principles on which intermediary-led lending is established. Only by examining and addressing such issues, can we work towards a future where consumers have the freedom to continue to make informed decisions that best suit their needs, whilst intermediaries retain the autonomy to ensure they are realised.

The NACFB will soon be establishing a working group of relevant industry parties to compile a dossier than can be presented to the regulator, accompanied by a clear call for action

The power of community-based lending

Driving both inclusion and economic growth

Theodora Hadjimichael CEO Responsible Finance

Even as cost-of-living pressures are mounting for both households and small businesses, a beacon of optimism is emerging through the growth of community development finance. Our most recent member survey showcases the tremendous impact of not-for-profit, community development lenders across the UK.

Our report reveals a staggering 22% rise in the number of people, businesses, and social enterprises turning to community development fnance institutions (CDFIs) for afordable fnance. Last year alone, nearly 95,000 individuals and more than 3,500 businesses benefted from their services, with total lending increasing by 20% to reach an impressive £248 million. These fgures are a testament to the vital role these institutions are playing in our society.

However, the impact of CDFIs goes beyond just the provision of loans. Through personal loans they serve as a lifeline for those who would otherwise fall victim to loan sharks and high-cost lenders. With more than 99% of business borrowers previously turned down by banks, CDFIs ofer an afordable alternative for term loans, unlocking economic growth in deprived areas and among excluded groups. By taking the time to engage with management and really get under the bonnet of businesses, CDFIs ofer an ofen overlooked route to getting the investment fnance small businesses are looking for.

When it comes to business lending, CDFIs have been unlocking opportunities for both start-ups and more established SMEs. In 2020, their lending supported 2,480 start-ups and 754 established SMEs,

creating a total of 2,570 new businesses, and safeguarding and creating 8,120 jobs. These loans have a profound impact on local economies, particularly in disadvantaged areas, with 94% of businesses supported being based outside London and the South East.

CDFIs have also been instrumental in supporting social enterprises, lending an impressive £117 million to 416 organisations. With 81% of these social enterprises based outside London and the South East, CDFIs are actively contributing to creating thriving places and addressing regional disparities. CDFIs have also provided over 31,500 hours of pre- and post-investment support to start-ups, SMEs, and social enterprises, further nurturing their success.

We are immensely proud of the work our sector has accomplished. CDFIs are driven by the desire to create a positive impact, which is why they go above and beyond to understand each customer’s unique needs. Whether it’s supporting an individual with a blemished credit score, an entrepreneur in need of funds to repair their van, a community enterprise seeking premises, or a local bakery facing rising costs, CDFIs have transformed countless ‘no’s’ into resounding ‘yes’s’.

The demand for fair, afordable fnance provided by CDFIs is growing rapidly. However, our fndings underline that CDFIs were only able to lend to 7% of loan applicants in 2022 due to afordability constraints. This calls for increased support and intervention to ensure that those who need access to credit can beneft from it.

Whilst we can celebrate remarkable achievements of CDFIs, their work is far from over. The rising demand for their services underscores the need for continued support and investment in community development fnance. Let us recognise the power of CDFIs in transforming lives, businesses, and communities across the UK. Together, we can build a future where everyone has access to fair and afordable fnance, driving not only economic growth but also social and environmental progress.

Not quite stacking up

The noises from Threadneedle Street

Prof. Trevor Williams Chief Economist TW Consultancy

Over the last few months, Bank of England officials have made comments which have garnered lots of attention. I want to focus on four of those because they show different aspects of the Bank of England’s views that economists usually debate without much public fanfare. But since they have gone public, it’s worth discussing them here within the NACFB’s Commercial Broker magazine.

Two of them are exhortations from governor Andrew Bailey to workers not to demand too much in the way of pay rises and to business owners to show restraint in meeting pay demands to help keep price infation low.

Both are rather strange requests from the head of the Bank of England, charged with keeping infation low and stable and who has been given a toolkit of measures to try and do so. On the one hand, it’s a clear sign that infation is out of control, and the governor is desperate to try and enlist as much help as possible. Conversely, it could be a sign of desperation because infation is seemingly coming down more slowly than they would like to see.

Worthy of challenging

But two other oficials from the Bank of England have also made some comments that are worth mentioning recently. One is Hugh Pill, the chief economist at the Bank of England, who commented that the UK

should accept that it’s poorer, citing per capita data. Although he subsequently apologised for his remarks, accepting that we are poorer would lead to less willingness to fght for a higher wage increase, which, if successful, would generate infation because the economy is not producing the goods to meet the resultant demand. This comment merits challenge and some analysis.

The other is from the deputy governor of the Bank of England, Ben Broadbent. His comment is that money supply growth does not cause price infation. Therefore, eforts by the Bank to reduce the money supply in the years before the Russian invasion of Ukraine would not have prevented the current price infation we are seeing. These are comments worthy of some discussion and analysis. There

“ Eforts by the Bank to reduce the money supply in the years before the Russian invasion of Ukraine would not have prevented the current price infation we are seeing

are two answers to these comments: theoretical and evidence-based – although the two are linked. The upshot is that the Bank of England needs to be corrected.

