Issue 101 JUNE 2022
Broker COMMERCIAL
The award-winning magazine for the National Association of Commercial Finance Brokers
18 LEGISLATIVE PROGRAMMING
20 PEER PRESSURE
Government sets out plans to sharpen regulatory teeth
By the book Unravelling the mysteries of the balance sheet
Sharing the inside track on a P2P lending sector in flux
30 AVOIDING GREENWASH What actually constitutes a sustainable loan?
32 ON A KNIFE EDGE Life inside the ‘just about managing’ small businesses
Contents
In this June issue NACFB News
Special Features
4 6 8
22-23
10 12-14
Note from Norman Chambers Updates from the Association Note from headline sponsor, Allica Bank Industry news round-up Membership news
25-26 28-29 30 32 34-35
Funding Circle: Planning ahead for success NACFB: By the book MFS: One size does not fit all Triodos Bank UK: Avoiding the greenwash Bibby Financial Services: Profitability on a knife edge Cambridge & Counties Bank: Growing relationships
Industry Insight 36 38 40 42
Phelan Independent: Pre-recession lending? Purbeck Personal Guarantee Insurance: PGI uncovered Renaissance Asset Finance: Charging forward Method Valuation: Know your worth
Opinion & Commentary
16 Patron Profile 16-17
Assetz Capital: Setting the tone
Compliance Update 18
44-45 46 48-49 50 52 54
Mortgages for Business: Devil in the detail YBS Commercial Mortgages: A secret to success iwoca: Business as usual? NACFB: The long game Listicle: Five ways to make the most of NACFB Expo 2022 Five minutes with: Nick Smith, Group Managing Director, Reward Finance Group
NACFB: Sharpened regulatory teeth?
Peer2Peer Finance News: From peer to eternity
Further Information KIERAN JONES Editor & Feature Writer
33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk JENNY BARRETT Communications Consultant
33 Eastcheap | London | EC3M 1DT Jenny.Barrett@nacfb.org.uk LAURA MILLS Graphic Designer
33 Eastcheap | London | EC3M 1DT Laura.Mills@nacfb.org.uk MAGAZINE ADVERTISING T 02071 010359
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Ask the Expert 20
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NACFB | 3
Welcome
Norman’s Note
U
nravelling the mysteries of the balance sheet is a task that most commercial brokers tend to learn at the start of their careers. Once understood, itʼs a skill that will stand them in good stead and no doubt, helps to increase the number of successful applications first time around. And successful applications – at first submission – are what every broker aims to achieve, not only to keep the pennies flowing but also to help earn the respect of and deepen relationships with both lenders and borrowers. In recent months, we have welcomed a large number of new Members who are only just beginning their journey along the road that is commercial finance broking. That’s why, in this month’s cover feature, I have chosen to share what I believe to be a forensic and yet light-hearted examination of a typical small business’ balance sheet. I hope it provides our newer Members with a good overview as well as offering our more seasoned Members a quick refresher.
Norman Chambers Managing Director | NACFB
4 | NACFB
Talking of refreshers, this edition of the magazine is being distributed at our flagship event, the NACFB Commercial Finance Expo, at which we are delighted to have laid on a wider array of food and drink and chill-out facilities. In response to feedback, I’m particularly excited to tell you about our new and exclusive Members’ Lounge – a private, comfy area away from the melee where Members can take the weight off their feet, grab a coffee, catch-up on emails and chat to other Members. With more than 2,500 expected to attend on the day, this year’s NACFB Expo promises to be a busy one and I for one, am hoping that I get the chance to take five. I look forward to seeing you there.
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NACFB News
Association updates for June 2022
NACFB reveals charity partner Association to support smallest charity to date
T
he NACFB’s 2022 charity partner has been revealed as the Newman Holiday Trust, an entirely voluntary organisation which provides summer holidays for children with special needs.
The Trust is an entirely voluntary organisation and owes its success to over 200 people who dedicate their free time to helping these children. This voluntary structure ensures that every penny raised goes directly towards a child’s holiday.
The tie-up sees the trade body partner with its smallest charity partner in recent history, as the Association seeks to make a bigger proportional impact and help sustain a longer-term financial footing for the charity.
Commenting on the partnership Anand Chitnis MBE, Chair of the Trust’s board said: “This is the very first time the Newman Holiday Trust has partnered with a corporate partner on this scale, and we’re excited to share our story with the UK’s premier intermediary-led lending community.
Representatives from the Trust will be present at all the NACFB’s flagship 2022 events, where they will share more information on the work their teams undertake and the difference they make to the lives of children with special needs from across the UK. Established in 1981, the Newman Holiday Trust began by running a one-week summer holiday for children with special needs. The Trust now provides holidays for over 120 children with disabilities and special needs aged 4-16 each year, in various locations around the United Kingdom. Due to the high levels of skilled care – or their financial circumstances – the children selected for the breaks would not otherwise receive a holiday. The holidays provide a range of fun activities in a safe and supportive environment that maintains a care ratio of one helper to one child. 6 | NACFB
“As a GP, I’ve been able to bring a medical perspective to ensure the highest standards are applied to our holidays. In the NACFB, I believe we have found an organisation that is as passionate about maintaining the highest of standards whilst making a difference,” Anand added. NACFB Chair, Paul Goodman, reflected on the NACFB’s partnership with the Trust, saying: “When selecting a charity partner for this year, the Board of Directors and I made a conscious decision. We chose to support our smallest charity in recent memory so that the funds we raise make the biggest impact.” Paul continued: “What drew us to the Newman Holiday Trust was the fact that it remains entirely volunteer led, and I hope the money we raise this year can help the charity establish a solid bedrock from which to grow.”
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Note from our Sponsor
Diversity engenders competitive advantage Banks have been slow to address diversity, but at their peril
Richard Whorton Head of HR Allica Bank
improving our diversity is a key business objective, and I’m pleased that we made great progress in 2021: • Ethnic minority representation grew from 32% to 40%
T
he benefits of a diverse workforce are well documented. Teams with broader representation have been proven to make better decisions and be more productive, while more inclusive hiring expands the pool of talent from which to recruit. Clearly, improving diversity doesn’t just make ethical sense, but it makes business sense, too. It can also help banks better serve you and your clients – a workforce that reflects its customer base can tailor product offerings to meet their needs more closely. And the SME market is only getting more diverse. The 2017 Global Entrepreneurship Monitor identified that ethnic minorities and migrants are now nearly twice as likely to be early-stage entrepreneurs as white British people. Earlier this year, research in The Telegraph revealed that more women are starting businesses than men.
Despite this, larger and more established banks are struggling to adjust their representation at pace. Which is why, at Allica, we don’t just see improving representation in our workforce as the right thing to do, but an opportunity to gain a competitive edge, too.
Allica’s diversity stats Of course, it’s important that we are transparent about our affairs, and we recognise that Allica still has a lot of work to do. However, 8 | NACFB
• Female representation went up from 36% to 42% • Women in senior leadership roles increased from 11% to 28% • Our tech and data team went from 15% female to 30% And this is just the start.
Proactive measures Alongside our recruitment policy I wanted to call out two more initiatives which, I believe, encourage diversity and give Allica a strong competitive advantage. For one, top-level accountability. Our executive committee is targeted and held accountable for improving diversity within the business, and the results directly impact the annual bonus of all employees. From the top down, the entire company is actively working towards this objective. Secondly, flexible working. The nine-to-five, Monday-to-Friday work schedule can be alienating to many lifestyles – most notably, parents. Allica is embracing hybrid working, and we encourage all our managers and employees to have open conversations about working patterns that suit them best and we do whatever we can to accommodate them. It’s only by taking proactive measures like these that we can really impact equality and diversity in the workplace. Not just because it’s the right thing to do, but because it makes us stronger, too.
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Industry News
Industry News 1. Financial Markets Bill set to hand power to regulators
3. UK economy shrinks in March as GDP falls
6. Less than one in 10 firms calling staff back to office
Among the legislative programme set out in the Queen’s Speech is a financial services bill which could be the most significant development in the finance arena since the sector’s post-crisis financial reforms, with the financial regulators – the Bank of England, Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) – all set to take on new policymaking powers. The Bill proposes changes to the regulatory process that leaves significant power in the hands of the regulators, with reduced parliamentary oversight.