The theoretical argument is that wages are paid out of productivity, and in a market economy, wages (also a price, of course) do not cause consumer price infation. It is possible in an economy where consumer wages are indexed, and prices rise in equal measure. That is not the case in the UK, and so it’s not a valid argument. Even if that were the case, the indexation of wages to prices would mean too much demand chasing too few goods as productive capacity is still limited. In that scenario, frms would cut output as they fre workers they cannot pay because there’s been no increase in their productivity.

The evidence shows that we can dismiss the view that wage infation is causing price infation by comparing wages adjusted for infation with price infation. UK wages rose by 6.6% in the three months to February, but annual consumer price infation rose by 10.1% in the same period. On the oficial fgures adjusted for various timing issues, this lef real or infation-adjusted wage infation down 3% on the year.

Indeed, real wages in the UK are about the same as where they were in 2008. The UK has experienced average negative growth in real wages since 2008, mirroring its poor productivity. In other words, UK wages have stayed the same over the last 15 years, proving that wage infation is not the driver of price infation.

We know that the surge in price infation ahead of the Russian invasion of Ukraine was already underway because of an excess increase in money supply in the UK caused by having ultra-low interest rates for too long and quantitative easing, which pumped

plentiful liquidity into an economy with unchanged productivity. The Russian invasion of Ukraine amplifed the efects of the rise in monetary growth. That may be why UK price infation is higher than in Europe or the US. In other words, the Bank of England has reasons to look back and wonder whether it could have done more to mitigate the extent to which infation has risen and persisted in the UK. The increase in money supply was occurring at a time when there was no corresponding increase in either UK productivity or its output. Therefore, price infation was inevitable.

Belatedly, the Bank of England has been focused on reducing the money supply through quantitative tightening and raising interest rates. The risk is that by proving that they are now tough on infation, they are overdoing it. The evidence of some contraction in the money supply and of too high interest rates is beginning to increase. It’s not that UK per capita GDP has fallen it’s simply that it has not risen much since 2008, in line with the weak productivity performance. Getting it right today is better than overdoing it to pay for the sins of the Bank’s past laxity.

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Belatedly, the Bank of England has been focused on reducing the money supply through quantitative tightening and raising interest rates

On your marks

Helping landlords get set for EPC changes

Maeve Ward Director of Commercial Operations Mercantile Trust

I’m hopeful that by now most brokers are aware of the proposed Energy Performance Certificate (EPC) changes that are currently still due to come into force in 2025, despite intense lobbying and rumours to the contrary. By that date, landlords will only be able to offer new tenancy agreements on properties which have an EPC of at least a C rating.

It’s key that brokers and their clients don’t ignore the fact that an awful lot of work needs to be done, but do brokers have a plan to ensure their landlords are aware of the changes, understand the implications (especially regarding cost and time) and have a strategy to get the improvements made before the deadline?

With that in mind, I’m pleased to see various industry players doing their bit to get the message across and even ofer incentives to those needing to make improvements. For example, Shawbrook recently published a report, Confronting the EPC Challenge, which looked at tenants’ knowledge of and thoughts about energy eficiency of rental properties. Signifcantly, it found that right now, 58% of private renters would be less likely to look at a rental property if it had an EPC rating of D or below, so waiting for 2025 to come around for landlords to get their properties up to scratch is not the best strategy as they will fnd signifcantly less demand for them as we go forward.

Young private renters – the traditional demographic for landlords – are especially interested in energy eficiency, with 72% of renters aged 18-34 saying they always check the EPC rating of a property before making any decisions, compared to 52% of those aged over 55 years old.

Meanwhile, bridging lender Glenhawk is now ofering an end-of-term discount for those borrowers undertaking light or medium refurbishment who improve the EPC rating of a property. The borrower can enjoy a discount of up to 0.25% if improving to an EPC of C, or 0.50% for a B or above.

I believe this is a very positive move, as up until now options in the market meant landlords would only be ofered a ‘green discount’ on properties which already had an EPC of C or above. Such new incentives should help accelerate the improvement process required on much of the nation’s private rental stock.

In addition, Stroma, an environmental monitoring, performance testing and energy consultancy, is publishing a free EPC guide for landlords in June. It’s designed to explain clearly all of the regulatory proposals as well as explain to landlords how to proceed with a clear plan in order to make their properties energy eficient. It also includes information on how to source fnance for EPC upgrades.

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It’s key that brokers and their clients don’t ignore the fact that an awful lot of work needs to be done

A, B, C, D, EPC

Helping landlords stay ahead of proposed new guidelines

Gavin

The government’s ambition to achieve net-zero emissions by 2050 is fast-approaching; so too are the proposed EPC regulation deadlines. While not yet put into law, the regulations could require that any new tenancies in the private rented sector achieve a minimum EPC rating of C by April 2025, stretching to all tenancies by April 2028. Foreseeing the potential scale of work the new EPC guidelines could create, we published our second ‘Confronting the EPC Challenge’ white paper last year, which revealed landlords had a significant gap in knowledge of the proposed regulations. The report also highlighted the ways the industry can support landlords when it comes to creating a more sustainable rental market.

From 1st April this year it is now unlawful for a landlord to ‘continue to let’ a property with an EPC rating below E, unless they have made all possible cost-efective energy eficiency improvements up to the current cap of £3,500 or one of the exemptions applies. This raises immediate concerns given that the research for the white paper shows that only 43% of landlords surveyed know the EPC rating of all their properties and 23% either don’t know or are not sure, potentially leaving them exposed to fnes anywhere between £5,000 and £150,000 for continuing to let a non-compliant property.

The remaining knowledge gap

11% of landlords still say they don’t know anything at all about the proposed requirements, and while 78% say they have now heard of them, 37% of this group admit to knowing only ‘a bit’. Our research shows that just a quarter of landlords’ portfolios contain properties that all meet the EPC target of C and nearly four-in-ten (38%) have

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Overall, more than 63% of landlords say the burden of EPC improvements makes them more likely to sell their properties in the next fve years largely as a result of cost concerns and the additional administrative load

Advertising Feature

Seaholme Sales Director – Real Estate Shawbrook

properties that are all rated D or below. 31% of landlords said that the lack of information on how and what improvements to make was one of the key barriers, and that improved guidance would be the most efective way to help them understand and make the necessary changes.

Cost of living impact

Last year’s sharp rise in energy costs, alongside the ongoing infationary pressures have squeezed everyone, not least renters, and our research shows that 21% of tenants have spoken to their landlords about making energy eficiency improvements. 58% of renters would be less likely to rent a property with a rating of D and below. All of these factors have provided the impetus for many landlords to speed up their plans for making improvements, with 54% making improvements over the frst half of last year, 63% of which brought their plans forward. 48% of landlords see lower energy costs as the key beneft, mindful of the attractiveness of eficient homes to tenants.

The remaining barriers

As one might expect, the key obstacle to energy eficiency improvements is the cost of changes, with 44% of landlords saying afordability worries were holding them back. On average, landlords estimate the cost of bringing a property with a rating of D or below up to the C standing at just under £2,000. However, 9% expect the work to cost more than £5,000 and 33% are concerned that pressures linked to supply chain disruption will drive these costs higher.

Overall, more than 63% of landlords say the burden of EPC improvements makes them more likely to sell their properties in the next fve years largely as a result of cost concerns and the additional administrative load. On the face of it, this could potentially have a worrying, more long-term impact on the availability of properties in the private rental sector, however we believe this is an opportunity for the professional landlord (those with a portfolio of four or more properties) giving them the ability to add to their stock.

Work with a fexible lender

Landlords come in all diferent shapes and sizes and, given the potential weight of the fnancial burden these rule changes could place on the market, it is important for brokers to be up-to-date with the best and most suitable fnancing options available to property owners. Many lenders, such as Shawbrook, are also beginning to ofer discounts to landlords who can prove that their properties meet the forthcoming EPC requirements. These mortgage products can incentivise landlords to make EPC improvements, or reward them in the long-run – giving them preferential rates, partial refunds of arrangement fees or even cashback in some cases.

Mortgage brokers who actively engage, listen and provide sound advice to landlords will go a long way in ensuring as many properties as possible reach the desired C grade by 2025, whether the regulation kicks in or not. Not only will this provide a larger supply of housing desirable to tenants, it will also support the drive to a more sustainable and environmentally friendly rental market.

One way or another?

The direction of travel for electric vehicles

Head of Business

As the transition gathers pace, it is no surprise the used car market for electric vehicles (EVs) is growing all the time as manufacturers ramp up supply and new models enter the market. Figures from the UK motor industry body SMMT show that used battery electric vehicle sales were up 37.5% in 2022.

Overall, 71,071 used battery electric vehicles (BEVs) were purchased last year, with hybrids increasing by 8.6% and plug-in hybrids by 3.6%. Whilst small still compared to the total 6.9 million used vehicles acquired in 2022, it shows the direction of travel for EVs.

The SMMT’s March new car registrations showed that vehicles with some form of electric propulsion accounted for over half of sales during the month. BEV registrations were 18.6% higher during the month to 46,626, accounting for 18.6% of sales.

Four factors will likely infuence the market in the coming months and years. The frst has dogged the electric vehicle market since its infancy and will only become more prevalent as greater numbers of EVs hit the road – infrastructure.

The SMMT’s fgures show that there is just one public charge point installed for every 53 electric cars in 2022, a fgure that will only worsen without serious investment.

Second, the tax treatment of EV drivers. To date, the Government has ofered benefcial tax terms to encourage more people to abandon the petrol pump, but the Chancellor will need to replace those missing billions from fuel duty as petrol usage declines. The Government has already said EV drivers will need to start paying car tax from April 2025.

Third is the price of EVs. So far, EVs have come with a price premium to refect the high development costs and production output that is typically lower than petrol or diesel cars. As manufacturers transition their feets towards EVs, we would expect price to become a key marketing component.