Data released in May by the ONS showed that GDP fell by 0.1% in March, slightly worse than the 0% growth forecast leading to fears of recession. “It appears as though the economy is dangerously close to a recession,” Paul Dales, chief UK economist at Capital Economics, said. Yael Selfin, chief economist at KPMG, said: “While we do not yet see a recession coming this year, weak growth means that additional shocks or spillovers from other economies make this scenario increasingly likely.”
Less than 10% of companies have ordered staff back to the office full time, new data has revealed, as employees insist on working remotely. The majority of businesses surveyed by estate agent CBRE expect to push for a return to more regular office life in the coming months, but just 6% are planning to enforce full-time commuting. The survey of 120 companies across various sectors found 39% of bosses expect workers will be at the office for at least three days a week.
2. Lending to small businesses slides
A group of MPs have said business executives and accountants should be held responsible for failings in their checks and balances and go to jail if they fail to prevent economic crime. The lawmakers have published a manifesto on economic crime urging the Government to step up the fight against fraud and money laundering. The group praised the Government for pushing ahead with its Economic Crime Bill but urged ministers to strengthen it in the four key areas of transparency, enforcement, accountability, and regulation.
A poll of 1,211 small business owners and sole traders by the Federation of Small Businesses (FSB) shows that lending to small firms in Britain has fallen to its lowest level since at least 2014. The data shows that just 9% of small firms sought finance in the first three months of this year, with the proportion that saw their applications approved hitting a record low of 43%. FSB National Chair Martin McTague said: “Lenders pulling up the drawbridge for small firms will threaten our already faltering economic recovery.”
2 10 | NACFB
4. MPs want dodgy bosses to go to jail
5. Ministers delay plans for corporate climate disclosure According to the FT, ministers decided to remove sustainability disclosure requirements from the Financial Services Bill just before it was announced in the Queen’s Speech. A source said the move should be viewed as Downing Street, “...not wanting to impose new regulations on business at this stage.” The move came amid a wider pullback over tightening standards of corporate governance, with audit reforms and new powers for both the internet and football regulators put on the back burner.
6 7. Borrowers seek to overpay mortgages Borrowers are paying off their mortgages before the interest rate goes up again. Nearly £5.1 billion was overpaid on home loans in the first three months of this year, while nearly 144,000 borrowers remortgaged over the same period, according to the Bank of England. Last year was a record year for overpayments, with £21.8 billion taken off mortgages as homeowners who saved money during the pandemic lockdowns used it to pay down debt. In May, the Bank Rate was increased to 1%.
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Membership News
Membership News Together posts record-breaking bridging lending
Rebrand and next generation broker portal at Landbay
Together has announced it has generated more than £103 million in short-term commercial finance in just a month. The NACFB Patron’s latest figures reveal it provided more than 260 bridging loans worth £103.6 million in April – a 17% increase on its previous record of £88 million set in July 2021.
Landbay has revealed a new brand with the launch of its next generation broker portal. The rebrand is a step away from the buy-to-let sector’s traditional look and feel – and the brand line, ʻYour lending partner’ reflects the trusted relationships the NACFB Patron has with both intermediary partners and borrowers.
Together provides regulated and unregulated bridging finance as well as commercial and residential mortgages and has a loan book of more than £4.4 billion. A spokesperson said the record lending was, in part, because of a number of “larger loans” – worth £5 million and above – during the period and an increased use of technology speeding up transactions.
The lender recognised that to provide a better level of service – one that allows brokers to have direct access to underwriters and a fast turnaround at scale – it would have to rethink and redesign the industry’s default approach to case management. Jays Shortt, chief product officer explained that the portal’s design required extensive user research to make it both fast and easy for brokers to submit applications and receive decisions. As such, all systems are now built and maintained in-house, involving users throughout the development process, creating tools to meet their exact needs.
Commenting on the announcement, Sundeep Patel, director of sales at Together, said: “The demand for short-term finance is continuing to soar across the industry, despite continued global uncertainties and financial pressures on individuals and businesses post-COVID. Our latest lending figures certainly reflect this.” Together is currently reporting that it has the largest loan book in its 50-year history, rising application numbers as well as a strong pipeline for unregulated bridging products. Recently the lender has also made technological advances to use an automated valuation model for over 70% of its loans. 12 | NACFB
John Goodall, CEO at the NACFB Patron, commented: “The launch of the new broker portal is a milestone we’re exceptionally proud of. Our new brand supports this leap in technology and service, signalling a new chapter for Landbay.” Jays attributed the success of the portal to the amount of quality work demonstrated by the Landbay team.
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Membership News
Membership News Aldermore reveals SMEs to invest £633m in growth
Shawbrook offers energy efficiency discount to BTL borrowers
SMEs plan to spend an average of £111,175 on growth strategies, equating to a £633 million total spend for all UK SME businesses, recent research from Aldermore has revealed. Confidence is growing despite supply chain issues and the ongoing impact of the cost-of-living crisis says the NACFB Patron.
Shawbrook has announced that it will offer new buy-to-let mortgage customers an energy efficiency discount, or partial refund, of up to 60bps on arrangement fees where the subject property’s Energy Performance Certificate (EPC) rating is ‘A’, ‘B’ or ‘C’. To qualify, borrowers must provide evidence confirming the property’s rating of ‘C’ or above. For example, on a £250,000 mortgage a customer could expect to save up to £1,500 on the arrangement fee.
Over a third (35%) of UK SMEs are planning to invest in new equipment over the next year. Businesses are also continuing to embrace the shift to online, with 35% planning to improve their online presence and 29% investing in digital marketing. Expanding their customer base over the next 12 months is the main priority for half (50%) of UK SMEs. Other priorities to drive growth include developing new products and services (26%), improving existing propositions (36%), investing in employee retention (25%), and reacting to the sustainability agenda (29%). Tim Boag, group managing director, business finance at Aldermore, said: “It’s encouraging to see that SMEs are planning to invest significantly in their business during the next year. Despite broader economic uncertainty, the cost-of-living crisis and ongoing supply chain issues, business confidence remains high, and SMEs are continuing to look to the future: to their recovery, growth and even transformation.” 14 | NACFB
Where customers wish to purchase an investment property, but it is EPC rated D or below, the customer can use one of the NACFB Patron’s non-regulated bridging products to improve the energy efficiency of the property, before transitioning to a Shawbrook buy-to-let mortgage. If the property is improved to a minimum EPC rating of ‘C’ then the customer will benefit from the energy efficiency discount. Commenting, Emma Cox, managing director of real estate said: “This product enhancement not only incentivises landlords to improve the energy efficiency rating of their property, but it also actively rewards customers when a property already has a high energy efficiency rating.” From 2025, the government proposes that all rented properties should have an EPC of ‘C’ or above for new tenancies, then all tenancies from 2028.
And the win
ner is...
#BrokingEx
cellence
NACFB Members invited to enter up to 15 award categories. Award submission deadline
Friday 24th June
In-person awards ceremony returns to Birmingham’s Edgbaston Cricket Ground on
Friday 23rd September
Secure tickets and enter submissions via commercialbrokerawards.co.uk
Patron Profile
Setting the tone Real world lending at the end of the phone Mark Standley National Commercial Director Assetz Capital
C
ast your mind back to 2011. We were still feeling the fallout of the global financial crisis and bank funding for businesses was in short supply. Couple that with the impact on deposit rates slashed to near zero by banks and building societies, it’s no wonder people were struggling to secure a fair return on their money and protect against inflation. Hard times! There’s always a light-bulb moment behind every great idea – and it was no different for us. With Chris Mellish – now chief technology officer, our head of property David Penston, and chief executive officer Stuart Law, we brought together our collective experience and industry knowledge to not only address the imbalanced grip of the more traditional banks, but to offer a simple and fair way for SMEs who often struggled to access finance to borrow through our marketplace. So came Assetz Capital in 2013. Through our development finance, commercial mortgages and bridging finance, we’ve pioneered ‘real world lending’ to meet the needs of modern brokers who increasingly want to drive potential growth for their clients and make a positive impact on the world around them.