And fourth is technology. We are already seeing some breakthroughs in extended range and better performance.

The electric light commercial vehicle (LCV) market has similar challenges around technology and limited vehicle range, especially fully loaded making these impractical for many LCV drivers. There are more electric LCVs coming to market, but with the SMMT forecasting sub 8.6% market share of electric LCVs in 2023, this lags behind the car market. With the future internal combustion engine (ICE) ban for new vehicles by 2030 covering LCVs and cars, it does feel like this market has further to travel and more support is needed from the Government.

So, the EV sector faces question marks and teething pain as it matures and eventually replaces fossil fuel vehicles. The direction of travel still appears clear, but this has largely been driven by the manufacturers and not due to a clear plan to improve infrastructure or ofer incentives to make the transition.

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The EV sector faces question marks and teething pain as it matures

David Wilson

Development Paragon Bank Motor Finance

Timing is everything

Capital Allowances Technical Team Manager Catax (a Ryan company)

Investing in commercial property can be costly, but during sale or purchase, capital allowances provide a potentially huge tax saving to businesses – if they are addressed at the right time.

Capital allowances allow commercial property owners to claim tax relief for qualifying capital expenditure (whether by the current or a previous owner), including items that are embedded within the property and considered to be part of the building.

The sooner the better

The sooner the capital allowances’ position is clarifed in a sale process the better.

Following the change in fxtures legislation in April 2014, capital allowances must be considered well before the sale and purchase contract is agreed. If the issue of capital allowances is not addressed as part of the sale negotiation of a second-hand commercial property, the ability to take advantage of any unused allowances will be lost.

In our experience, it can be extremely dificult to obtain the seller’s cooperation post-completion in establishing a capital allowances claim. As the seller is no longer engaged and there is no fnancial incentive for them to revisit the capital allowances position, we ofen fnd they are reluctant to even engage in communication.

Here are a couple of scenarios, each requiring a diferent approach to how capital allowances should be addressed during the sale of a property.

Scenario 1: Capital allowances have not been claimed previously by the seller

The ‘pooling requirement’ generally requires the seller to pool all available capital allowances and either retain them or dispose of them to the buyer upon completion. If these allowances have not been identifed by the seller (which ofen happens to be the case) the potential beneft and tax savings will be lost forever if not addressed in time.

Ideally, the buyer should ask for clauses to be inserted into the contract stating that the maximum value of capital allowances will be passed over to the buyer and that the seller will cooperate in supplying information to substantiate the claim.

Scenario 2: Capital allowances have been maximised previously by the seller

Just as important, if not more so, is the situation for the seller. A good tax adviser will already have identifed all available capital allowances

How capital allowances work during the sale of a property

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It can be dificult to settle the subject of capital allowances post-completion and can result in dire consequences

Dean Needham

at a property and the seller will have been enjoying the beneft of them for several years.

At the point of sale, it is vital that the seller decides how they will treat the remaining unclaimed capital allowances. There are two options, although we recommend the frst.

1. The seller retains the beneft of the capital allowances when the property is sold. This is done by completing a Section 198 (s198) Election form with the value of £2. This essentially restricts any capital allowances claim the new owner can make to £2 and allows the former owner to continue to claim the capital allowances that have been identifed even afer the disposal of the property.

2. The seller can pass over any unclaimed capital allowances to the new owner. This is done by completing an s198 Election form with the tax written down value (TWDV) of the capital allowances at the point of sale. This could be a point of negotiation and will make a property more desirable to potential property investors. But beware! It is vital that the s198 Election does not detail a value higher than the TWDV of the capital allowances at the point of sale. Doing so would cause a clawback of the allowances already claimed.

The two-year deadline

There is a two-year deadline from the date of completion to supply a HMRC oficer with a completed s198 Election to either pass capital allowances to the new owner or for the prior owner to retain the beneft of them. If this is not done, then the ability to establish capital allowances is lost.

To supply a HMRC oficer with the s198 Election form, it simply needs to be included with the tax return for the year of property disposal/ acquisition when it is submitted.

Although this two-year window is useful to ensure capital allowances do not delay completion of the purchase, without the correct treatment in the contract, it can be dificult to settle the subject of capital allowances post-completion and can result in dire consequences whether capital allowances have been claimed previously or not.

Added value for your clients

For brokers with clients either purchasing or selling commercial property, seeking the guidance of a tax relief specialist can ensure capital allowances are maximised and addressed at the contract stage.

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The sooner the capital allowances position is clarifed in a sale process the better

The bridging market in 2023.

Despite recent economic turbulence, the bridging market has always been – and will continue to be – very resilient. This year brokers and their clients will still be looking for speed, but will also turn to bridging finance to provide certainty of funds for opportunities which may involve additional complexities – such as down valuations, for example.

Landlords and investors alike are still looking for ways to increase their yield. Properties in need of refurbishment continue to be a high priority, as do those which can be turned into a House in Multiple Occupation (HMO), a Multi-Unit Block (MUFB), or extended to add significant square footage.

We’ll also see investors exploring opportunities to convert commercial and semi-commercial properties as more of these buildings become vacant. While noone wants to capitalise on others’ misfortune, sadly the ongoing economic crisis is likely to drive more businesses and building owners to reassess and sell up, which will open doors for others to explore.

This forms part of a wider trend we’re seeing of landlords moving away from traditional buy-tolet properties where it’s becoming increasingly more di cult to achieve a great yield, and seeking opportunities across a variety of asset classes and property types. In uncertain times, a diverse portfolio can help investors weather the storm, particularly if the focus is on long-term value rather than short-term gain.

We’re also still receiving lots of cases featuring dilapidated and uninhabitable properties, or those of non-standard construction, which other lenders are more reluctant to accept.

Property auctions remain a great place to pick up the projects I’ve mentioned, and I think we’ll see them grow in popularity even more this year; many auctioneers moved online following the pandemic and some have increased their completion deadlines from the traditional 28 days to 56 days in some cases. Therefore, it’s become more accessible and less daunting to di erent types of investors.

Of course bridging finance can also be advantageous for businesses who need a short-term solution to a cash flow problem, to consolidate good debt, or to seize growth opportunities. We’re definitely seeing an increase in these types of cases at the moment.

Tanya Elmaz Director of Intermediary Sales - Commercial Finance

Top tips for brokers:

Understanding how bridging can be used when a buy-to-let or commercial mortgage isn’t right for their customer’s circumstances is vital, and if you’re currently unsure, get yourself aligned with an experienced bridging lender, or a network or club who can support you.

Education has a crucial role to play; even experienced brokers will want to engage with education programmes and qualifications to improve standards and demonstrate their professionalism – FIBA and NACFB programmes are good examples of where to start.

Prioritise providing great quality packs to their lenders – the more information you can provide on day one will help support a faster and easier transaction.

Are people’s attitudes towards bridging changing?

The last two years in particular have done a lot for the reputation of bridging – think back to the Stamp Duty holiday and a buzzing property market which saw buyers need to move incredibly quickly to secure a deal. A broker who may have previously never worked on a bridging case might have experienced more requests for fast, short-term finance where clients were experiencing broken property chains, and now they’ve become more savvy and are able to o er it as an option moving forward.

What’s next for bridging?

Bridging is an area of growth, with digital transformation and technology adoption playing a key part in the future of the industry.

With nearly 50 years’ experience, you can rely on our dedicated team to deliver expertise and support.

Quality over quantity?

Why lenders might be better rethinking their approach

Lucy Painter Director FundingRound

Brokers offer commercial lenders an additional income channel through their identification of potential businesses whom lenders might not reach directly. In this process, it can sometimes appear that commercial lenders are pushing for quantity over quality, meaning that they may be more interested in working with brokers delivering a high volume of loan opportunities, than selecting brokers who provide high quality lending proposals, which include upfront assessment corresponding to the lenders’ specific criteria. There are a couple of reasons why this might be the case.

Firstly, commercial lenders are businesses themselves and need to make money. Clearly brokers delivering high volumes of borrowing opportunities increase the lender’s chances of generating income. This can be especially important in a competitive lending market where lenders need to move quickly to secure business. However, the lender must ensure their internal resources have the capacity to service the quantity of borrowing opportunities with propositions ranging from a business name and contact number through to a detailed proposal paper.

Secondly, competition in the commercial lending market is intense. There are many lenders vying for business, and it can be challenging to stand out. By working with a volume-led proposition with brokers and so providing loans to as many borrowers as possible, commercial lenders might see this as increasing their profle in the market.

Clearly working with brokers can be an eficient way for commercial lenders to identify potential borrowers – working with multiple lenders, brokers can identify those who are most likely to meet the lender’s criteria. However, it is only eficient if the broker is ofering a service based on professionalism, knowledge of the market and suficient due diligence with their clients. Otherwise, it creates no added value to the lender, other than a just another new introduction.

In our brokerage, FundingRound Ltd, we come across this barrier, time and time again. As a growing broker, our volumes are simply not at the same level of some of the major broker networks you might come across. However, our year-on-year lend volumes have increased close to 50% over the past four years or so. But we’ve been unable to get on the panel of some well-known lenders due to volume levels not meeting minimum requirements.

We are very clear about why we came into the market: we our founded on the core principles of delivering professionalism and specialist fnance knowledge to the SME market. The team aren’t new to this sector – they have many years’ experience working for lenders, on specifc fnance products, giving them a valuable insight into what lenders need and require when considering a new fnance facility.

We pride ourselves on extensive upfront assessment of client needs and circumstances, so we know, when we approach a lender, that it fts their lending criteria. Furthermore, we deliver a detailed proposal paper, outlining the key information any lender requires to assess viability against lending criteria. I’ve lost count of the times we’ve had the positive feedback that our proposal was a ‘cut-and-paste’ into the lender’s credit paper.