Leading the way To date, we’ve lent over £1.5 billion – and are targeting record levels of lending in 2022. In the last couple of years, we’ve funded 16 | NACFB
the building of around one in every 12 new homes built by SME housebuilders in the UK and supported many other types of businesses from manufacturers to care homes and wholesalers to hotels, all driven through our nationwide team of regional relationship directors – technical and highly experienced finance professionals. Our journey so far has been an exciting one, with our first big milestone coming just one year after launch, as we hit the £50 million mark for loans facilitated to UK SMEs. We’ve crowdfunded successfully, won awards, achieved a five-star rating from Defaqto and have successfully lent to over 1,100 businesses. Change is constant in the lending market. Two years ago, we all found ourselves in the middle of another far-reaching crisis, this time with the COVID-19 pandemic. With the initial lockdown introduced as a first response – which led to an immediate and severe liquidity crisis – then the tiered-system and local restrictions further down
“
To apply for a loan, all we ask brokers to do is to give us a call to discuss their client’s requirements
“
We’ve always believed that financial success and making a positive social impact are closely linked, a view we share with an increasing majority of our brokers
the line, the pandemic impacted regional businesses in different ways. We were initially approved for accreditation as a lender under the Coronavirus Business Interruption Loan Scheme (CBILS) by the British Business Bank, which preceded the Recovery Loan Scheme – both reactive government-backed loan schemes to help the economy through COVID-19.
Real world lending To apply for a loan, all we ask brokers to do is to give us a call to discuss their client’s requirements. Assetz Capital has been and always will be a relationship business, so it seems logical that one of our relationship directors will set up a face-to-face meeting and get to know the borrower properly and work to design the optimum funding solution to meet their needs. Our relationship directors are supported by two highly experienced teams; a time-served credit team and a dedicated relationship support team. Between them they look to apply real-world, common-sense principles alongside financial metrics. The customer sets the timelines, not us, and with a strong support team behind them the relationship director will ensure efficient and
timely delivery as required with regular communication through the process. A comprehensive intermediary product guide is updated monthly on our website and emailed directly to brokers to provide just a flavour of what we can do – a diverse range of property secured loan solutions for business. Minimum contribution and high LTV, yes, we can do that. Larger borrower contribution and finer interest rates, yes, we have that covered as well.
Looking forward We’ve always believed that financial success and making a positive social impact are closely linked, a view we share with an increasing majority of brokers. We’re laser-focused on safely growing Assetz Capital this year to provide even more attractive opportunities for property developers and housebuilders, to support the growth of UK trading businesses and job creation and provide increasing numbers of energy efficient homes to those that need them most. Large numbers of our intermediary partners see Assetz as the ‘go-to’ lender for SMEs and it’s our real-world lending approach that we will continue to deliver that solidifies that position. NACFB | 17
Compliance
Sharpened regulatory teeth? The likely cost and benefits of proposed legislation James Hinch Head of Compliance NACFB
F
or the first time since 1963, HM The Queen was unable to attend the opening of Parliament, so Prince Charles, monarch-in-waiting, gallantly stepped in. The Queen’s Speech saw the government seek to set a legislative programme for the coming year, with the prime minister promising measures to support the UK economy and tackle regional inequalities. The speech contained 38 bills for the next parliamentary session. Among the flagship measures is a financial services bill which is likely to be the most significant legislative development in the finance arena since the sector’s post-crisis financial reforms, with the financial regulators – the Bank of England, Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) – all set to take on vast swaths of new policymaking powers. Unlike the EU system that preceded it, the Financial Services and Markets Bill proposes changes to the regulatory process that leaves significant power in the hands of the regulators, with reduced parliamentary oversight. According to the Lobby Pack published on Gov.uk, the Bill will help to, “...seize the benefits of Brexit, by establishing a coherent, agile and internationally respected approach to financial services regulation that best suits the interests of the UK.” A lofty ambition indeed, and it will certainly assist the FCA in its ambition to move towards a more principles and outcomes-based 18 | NACFB
style of regulation which could likely mean that firms would be required to develop and enhance their processes in this regard. According to the government, the Bill will help to cut through existing red tape, harness the opportunities brought about by technology – including the safe adoption of cryptocurrencies – ensure continued access to cash as well as increase protection from scams and provide more support for those who fall victim to the scammers. You can be sure that we’ll be monitoring the effect of these proposed changes closely and although the initial impact areas will be the crypto and insurance markets, in time, the same model is likely to affect our membership as well. Another piece of proposed legislation that will affect our Members and their clients is the Economic Crime and Corporate Transparency Bill which aims to tackle fraud and money laundering by strengthening national security. It also seeks to improve the service provided by Companies House through the better collection of data to, “...inform business transactions and lending decisions across the economy”. This will include broadening their powers, introducing identity verification for company directors and shareholders, and enabling financial sector businesses to more effectively share information. In addition to curbing the actions of Putin and his cronies, I suspect this Bill is partly a response to the extraordinary level of fraud witnessed when companies were established overnight to take advantage of the government-backed loan schemes. And finally, we’ll also be keeping an eye on the Data Reform Bill which, the Government says, will create a data protection framework that reduces the burden for businesses. Only time will tell.
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Ask the Expert
From peer to eternity
Q
The future of peer-to-peer finance
Suzie Neuwirth Editor-in-Chief Peer2Peer Finance News
P
eer-to-peer (P2P) finance connects borrowers with lenders via an online platform which takes a fee for providing the service. The lenders, some of which are NACFB Patrons, tend to be retail investors, high-net-worth individuals and institutions. Borrowers range from property developers and professional landlords to SMEs and consumers. We caught up with industry expert Suzie Neuwirth to find out how the industry is faring today.
What caused the P2P lending market to grow so quickly?
The sector’s growth was spurred by the financial crisis of 2008-9, as traditional high street banks stopped lending and interest rates approached zero. This created a perfect environment for P2P lending platforms to fill the gap, simultaneously serving an array of creditworthy borrowers and investors seeking yield. Free of the legacy technology issues that blight the banks, P2P lenders offer speedier credit decisioning and lending, which has boosted their popularity and supported their growth. 20 | NACFB
&
How many platforms operate today and how much lending do they facilitate annually?
has created onerous compliance costs for P2P lenders.
A
There are around 50 platforms in the UK market today. Assetz Capital is the largest P2P lender in the UK and has to date lent over £1.5 billion. Some platforms choose to publish loan book data but unfortunately the industry does not have a comprehensive data resource so we do not know total collective annual lending volumes. To give you an idea of the size of the wider industry, a report from the Cambridge Centre for Alternative Finance (CCAF) released last year found that UK alternative finance transactions hit £10.3 billion in 2020.
What part do commercial finance brokers play in the P2P market?
Recent research shows that many SMEs are still unaware of the array of funding options available to them and this is where brokers can help. As well as offering competitive rates and a quicker service, P2P firms can also be used for more niche forms of funding, so brokers can help connect them with the right customers.
What challenges have most affected the market? The biggest change and challenge is undoubtedly tougher regulation, which
How did the P2P market fare during the pandemic? One of the biggest criticisms of the P2P sector has always been that it hasn’t proven itself during a turn in the cycle, but now it has! There were a couple of platform closures but on the whole, the industry has not only survived but thrived during the COVID crisis.
Recently, we’ve seen some lenders step away from the P2P market, why is that? This tends to be due to reasons that are specific to lenders’ business models. For example, Funding Circle has strong relationships with institutional funders and participated in the government’s COVID loan schemes which could only be funded by institutions, so it made sense that it would step away from P2P retail investment.
What’s next for the P2P market?
New platforms are ready to enter the market with innovative propositions, using technologies such as open banking and blockchain. I also expect to see greater collaboration between platforms on deals, particularly in the property space.
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Special Feature
Advertising Feature
Planning ahead for success A look at the attitudes and trends of small businesses in 2022 Julia Pritchard Copywriter Funding Circle
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unding Circle is passionate about small businesses, and specialises in helping them get the funding they need to go further. That’s why we interviewed a selection of small businesses and pulled together the insights we discovered – to show the attitudes and trends among SMEs, and provide the support they need to thrive in this environment. Here’s an overview of our findings, which we hope will inspire your clients to go even further this year.
Business is on the up
Positivity is key Despite the challenges COVID and Brexit have posed, it’s reassuring to see that business owners are still feeling positive about their working life. 70% of all businesses that we spoke to said they have a good work/life balance, which is a great sign that the economy is recovering. However, businesses who are expecting trade to decrease in the next 12 months are much more likely to experience a poor work/life balance, showing just how important it is to have a finance buffer in place. These findings show why brokers and loan platforms like us are so important. By helping a business access finance, and by taking the stress out of the process, we could be helping to improve a client’s work/life balance – as well as their financial outlook.
The challenge of recruitment
Of all the business owners we spoke to, an impressive 59% said they were expecting an increase in business activity, and only 10% expected a reduction.
When it comes to recruitment, we found that different sectors are seeing different results. Traditionally lower pay sectors, such as agricultural businesses, hotel and catering and transport companies, are currently finding recruitment the hardest. Meanwhile retail, financial and public and administration services are finding it much easier.
Having made it through the pandemic, it’s clear that business owners feel more confident about dealing with disruption. We’re all adjusting to new ways of living and working, but despite the everchanging environment, more businesses feel they can adapt – and are therefore more likely to start focusing on growth.
What's also interesting is that larger businesses are finding it easiest to recruit for open roles – with over half of businesses with more than 100 employees feeding this back. This highlights the importance of supporting smaller businesses with accessing talent, which has traditionally been a pressing need.
22 | NACFB
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By helping a business access finance, and by taking the stress out of the process, we could be helping to improve a client’s work/life balance – as well as their financial outlook
Thanks to COVID, there’s been a shift in what people are looking for on the job market. Staff wellbeing, flexible working options and job stability have all become much more important to candidates – many of which are more feasible at companies that are in a position to invest in themselves.
Keeping pace with innovation
This aligns with the fact that businesses who have invested in technological methods are more likely to be expecting an uptick in trading – showing a clear link between technology and success. Prioritising innovation seems to be a winning formula for SMEs, who shouldn’t shy away from technology just because of their size. Our report shows that businesses who invest in technology are expecting better trading prospects over the coming 12 months.
It’s all in the preparation Lastly, we found that contingency planning has become more of a priority for businesses after the impacts of COVID-19. Half of businesses we interviewed said they carried out risk assessment prior to the pandemic, and only a fifth had not. Unsurprisingly the planning paid off – with 84% of businesses who had done so saying their plans were effective. With risk assessment helping to prepare your business for anything, it’s no wonder that these businesses are expecting their trading prospects to increase.
At Funding Circle, we place huge emphasis on technology – with our innovative customer experience providing instant decisions for 70% of applications. So it was great to see that most businesses we spoke to said they feel technology is important.
Now, just over half of all businesses have increased their level of risk assessment, in order to avoid the recent disruption happening again. This means we could see more businesses applying for finance – to help them improve cash flow, or invest in their business operations so they can start focusing on growth.
However, it’s interesting that over 70% of businesses who are expecting an increase in trading said technology was important, compared to less than 60% among those expecting a decrease.
To find out how Funding Circle can help your clients get the funding they need for the future, email the Introducer team at broker@fundingcircle.com or call 020 3667 2208. NACFB | 23
Special Feature
By the book Unravelling the mysteries of the balance sheet Norman Chambers Managing Director NACFB
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hen I sit down and think about what to write for each issue of Commercial Broker, I often remind myself that some of the nuanced topics I deal with on a day-to-day basis don’t make for the most compelling copy. This article then is for the newcomers, those shorter in the tooth. It seeks to provide a basic but nonetheless helpful framework through which to assess SME clients. Given this magazine is also being distributed at this month’s Commercial Finance Expo I thought perhaps it best to have a bit of fun and seek a tonal shift. So please permit me to don a cape, tip my deerstalker, raise one eyebrow and loosely cosplay as a police detective. And what great mystery must I first seek to solve, I hear you ask? Well, there isn’t one, but let’s see what happens when we apply forensic approaches to the examination of a typical small business balance sheet. Stay with me…
A mystery unravels Enter the humble fictional detective. We all have our favourites, from lovable TV titans Lieutenant Columbo and Jessica Fletcher, to seeing – but never fully observing – through the eyes of Sherlock Holmes;
their adventures and deductive powers never fail to capture the imagination. Perhaps the fictional detectives’ most common trope is their unparalleled ability to enter a room and zero-in on the small clues that help unravel the mystery, focusing on those details that help unpick the nuance from the noise. But a balance sheet needn’t be a mystery to anyone. Indeed, when partnering with small business clients any funding pathfinder worth their salt will seek to cast eyes over it, and it really should form part of the value-added proposition brokers provide. A business’ balance sheet tells the story of the enterprise and whilst it may bluff and sometimes mislead, it seldom lies. When seeking finance, many would-be borrowers tend to focus primarily on their income statement. Rightfully so, as that is the statement that shows their operations. However, the statement they don’t pay much attention to, and sometimes don’t truly understand, is the balance sheet. As finance professionals, we know the best way to view a balance sheet is as a representation both of what your client’s business is owed, and what they owe at a single point in time. And, just like a detective’s approach to a crime, the broker must seek to build as complete a picture as possible of their client’s current financial health. The balance sheet has fingerprints all over it and should provide a crisp snapshot of a fiscal moment.
The plot thickens To help gather all evidence we must first construct our snapshot NACFB | 25
starting with the basics, the broad brushstrokes. A typical balance sheet will detail a company’s assets (cash, inventory, property etc.), liabilities (rent, wages, utilities, taxes, loans etc.) alongside any equity (retained earnings). The textbook formula for any balance sheet is Assets = Liabilities + Equity. This is what makes a balance sheet, well, balance. The reality is that at least half of the items on the balance sheet are really only there for accountants, and do not matter too much in the real world. However, the other half of the items can provide us with vital pre-lending clues. There are a handful of numbers which are really useful for solution seeking. The ones to watch are the items most closely connected to cash (and indeed cash itself), such as working capital and debt. Working capital comprises trade debtors (the amount owed to the company by clients), trade creditors (the amount owed by the company to suppliers) and stock. Once cash has been properly considered, the other important part of the balance sheet for business owners is the company's debt position and in particular the value and status of any loans provided to the business. By providing an insight into debt and its impact on a small business, the balance sheet can provide a useful guide to the stability of their financial position. It offers that by giving you an indication of a net debt position. You can calculate that simply by subtracting cash and cash equivalents from total liabilities. If your client has more debt than cash, that’s called a ‘net debt position’. But if the balance sheet indicates they have more cash than debt, their business is described as ‘net cash’. This position isn’t necessarily something for a client to worry about, it could well be that they are borrowing or using cash to finance growth, push through an important project or increase stock to take advantage of an important market opportunity. And, because of COVID-19, debt may well have 26 | NACFB
increased owing to circumstances beyond their control and not simply through poor financial management. Just like a detective’s ability to recall details from their rolodex of past cases, the broker too can add further value through their experience with other clients. Whilst too much debt can be risky, particularly if debt levels remain high over a long period, a useful way to assess your client’s existing debt position is to compare them with debt levels from similarly sized businesses in their sector. Debt levels typically vary from sector to sector, so don’t just make simple comparisons with other comparably sized operations.
Case closed? NACFB Members are in the business of finding theories to suit facts, not facts to suit theories. Increasingly, the data-led decisions that brokers undertake are being enhanced by even greater computerised forensic analysis, namely the myriad opportunities that lie within open banking. Although the advances of forensic science have aided the modern fictional detective, it is but a tool in their arsenal. For much like any commercial intermediary, supporting technology works best when married with the years of experience, honed intuition, and the solution-based approach of a real professional. Conan Doyle’s great literary detective once said that: “When you have eliminated all which is impossible, then whatever remains, however improbable, must be the truth.” Whilst I may have stretched the detective analogy far enough, within this nugget of wisdom lies a truth universal to all modern finance professionals. Stripping back the noise and constructing as clear a picture as possible of a client’s viability should leave you with little mystery. Perhaps brokers don’t need the refined skills of a famous sleuth to deduce funding solutions, for the art of broking is merely the art of the possible.
Special Feature
One size does not fit all Exploring diversity within the UK landlord community
Paresh Raja Chief Executive Officer MFS
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ow many landlords are there in the UK? It is a question that appears to be simple – but in fact generates a multitude of answers.