Clearly brokers delivering quality provide numerous benefts to any lender. Lenders’ internal resources have a much better starting point to undertake their required assessment and due diligence for their credit submissions. Timescales, from introduction to credit sanction, are ofen faster and more eficient. Borrowers use the broker for their queries and concerns, and brokers act as gatekeepers to lenders to help avoid wasting time. Brokers protect the reputation of the lenders they work with.

So why is quality not valued in the same way as quantity? It seems so short sighted of lenders to exclude brokers who deliver quality borrowing opportunities. We see it a lot in the asset fnance market, particularly motor fnance. With the increased regulation we’ve seen over the past few years, plus the impending Consumer Duty, we cannot comprehend why a quantity strategy is rated over one prioritising quality. This becomes even more farcical when lenders close their books temporarily due to excessive volumes which cannot be serviced internally. When they reopen, they always seem to favour the brokers who have delivered volume previously, yet quality proposals would support the internal resource they have available and help protect their service levels. This has happened over the past couple of years with property lenders as well as some in the unsecured lending market. We all know scrutiny of borrowers has increased in recent times, so why not use quality brokers to undertake more of that scrutiny?

Commercial lenders may prioritise quantity over quality when working with brokers to increase their loan volumes and generate higher profts. However, this approach can be risky. Commercial lenders should strike a balance between quantity and quality with brokers to ensure they are providing the best service to their borrowers, while also generating revenue. This can be achieved by carefully selecting the brokers they work with and evaluating how they might support their internal processes and lending criteria.

Commercial lenders should strike a balance between quantity and quality with brokers to ensure they are providing the best service to their borrowers

Down on the farm

Estate planning to avoid farming family friction

Robert Bourn Director Farm Finance

As farm properties often have a unique set of circumstances, estate planning can be complex, and it is important to take a thoughtful and strategic approach to avoid family conflict down the line.

In our experience, farm properties ofen have multiple layers of ownership, with family members and many generations involved in the business. This can make it challenging to navigate the various legal and fnancial considerations when planning for the future of the property. Neglecting to plan appropriately can lead to serious and costly consequences, such as the sale of the farm or legal battles among family members.

Taking a strategic approach

To prevent these issues, farm owners should take a strategic approach to estate planning, involve all family members and seek professional advice from legal and financial experts who specialise in farm properties. Planning early, well before retirement or when the farm owner is in poor health, allows ample time to work out the best way to transfer the property and assets and to ensure that all family members are involved in the process.

Creating a clear and comprehensive estate plan that outlines how the property will be transferred, who will be responsible for managing the

property, and how any assets will be distributed among family members is also important. This plan should be reviewed and updated regularly to ensure that it remains relevant.

Legal advisers may suggest the use of trusts or other structures to help protect the property and assets and ensure that they are transferred according to the owner’s wishes. This can also help to minimise the tax implications of transferring property and assets to the next generation.

Where an inter-family sale is on the cards, in addition to specialist legal counsel, it is important that a specialist fnance provider is used too as the complexities of transferring ownership from one generation to the next are myriad, not least because it’s a sensitive issue with family members ofen holding difering views on the value of the property and the terms of the sale. Working with a professional intermediary, a legal adviser and a fnance provider all of which understand these nuances can help to ensure that the sale is structured in a way that is fair and equitable for all parties involved.

The opportunity for brokers

It may be a niche area, but the opportunity for brokers is huge for those who are prepared to learn about the sector and make connections. According to an update to DEFRA’s Agriculture in the UK Evidence pack published last September, in 2021, the UK agriculture industry was made up of 216,000 farm holdings, of which 54% were owner-occupied in England alone. And of course, it’s not just estate planning that’s required; fnance for livestock, equipment, additional property, cashfow, repairs, the list goes on for anyone looking to get involved, and if you’ll excuse the pun, reap the rewards.

The heart of it

Project-centred bridging solutions

Rob Lankey Chief Commercial Oficer GB Bank

The TV shows tell us that “location, location, location” is the top priority when it comes to property, but those whose livelihoods are tied up in the sector know that if you don’t get the money right, you won’t get anything right.

The problem is that for far too long, even experienced developers who have everything else right – the vision, the track record, the site, the exit strategy – have found it dificult to get the funding they require at the rates they need to make their projects get of the ground.

This is where we come in.

A bank with property at its heart

GB Bank became one of the UK’s newest fully licensed banks in August of last year because we wanted to be at the heart of the property development eco-system to support property developers and investors to help regenerate local communities. We believe in fitting the products around the projects rather than the other way round.

So for developers looking to borrow between £26,000 and £3 million for their projects, we offer a range of short-term finance solutions including bridging loans.

Using their local knowledge and experience, our dedicated relationship managers work with brokers and their clients to ensure that the right funding package is put together.

Decision-making is also done on a local basis and, because we know time can be of the essence when it comes to providing bridging loans, we pride ourselves on fast turnaround times and delivering on our promises.