HMRC data from July 2021 shows how many people derive income from property, according to their Self Assessment tax return. The number was 2.65 million which is a huge figure, encompassing some 31,380 landlords in Barnet, 27,060 in Birmingham, 1,070 in Clackmanshire, and a small collection of 190 on the Isles of Scilly. The publication of the data, and the noise it created served as a timely reminder of the breadth and variety of people that make up the UK’s landlord community. As a lender, the creation and delivery of financial products must start with the fundamental understanding that each client is different; not just in their financial circumstances – how much they want to borrow, for what asset and for how long – but also in their motivations and attitudes.
Rental income versus repayments In most instances, the viability of a buy-to-let loan will be determined by the relationship between the rental income a property generates and the cost of the loan. Known as the interest cover ratio (ICR) it is often enough to rule out many prospective borrowers. For instance, if the ICR is 145% and the monthly mortgage repayments are £1,000, the property must achieve a rental income of at least £1,450.
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A true relationship model is not just about new business, it’s about managing customers, brokers and staff through the cycle and being there when needed
On the surface, such principles are entirely sensible. Just as with a consumer mortgage, such checks and balances are designed to protect both the lender and the borrower. However, there are always exceptions to the rule. As such, a more flexible approach is required to assess the borrower’s longer-term plans and establish the right criteria on which to judge the viability of the deal.
Allowing for flexibility Ultimately, we must appreciate that every landlord is different. Whilst some focus on receiving a high rental yield from their investment assets, others purchase properties they believe will reap the benefits of long-term financial growth. That’s why flexibility is crucial within the current market, not just with the different product options – but within the products itself.
How can lenders do this? Deferred interest is one way. By reducing the interest paid during the term (e.g. take 1% off the rate), the rent goes further and provides a larger loan, or enables cashflow freedom during the loan to pursue other investments. Rolling-up interest is another option, i.e. adding the interest to the principal loan amount and paying it on redemption rather than monthly. Alternatively, top slicing from wealth (not just from surplus income) can provide a lender with assurances about the ability of a landlord to pay unexpected maintenance costs or voids. Not all situations fit the same criteria often used for every applicant.
the bigger picture. Many valuers acting for a lender will take a snapshot of a property’s value or its expected rental income as it stands in the current market; however, when uncertainty abounds, their predictions will naturally be dampened, placing a squeeze on what they are willing to offer to a borrower. Flexibility can still make a case fit.
Finance, for everyone Lenders need to be able to cater for seasoned investors, who live either in the UK or overseas and are looking to purchase property in England and Wales. However, they also need to be flexible enough to cater for first-time landlords, or buyers who are looking to invest in buy-to-let. At MFS, we respect that each borrower will present different circumstances and therefore have different financial requirements. The onus, then, is on us – as the lender – to provide both products and methods for assessing applications that are as diverse as the UK’s landlord community itself.
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…flexibility is crucial within the current market, not just with the different product options – but within the products itself
The valuation process is another important element in trying to see NACFB | 29
Special Feature
Avoiding the greenwash How can you tell if a loan is genuinely sustainable? Phillip Bate Business Lending Team Lead Triodos Bank UK
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ith ESG a top priority for many organisations, sustainability has become an increasingly important factor when choosing a source of finance. However, with a lack of clear guidelines on what exactly constitutes a sustainable loan, how can you be confident in sharing with your clients an option that’s genuinely going to make an impact? Membership bodies such as the Global Alliance for Banking on Values can help signpost the institutions that are using finance to make an environmental and social impact. Reporting that is aligned to globally recognised methodologies is also important – for example measuring the climate impact of loans and investments via the Platform for Carbon Accounting Financials (PCAF) or net zero targets being aligned to the Science-Based Targets initiative (SBTi). Yet while such schemes offer useful guidance, currently the best means of assessing whether a loan is genuinely sustainable is to look at a bank’s ethos and at its lending and investment portfolio. What percentage of their total balance sheet do they deem sustainable? Does sustainability form part of their mission and underlying principals? And how do they put those values into action? Look for banks that are transparent about where they lend money and what kind of organisations they support. At Triodos, everything we do is driven by our mission to direct money into positive social and environmental organisations. Plus, we’ve always been clear about where we invest, allowing brokers to judge the impact of our 30 | NACFB
work for themselves and to decide whether we’d be a good fit for their clients. We publish these details on our website.
How we assess sustainability Although we have sector policies, we take a case-by-case approach to assessing whether an organisation is legitimately sustainable. Some may be heavily focused on environmental impact, while others could be more centred on socially impactful work – or often a combination of both. All loan recipients will contribute to our mission to make money work for positive change, and we work with customers on finding solutions to help them create their impact. Some examples of recent business loans we’ve provided include support for social housing association SHAL – to build new homes and carry out eco-improvements to existing properties – plus a loan to back YMCA Dulverton Group’s plan to expand its work and increase its impact in the Southwest. Our loan to the Low Carbon Hub will help it to construct and operate the UK’s largest community-owned solar park in Oxfordshire, while loan recipients in the healthcare sector include Rapport Housing and Care, a not-for-profit provider of care homes, supported homes, extra care housing schemes and home care.
Reassurance for brokers As ESG becomes higher on the agenda, we welcome calls for greater oversight on sustainability across all companies, not just in banking. Environmental claims need to be substantiated and applied across an organisation’s operations, not just on specific products offered. Tighter regulations and greater transparency will make it far easier for brokers to understand the true nature of a bank’s sustainability and help them to find the right financial partner for clients that prioritise positive social and environmental impact.
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Special Feature
Profitability on a knife edge 2.1 million UK SMEs are just about breaking even Derek Ryan UK Managing Director Bibby Financial Services
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K SMEs are ambitious for the opportunity to regain lost ground post-pandemic, but risk being held back by a myriad of mounting pressures including rising costs and cashflow challenges. The results from our annual SME Confidence Tracker survey, reveal what many brokers already know, in that this difficult operating environment is causing friction and fragility amongst smaller businesses. UK businesses face a heady cocktail of issues that threaten to impact growth forecasts for 2022 and beyond, including soaring inflation, skills shortages, and a cost-of-living crisis not seen on such a scale in the 21st century. While our report highlights a stoic resilience amongst the UK SME community, many are still struggling to keep their heads above water and operating on a day-to-day basis, rather than looking ahead to growth.
Facing an uncertain future Our report warns that while UK SMEs have duly earned their resilient reputation, this optimism is set against a backdrop of continued uncertainty. The research shows that profitability is on a knife edge, with four in ten (38%) small businesses now describing themselves as ‘just about breaking even’, that’s equivalent to 2.1 million SMEs. Only half (52%) describe themselves as profitable and one in ten (9%) – equivalent to more than 500,000 UK SMEs – say they are operating at a loss. 32 | NACFB
But it’s not all doom and gloom. Exploring the views of 500 UK SME owners and decision makers, our findings also revealed that 82% of SMEs now feel confident about their prospects this year, a six-percentage point increase compared to 2021, and over the past six months 56% of businesses have reported an increase in sales.
Keeping the cash flowing Overall, more than a quarter of businesses (26%) highlighted cashflow as a concern. Almost one in five (17%) said they need cashflow support more now than before the pandemic and 9% said that they don’t even have the cashflow they need to operate on a day-to-day basis. When cashflow is so critical to business survival, late or failed payments can be fatal to this new tribe of ‘just about breaking evens’. More than a quarter (28%) – equating to 1.5 million businesses – say they have suffered from bad debt in the previous 12 months, where sums have been written off owing to customer non-payment or protracted default. This is significantly higher than 2021 when 20% reported bad debt and the report finds that SMEs have written-off an average of £10,329 in the last year alone. SMEs faced the pandemic with fortitude and now they must continue to adapt and change to carefully manage the rising costs of doing business. It’s evident that cashflow challenges and payment issues continue to plague businesses, and it’s now more important than ever that they have access to expert working capital to support day-to-day operations, and to repay debt taken on at the height of the pandemic. But they cannot do this alone. Bibby Financial Services is committed to working alongside the broker community to support SMEs in accessing working capital solutions that help them to thrive and grow.
Special Feature
Advertising Feature
Growing relationships Staying relevant to brokers and customers Simon Lindley Chief Development Officer Cambridge & Counties Bank
market, many of which championed technology as a differentiator, leaving customers and brokers spoilt for choice. Those lenders who relied solely on price began to feel the pinch.
Branching out
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his summer Cambridge & Counties Bank celebrates its 10th anniversary, and it’s a great opportunity to look back on our journey, as well as think about what the future has in store. I feel privileged that I’m in a position to do this since the anniversary marks 10 years for me at the Bank too.
Strong roots When we began, the lending market was a different place in terms of competition, pricing, and outlook. The challenger bank sector was just starting to gain momentum as it grew to fill the void vacated by high street banks in the wake of the financial crisis. At that time, customer service across the industry was a mixed bag, especially for brokers. This made it relatively simple for us to launch a proposition which focused on customers and brokers. Pricing came second. Over time however, the competition grew along with pressure to put pricing centre stage. A few years later, more funders entered the 34 | NACFB
The market continues to evolve but I’m glad to say, what hasn’t changed is that there is still a firm place for funders which put customers and brokers first. And that includes Cambridge & Counties Bank with its locally-based, experienced frontline team, delivering what we say we’ll deliver. A reputation for reliability and delivery is hard won and easily lost, and I am very proud of our record.
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A reputation for reliability and delivery is hard won and easily lost, and I am very proud of our record
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A true relationship model is not just about new business, it’s about managing customers, brokers and staff through the cycle and being there when needed
A true relationship model is not just about new business, it’s about managing customers, brokers and staff through the cycle and being there when needed. When COVID struck, not only did we see a doubling of new business, we kept a strong focus on supporting our existing customers and their brokers. We also took care of our team. Switching to working from home was a great test for the culture of our business and I am delighted and proud of how my colleagues responded in order to maintain the reliability and commitment to service for which we are known.
Positively blooming Last year, as the pandemic eased, more funders entered or returned to the market creating more choice for the customer. Against this strong competitive backdrop, it was particularly pleasing to deliver an 18% year-on-year asset growth, as well as witness our loan book pass the £1 billion milestone. We have achieved this by continuing to adapt and expand our frontline geographical coverage and through maintaining our focus on service.
Looking forwards, our aim is to deliver more of the same; a sustainable growth plan based around an experienced team that builds strong relationships with the broker community, backed by great service. This is very easy to say and a lot harder to deliver, but if the last 10 years has taught me anything, it is that you cannot stand still and expect to get the same results. For this reason, we have partnered with nCino, and together we are undertaking a significant upgrade to our processing systems. Not only will brokers be able to monitor at first-hand the progress of all their deals, but the time to drawdown will be shortened. We are also expanding our real estate and asset finance frontline teams. With more feet on the ground, we will remain closer to our brokers and customers and increase our presence across the UK. And the next 10 years? Cambridge & Counties Bank began with the philosophy of putting brokers and customers at the heart of everything we do, and we see no reason to change such a simple, yet winning formula. We hope you stay for the ride. NACFB | 35
Industry Insight
Pre-recession lending? The merits of independent legal advice Joe Phelan Solicitor and Founding Director Phelan Independent
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t is predicted that inflation will exceed 10% this year. The Bank of England has announced a quarter-point rise in interest rates, taking the interest rate to 1%. And sterling has plummeted to a two-year low. With experts warning of a UK recession later this year, it isn’t just the cost of commercial borrowing that will increase: the risk of taking on commercial finance is also escalating. Despite the dreary outlook, many businesses will be looking to bounce back from the pandemic by securing investment from lenders. Before they sign on the dotted line, commonly individuals will be asked to obtain independent legal advice – impartial advice provided by an independent solicitor who does not have a conflict of interest and provided in the best interest of that person. But what situations warrant independent legal advice and why is it so important that brokers direct clients to reputable providers?
Applicable to multiple transactions Any transaction involving a personal guarantee, or where a party is entering into obligations relating to borrowing by another party, will normally require independent legal advice. There are several other transactions where independent legal advice may be required. These include joint borrower/sole proprietor mortgages, equity release mortgages, occupier waiver forms, as well as the gifting of deposits. 36 | NACFB
Independent legal advice is a mandatory requirement of most lenders. Where an individual potentially has, or may have, an interest in a property or they are being asked to provide a guarantee in support of another party’s obligations, banks and lenders generally insist that the individual obtains independent legal advice. This is to ensure they are fully aware of what they are signing and are not being unduly pressured. Perhaps most crucially, independent legal advice helps your clients understand the level of personal risk. In today’s difficult economic climate, the likelihood that personal guarantees will be called upon is heightened. It is more important than ever that your clients have a thorough understanding of the level of personal risk and obligations they’re taking on when applying for a business loan, mortgage, or other facility. With appropriate independent legal advice in place, you can help clients to make more informed decisions.
Independent and impartial advice As transactions near completion, it can often be a desperate rush for borrowers to secure independent legal advice from a qualified solicitor (independent from the solicitors managing the transaction to uphold impartiality), at an affordable price, and in a timely manner. Falling at this last hurdle, not only ends in disappointment for clients but also means the broker does not get paid by the lender. To avoid this scenario, brokers should consider developing relationships with independent legal representation in advance. Here at Phelan, as an NACFB Partner, we are keen to strengthen our ties with the Associationʼs Members and we would welcome any discussion of your clientʼs needs.
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Laleta Buctkuar, Relationship Director: Bridging
0800 470 0430 bridging@assetzcapital.co.uk Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.
Industry Insight
PGI uncovered The growth of personal guarantee insurance Todd Davison Managing Director Purbeck Personal Guarantee Insurance
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ive years ago, in March 2017, Theresa May triggered Article 50 of the Lisbon Treaty, officially starting the process of the UK’s departure from the European Union. A few months later, in June to be precise, Purbeck Personal Guarantee Insurance was born. So much has happened UK wide and globally since then. That historic move, combined with the disruption caused by the pandemic and the war in Ukraine, is being felt by small businesses in supply chain disruption, skills shortages and rising fuel costs. The impact is directly affecting demand for commercial finance today and on our own growth as a business supporting SMEs’ access to finance. Since inception, we have supported more than 1,300 directors on over £180 million of personal guarantee commitments, thanks in large part to the 550 or so business introducers, including NACFB Members. What we bring to market remains unique; we are still the only insurance provider offering personal guarantee cover, but little did we know how relevant it would become in today’s challenging economic environment. Looking at our latest data, the number of applications for personal guarantee insurance to support finance agreements for working capital almost doubled from Q1 2021 to Q1 2022. In our experience, this is the main reason small businesses are securing finance. We have also seen the average loan value rise from £142,718 in Q1 2021 to £174,104 in Q1 2022. While we have supported loans ranging from £11.2 million down to £10,000 over the past five years, the average loan value is typically £250,000. The biggest proportion of applications for personal guarantee insurance are for unsecured loans, followed by secured loans, invoice finance and asset finance. 38 | NACFB
Our typical customer has a well-established business that has been trading for 14 years, they are on average 52 years of age, employ around 28 people and while we support a wide spread of sectors, we have found that the biggest proportion of customers are in the construction sector followed by manufacturing. The challenges for the building and construction market have been well documented, chief of which has been the cost of huge price rises in construction materials on fixed price contracts. However, the good news is that our latest data shows the average personal guarantee-backed loan amongst builders and contractors fell from £193,324 in Q1 2021, to £169,877 in Q2 2022. We’ve also seen demand grow from start-ups. Our data shows that 10% of directors run start-ups and we’ve supported them on £15 million of personal guarantee commitments. Applications are now back to levels we last saw at the start of 2020 with March seeing a 108% increase on March 2021. Purbeck’s journey has only just begun. We look forward to working with NACFB Members to support their small business customers for many years to come.