Right products, right combination

We believe in providing a range of solutions, which is why our products in both residential and commercial bridging fnance cover:

• Standard bridging – suitable if the repair and development budget is less than or equal to 10% of the market value

• Light refurb bridging – for property projects that involve a bit more work, but remain a relatively light refurbishment project and do not require planning permission

• Heavy refurb bridging – for signifcant renovation projects involving major structural work but where some of the existing property remains standing.

Terms of up to 18 months are available on both commercial and residential bridging solutions with fnance up to 75% LTV and 100% LTC on residential projects and up to 70% LTV and 90% LTC on commercial projects.

Our products are suitable for a range of diferent purposes so whether developers need funding to purchase, refnance, refurb, or unlock working capital to make further investments, we are here to help. And whether your client is an experienced developer or a frst-time borrower, our products are available for all. At GB Bank, we’re keen to support those customers new to property projects, to help raise the funding they need to get started.

“ We believe in ftting the products around the projects rather than the other way round

Crucially, our solutions are designed to be fexible and work in combination to provide the optimum mix for the project at hand.

It all sounds good in principle, but how does it work in practice?

Bridging to commercial unit success

Developer Jason Clay took advantage of a GB Bank commercial bridging loan to purchase a portion of land at Springfeld Farm Business Park near Harrogate, North Yorkshire, to develop into much-needed commercial units.

Our bridging fnance allowed Jason to move quickly, purchasing the property and starting building within a couple of months of commencing his search. Working alongside introducer James Parnell from Funding Friends, we helped Jason refnance his existing bridging loan to fund the build.

Building up homes

Experienced property developer Sean Pringle at Dacre Street Developments sought our help for his latest residential project.

We completed a deal to provide residential bridging fnance for Sean with a combination of equity release and additional refurbishment funds. This has enabled him to complete a property on a recent development site and then purchase nearby land earmarked for a new development.

Designed for success

To fnd out how our bridging products, our approach and our people can help you and your clients, get in touch today at lending@thegbb.co.uk or visit gbbank.co.uk

Bridging solutions that work for you

Our residential and commercial bridging loans are designed to get things moving; whether you’re a seasoned investor, an experienced developer or just starting out.

• From £26,000 to £3 million

• Up to 75% LTV & 100% LTC

• Standard bridging • Light re-furb bridging • Heavy re-furb bridging

• Exit bridging

• Commercial & Residential

PG tips

Understanding the risks of taking out a personal guarantee

Todd Davison Managing Director Purbeck Personal Guarantee Insurance

For a business owner or director, entering into a personal guarantee (PG), placing personal assets at significant risk can be a daunting prospect. But as brokers know, providing a personal guarantee is increasingly common among some lenders and sometimes it is the only way to secure finance.

For those unfamiliar with the concept, a PG is a legal agreement in which a business owner or director agrees to take fnancial responsibility for any credit, typically a loan, on behalf of their business. This means that the guarantor is prepared to use their personal assets, such as their savings or property, as collateral if the business defaults on loan repayments.

To help brokers provide their clients with a greater understanding about this form of legal agreement, here are some points to consider before signing on the dotted line.

Joint and several liability

A PG can be signed by multiple people, if required. This means that where there are multiple guarantors, each of them shares personal liability to the lender, so if one guarantor is unable to pay, the lender can pursue the assets of the remaining guarantors to receive the whole amount.

Bank standard terms and legal advice

Terms are set by the lender and the scope for negotiation is ofen limited. For this reason, make sure your clients seek independent legal advice to ensure they have a clear understanding of the terms of the agreement, including the extent of liability and the potential risks. Then an independent solicitor must provide proof that the guarantor is entering into the agreement freely and without undue infuence, which involves a written confrmation.

Limited or unlimited liability?

This refers to the maximum amount the guarantor is required to pay if the PG is enforced and can be limited or unlimited. It is based on several factors, such as the level of debt, the type and terms of the credit, and the availability of other forms of security. Any other amounts

An independent solicitor must provide proof that the guarantor is entering into the agreement freely

that may be required to be paid under the personal guarantee include interest, expense and default interest, which are not included in the capped limit and will be payable above it.

Termination

This is usually set out by the lender before entering the agreement and there is also usually a condition that the guarantor may terminate or fix their future liability through a written notice to their lender. However, the guarantor will remain liable for the amount that has been incurred up until that period. This will also have an impact on the business, which will be required to offer alternative guarantees as security. If the loan has been repaid, the guarantor is then entitled to make a request to the lender

to be released from the agreement and discharge the assets granted to secure it.

Enforcement

If the business goes insolvent and defaults on the loan, or it fails to comply with the conditions of the loan, the lender will turn to the PG to recover the amount owed. If the guarantor is unable to pay the sum that was guaranteed, the lender can call on any of the personal assets used as security, as well as apply to the court for the sequestration of the guarantor.

To mitigate the risks outlined above, your clients can take out PG insurance and of course, that’s where we come in.

Five efects of interest rate hikes on SMEs

Depending on their situation and goals, rising interest rates can have both positive and negative effects on small businesses. Outlined here is a summary of some of the main effects of rising rates on the intermediary-led lending community.