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The biggest proportion of applications for personal guarantee insurance are for unsecured loans, followed by secured loans, invoice finance and asset finance
Industry Insight
Charging forward The volting ambition of electric car finance Mark Lester Joint Managing Director Renaissance Asset Finance
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ver the past five years there has been a significant increase in the demand for electric cars and light commercial vehicles as the global call for net zero emissions accelerates. In 2021, over 175,000 new electric vehicles (EVs) were registered on UK roads, a growth of 66% from 2019. Popular models such as the Tesla Model 3 saw over 25,000 new registrations alone. At the end of 2021, there were over 395,000 pure-electric cars on UK roads and more than 740,000 plug-in models including plug-in hybrids (PHEVs). The benefits range from government grants, eligibility for cost free travel, ultra-low emissions, clean air zones and no congestion charges to reduced benefit-in-kind taxation. For a company car driver, shifting to an electric car could reduce their personal taxation significantly as electric cars (with a range of over 130 miles) are currently taxed at 2%. As an example, driving a two-litre diesel VW Passat as a company car might cost £350 per month in tax, while an electric car such as a Tesla Model 3 would cost £17 per month. Battery electric vehicles are also zero-rated for vehicle emissions tax – otherwise known as road tax. Other benefits include lower running costs, reduced maintenance costs and lower noise pollution. Government grants remain available for both the car and the installation of electric charging points in homes. As part of the government’s green agenda, some new builds will have charging points pre-installed. For any purchaser of an electric car, there is still some anxiety about the range or how far away the next charger may be. A typical electric 40 | NACFB
car will have a range of 200-250 miles which should be sufficient for commuting and local trips before recharging at home. However, on longer trips, these cars need to be recharged via commercial charging stations which can vary in quality and charging rates. Tesla is leading the market on infrastructure support and charging rates. Other providers such as BP Pulse, Chargemaster and Genie are steadily improving their charging stations. Private individuals are also choosing electric cars as an investment as the range available expands to include high performance models such as Porsche and Lamborghini. The Porsche Taycan offers supercar performance and a 225-mile range. Asset finance companies are seeing strong demand for the financing of electric cars, with both hire purchase and leasing options being requested. Customers are keen to take advantage of the benefits shown above, however cars remain expensive when compared to their petrol and diesel equivalents. By using asset finance, customers can take advantage of the latest technology and benefits of electric vehicles whilst preserving their cashflow, spreading the cost of the asset and having fixed monthly payments.
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For a company car driver, shifting to an electric car could reduce their personal taxation significantly as electric cars... are currently taxed at 2%
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Industry Insight
Know your worth Technology and the future of the valuation industry Stephen Henman Managing Director Method Valuation
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any people see the term AVM and picture a fully, 100% automated process, where a valuation is produced by a computer with little or no human intervention, but the reality is a much broader spectrum of hybrids involving varying degrees of automation, digital data sources, and different levels of human involvement and interventions. The Royal Institution of Chartered Surveyors (RICS) are increasingly acknowledging the role that technology and big data has on the valuation industry. Their teams have considered many of the potential developments from blockchain and big data to automated valuation models. We concur that appropriate use of technology should significantly improve the valuation experience for all stakeholders in the secured lending process.
Panel management Technological enhancements in the valuation and valuation panel management industries can take many forms, such as efficient workflow process engines for lenders, surveyors, panel managers and brokers. Technology provides these stakeholders with instantly accessible performance data and strong data security measures when data is both in transit and at rest. The potential use of technology goes beyond the obvious improvements that can be brought to costs, transparency, and efficiency. Indeed, most in the secured lending sector will be familiar with the growing use of Automated Valuation Models (AVMs) in the residential mortgage underwriting process. The reasons for the development and increased adoption of AVM-type approaches are relatively straightforward and mainly client-driven. They can be summed up as speed, cost, scale and, consistency. 42 | NACFB
Automation and the use of digital data impacts the whole valuation process, for almost all asset types across most global markets. Both existing and new standards need to align and consider the impact of data, technology, and increased automation, and the due diligence processes for both valuers and users of valuations must evolve to reflect the new landscape of digital data and automation. With the increased reliance on automation and digital data sources, the extent, levels and provision of liability and assurance on valuations must evolve, but they must reflect the risks and the distribution of those risks across stakeholders. Both prospective and existing RICS members will require the necessary skills and knowledge to work with the new landscape of data science, big data, and data analytics. This will need to start in universities, be reflected in RICS’ core competencies and continual professional development offerings and then be complemented with on-the-job training and work experience. RICS needs to re-open the debate from the early 1990s as to what is required of valuations in support of secured lending. When that debate reopens, as will ultimately have to be the case, we firmly believe that the debate should include the broker community, as a key stakeholder.
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RICS needs to re-open the debate from the early 1990s as to what is required of valuations in support of secured lending
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sancus.com Indicative criteria only, each loan application is considered on its merits. Sancus Lending (UK) Ltd is regulated by the FCA, firm reference number 593992. Risk Warning: If you are co-funding you could lose part or all of your capital. Indicated returns, unless otherwise stated are shown before any provision for bad debts and may be subject to tax. Sancus do not provide private mortgages. Sancus Lending (UK) Ltd is incorporated under the laws of England and Wales, company number 7534003. Part of Sancus Group Holdings company no 57766 registered office Block C, Hirzel Court, Hirzel Street, St Peter Port, Guernsey GY1 2NL.
Broker Voice
Devil in the detail Greater clarity needed on proposed Section 8 reforms
Adam Henderson Consultant Mortgage Broker Mortgages for Business
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There is also mention of restricting these criteria further; however, by only accepting these grounds once two years have passed since the first tenancy agreement was signed. This is meant to give tenants further protection of their homes.
Selling the property
uring the Queen’s Speech, the Prince of Wales addressed the nation on behalf of HM The Queen. As part of the address, Prince Charles set out the government’s ‘Renters Reform Bill’ plans, overturning Section 21, and announcing the proposed changes to Section 8.
There is a discussion of permitting the sale of a property as grounds for a Section 8 notice, allowing landlords to regain possession ahead of a fixed term ending. This will supposedly be on the same condition as moving into the property: landlords can only use these grounds after two years of the tenancy agreement.
This is not the first time we’ve heard about these changes, as it was first confirmed by Theresa May back in 2019. Since then, delays caused by the pandemic and lockdowns have pushed this reform down the government’s priority list. But it’s not just landlords who would like more detail; if brokers are to fully support their clients, they too need to have clarity on the proposed changes.
Rental arrears
Back in February, the government published the Levelling Up white paper as an attempt to ‘transform the UK by spreading opportunity and prosperity’. Within this paper came the mention of the abolishment of the Section 21 evictions; however, very little information on what this would mean came with it. Now, we know that there is more of a focus on what this will mean for Section 8 notices, which are issued to end an assured tenancy. However, unlike Section 21, this type of notice is only acceptable if the tenant has breached specific criteria.
As it stands, if a tenant’s arrears are over two months, then the landlord can repossess the property. The issue with this is there is somewhat of a loophole for tenants, as they can pay back their arrears to just short of the threshold, thereby avoiding attending court. This is frustrating for landlords, as they are somewhat stuck with inconsistent income and no means of regaining control.
The proposed changes for Section 8 include the following.
The proposed change is to make it so that landlords can provide tenants with a two-week notice if the tenant is in arrears by two months of rent. If the tenant is still at least one month overdue in payments by the time of the hearing, then the judge will rule this as a mandatory ground for repossession. Anything under this period will be discretionary but may be considered mandatory if a landlord can provide proof of a pattern of inconsistent payments, building up arrears, and then paying to the threshold on three occasions.
Living at the property
Accelerated possession
Currently, the law states that a Section 8 notice meets the criteria should a landlord want to move into the property and make it their own home. However, this does not apply to their children or other members of their family. Similarly, the landlord or their partner must have previously lived in the property.
An accelerated possession is one of the main benefits of Section 21, as the case can be decided without a hearing. Whether amendments will be made to Section 8, allowing applications on at least some grounds, is yet to be seen. For more information on accelerated possessions, I suggest you look at the government website.
The proposed changes include revoking the need for landlords or their partners to have lived in the property at some point and widening the criteria to allow for children and family members.
How can landlords prepare for these changes?
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What landlords need is a clear timeline for when these proposed changes will take place
What landlords need is a clear timeline for when these proposed changes will take place. Only then will they be able to prepare and adjust their portfolio appropriately within the designated time. The devil is really in the detail with these reform bills; without any absolute clarity on the motion, what is and is not permitted will all be a grey area. What landlords need is a straightforward approach from the government, facilitating the adjustment from the ‘no-fault evictions’ to whatever lies ahead. Until then, any actions from landlords are unlikely. Hopefully, the full details will be released sooner rather than later, allowing landlords time to get their properties in order and equipping brokers with the understanding they require to advise clients knowledgeably. NACFB | 45
Opinion
A secret to success Creating deeper relationships with brokers and clients Mike Davies Head of Business Development YBS Commercial Mortgages
D
espite the challenges brought by the pandemic, YBS Commercial Mortgages has seen record growth in the last two years. We’ve seen completion levels double during what was a challenging time for everyone – that’s a real achievement, and we’re proud of it. However, we can’t be complacent, there are still challenges ahead and things are changing all the time. Lenders and borrowers are now navigating a new environment of increased interest rates and less housing stock, as a result, the overall mortgage market and therefore the number of clients available is shrinking.