1. The cost of borrowing increases

Unless the rate is fxed, interest rates on commercial fnance will go up, meaning SMEs have to fork out more each month to cover the costs of their mortgages and business loans which, in turn, hits their monthly cashfow. More expensive fnance also makes it harder for businesses to qualify for loans. This is ofen exacerbated by tightened lending criteria too. Credit card rates also rise which can afect the cash fow and proftability of small businesses that rely on credit cards for purchases or payments.

3. The demand for goods and services decreases

5. Encourages innovation, efciency and borrowing

Whilst some SMEs might be discouraged from making new investments, preferring to wait until interest rates come down before committing to new projects, others will be motivated to innovate and improve eficiency. Ofen this can lead to the business seeking fnance to achieve their ambitions. For example, with the help of their broker, a business might determine that invoice fnance or a revolving credit facility is more cost-efective that using a credit card. Thinking outside of the box can help SMEs to gain a competitive edge and increase their productivity and proftability even when times are hard.

2. The cost of raw materials increases

It is not just the cost of borrowing that increases, interest rate hikes also negatively impact the price of utilities and raw materials making it more expensive for SMEs to manufacture and ofer their goods and services. This puts them at a competitive disadvantage with larger corporations which can utilise economies of scale. Also, SMEs which rely on imports and exports – for raw materials as well as sales – can be negatively afected by fuctuations in currency values.

As infation rises faster than wages, higher interest rates can erode the purchasing power of customers. With less disposable income and an increase in the price of goods and services, demand falls. This particularly afects businesses that sell nonessential products and services that consumers may avoid without any major consequences to their well-being – known as the consumer discretionary sector. Clearly this afects both the revenue and growth prospects of small businesses.

4. The return on savings increases

On the positive side, higher interest rates can beneft small businesses that have savings or deposits, as they can earn higher returns on their money. This can help them build up their capital and cushion against unexpected expenses. It also increases their likelihood of qualifying for commercial fnance, should they need it.

Five Minutes with: Alex Bennett

Alex Bennett Regional Broker Manager Haydock Finance

Describe your role in ten words or less?

Developing broker relationships and ofering competitive funding solutions to SMEs.

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

Meeting the customer’s funding requirements in a timely, professional manner, to the best of your ability with the tools available to you. From my experience ease of process and turning a transaction around in a sensible time has always drawn in successful business.

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

Adverse credit history which hasn’t been disclosed or explained at proposal stage. Quite ofen this can be addressed so as not to be detrimental to a new deal. Also importantly, knowing the deal proposed fts the lender’s criteria which can be a common reason for a decline.

What was the last show you binge-watched?

Better Call Saul – Breaking Bad spin-of, I would highly recommend!

Which person has inspired you the most and why?

Arnold Schwarzenegger – Arnold came from humble beginnings born in Austria, speaking only one language. He took it upon himself to travel the world, learn a new language, become the No.1 body builder in the world, an A-listed movie star in Hollywood and more recently the Governor of California. All dreams are possible with hard work and dedication.

Where is your favourite place in the world and why?

Brantôme in France located on the edge of the Dordogne River for its beautiful medieval architecture and surrounding scenery. I last visited in August 2016 for my 30th birthday along with family. I’m lucky enough to have some French family living in the South of France who introduce us to some little gems like this one along the way.

How do you make a diference?

Working in asset fnance for the past 18 years I have enjoyed the highs and the lows within the industry. Using this experience, I look to create and maintain strong working relationships to ensure both broker and

client reach their desired goals within the SME market.

What is the best live music experience you’ve ever had?

Vampire Weekend at the Hard Rock café Orlando Florida back in 2010 during a very warm October.

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

Knowing which lender is best suited to your customer’s funding requirements and maintaining healthy relationships. Understanding each funder’s appetite, pricing and process will be key to winning that deal.

If you could have dinner with anyone from history, who would it be and why?

It would have to be the actor and comedian, Robin Williams. An intelligent man who always had the great ability to make you laugh and feel, in both his on screen acting and comedy. Anyone that knows me will understand I enjoy good humor which I think is an essential tool for any relationship whether that be work or personal.

Help Your Client's Farming Business To Thrive

With over 40 year’s experience and a specialist agricultural team, we can provide asset finance for livestock, arable, vehicles, forestry, horticulture and recycling.

• Hire Purchase

• Leasing

• Refinance

• Livestock Finance

Dedicated support: agriculture@haydockfinance.co.uk

With you as you build out your scheme

the specialist effect

As an experienced and long-established lender, we are dedicated to supporting our customers through the ups and downs of the economic cycle with committed facilities over the lifespan of their development projects.

Acquisition Finance

60% LTV | Loans up to £30m | Residential, mixed-use, commercial and alternatives

UTBANK.CO.UK

Email: development@utbank.co.uk

Telephone: 020 7190 5555

Development Finance

65% LTGDV | Loans up to £30m | Residential, mixed-use, commercial and alternatives

Development Exit

75% LTV | Loans up to £30m | Residential and residential led mixed-use