Nurturing relationships It goes without saying that lenders need to continue to grow and transform, improve efficiencies and make their service slicker and quicker – but looking for other ways to help with growth is key. I believe that building deeper relationships with clients is where the real secret to success lies. For us, it was obvious – we needed to build on the relationships we had with our brokers by making the most of our broker panel. So, by separating the panel into segments we’ve been able to focus our business development activity and drive communications. This means really getting to know our clients, their drivers and triggers. It can be time-consuming at first, but we know the benefits of stronger relationships will help us all reap the rewards later. We’re also stepping up our communications to encourage better, higher quality engagement. Forward-planning and preparation is key and is worth it in the long run to create more fruitful conversations. 46 | NACFB
Internal engagement is also important. Your colleagues are your biggest advocates, so getting them behind your plans is vital. Motivating them to take their own steps to build deeper relationships with customers can really help the journey. At YBS Commercial, this has meant setting specific engagement targets for individual team members, which has contributed towards successfully boosting our applications pipeline this year. It’s also important to continue to look for improvements to products or services. Listening to clients and responding to market demand is also vital. By listening to what our brokers need from us we’ve optimised what we offer, with plans to get even better. That’s why our new portal is currently being tested. Once it’s rolled out, it will improve efficiencies and free up precious time for brokers – a real step change.
What we’ve learned Deepening relationships with and understanding clients means that they will return again and again. Products and services can be tailored to meet their needs and they will feel that you’ve listened. It will also set you apart from the competition, and position you as someone who doesn’t just focus on increasing sales. Even when the market is shifting, there are steps you can take and with customer expectations increasing all the time, it’s essential to be ahead of the game.
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Your colleagues are your biggest advocates, so getting them behind your plans is vital
Our broker team could help open doors. Lots of them. Join the broker panel of the UK’s best business bank* *Source: NACFB award for Best Business Bank (2021) Email: brokerteam@natwest.comn
Opinion
Business as usual? Signs the SME lending market is returning to pre-pandemic levels Colin Goldstein Commercial Growth Director iwoca
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t’s fantastic to be able to use the word ‘return’ after two years of disruption. As we look back on the first quarter of 2022, we see small businesses returning to their growth plans and the lending market returning to its pre-pandemic state. However, we must remain alert to the impact of the inflationary crisis on SMEs and do everything we can to support them. According to our latest SME Expert Index (based on over 3,300 small business applications for finance submitted in March), nearly a third of brokers (30%) believe the UK SME lending market has already returned to pre-pandemic levels. Furthermore, another third (31%) believe the market will return within six months, and only 10% of brokers expect it to take over 12 months to bounce back. Over a third of brokers (34%) reported an increase in loan applications submitted in the last month compared to the previous month. Further signs of more familiar levels of activity in the lending market were reflected in brokers’ views on the winding down of the government schemes introduced to help SMEs through the pandemic. With the Recovery Loan Scheme closing in June, only 18% of brokers said they’re dissatisfied with the scheme’s end, compared to 39% who are satisfied with its imminent closure. This too indicates a readiness in the market to return to more business as usual lending solutions.
Heightened demand amidst rising business costs This spike in lending activity – whilst certainly an encouraging sign of small business optimism – could also be partly attributed to 48 | NACFB
small businesses’ escalating need for finance, as they navigate the increasing cost of doing business due to rising energy prices and inflation. The fact that ‘managing day-to-day cash flow’ became increasingly important as a loan purpose for SMEs certainly hints towards this. Nearly one in three brokers (31%) identified cash flow as the most common motivator when applying for finance, which is the first time this option has risen month-on-month and a significant shift in the downward trend it’s followed since the index began in Q1 2021. The survey also signalled that small businesses were looking to access smaller bridging loans – perhaps to cope with these rising costs – with the most requested loan size for SMEs in Q1 2022 sitting under £25,000. This is quite a difference to the Q4 2021 results when the most commonly requested loan size lay between £50,000 and £200,000.
Borrowing for growth still tops the chart
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Despite this rise in cash flow concerns, growing the business
Over a third of brokers (34%) reported an increase in loan applications submitted in the last month compared to the previous month
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Small businesses were looking to access smaller bridging loans... with the most requested loan size for SMEs in Q1 2022 sitting under £25,000
encouragingly remains the most common reason for SME owners to apply for finance, reported by 43% of brokers in our survey (same as Q4 2021). With small businesses continuing to invest in growth, and the lending market returning to pre-pandemic levels, 2022 has seemingly kicked off to a good start. But it’s clear that the inflation
crisis is taking its toll on small businesses who are feeling the pinch. Rising fuel and energy costs are the main cost pressures hampering SMEs’ ability to combat what’s anticipated to be a weaker than expected year of economic growth. So, as small business owners prepare themselves for cash flow issues in the coming months, it’s vital that lenders offer flexible finance to help them through.
Opinion
The long game Start Up Loans and why early support can pay dividends Jenny Barrett Communications Consultant NACFB
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lack of understanding about and signposting to Start Up Loans emerged as one of the key discussion points during the panel session at the NACFB’s first in-person event of the year. Part of the Funding Future Growth series of regional events, last month’s session examined London and the South and brought together Members and Patrons alongside regional senior managers at the British Business Bank, Susan Elliott and David Woods. An opening panel session sought to enhance brokers’ understanding of SMEs operating in the capital and across the South of England. Almost from the off it became clear that attendees wanted to learn more about Start Up Loans so that they could more effectively engage with businesses that were not yet able to take up commercial finance, realising that signposting them in the right direction now could pay dividends later. Supporting clients, is after all, a long, long game. Perhaps one of the most important things about the Start Up Loan scheme we learned was that although unsecured borrowing is limited to £25,000 per founder, this borrowing can be utilised by up to four founders/directors which means that start-ups can potentially access £100,000. The session also covered access to finance in a broader sense and it 50 | NACFB
was agreed that many SMEs simply do not know about the range of options available to them. Susan Elliott directed brokers to the British Business Bank’s Finance Hub where among the roster of over 180 accredited delivery partners there are at least 30 NACFB Patrons. She said: “It’s an important part of our role to hear directly from finance brokers on the ground about what their clients are experiencing when accessing finance for new projects, growth, and investment in assets. We can then use their feedback to support the Bank’s work to continue to break down barriers for smaller businesses seeking funding.” Brokers did raise their frustration at being unable to refinance or secure additional finance for SMEs with existing government-backed loans in place, especially where lenders had taken a debenture. Brokers felt that having to repay the government scheme first not only hindered an SME’s ability to grow, but ironically, reduced cashflow. Clearly, this will be a debate that rumbles on and could prove to be a difficult issue for lenders to resolve. When discussing the regions more broadly, a mixed picture emerged. Susan Elliott cited the Oxford area, with its focus on information technology and life sciences, as a place where many SMEs are flourishing. At the other end of the scale is, perhaps, East Kent which is home to more traditional businesses many of which are still struggling in the pandemic aftermath, dogged by supply chain issues as well as rising costs and inflation. This sentiment was reflected in conversations with Members, with one sharing that some clients had stepped up activity, keen to secure rates before they rose, whereas others were looking to get out of property investment or shut up shop altogether.
Enquire, apply and manage every deal in one place Get Heads of Terms in minutes, apply online and access expert support for every type of bridging finance through a simple online portal.
Property finance made simple.
lendinvest.com/ intermediaries LendInvest plc is a public limited company registered in England and Wales (No. 8146929). Registered Office: 8 Mortimer Street, London, W1T 3JJ. Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.
Listicle
5
ways to make the most of NACFB Expo
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t’s a staple of the finance industry, the jewel in the commercial calendar crown, and it’s back. Whether it’s your first visit or you’re a more seasoned delegate, there are a suite of ways that you can extract the best value from your attendance of the NACFB’s Commercial Finance Expo. Below, we’ve compiled five tips to make the most out of your day.
1. Download the app Available for free on both iOS and Android, our app allows you to connect with all the lenders and service providers exhibiting at this year’s show. You can message them and arrange meetings in advance so that you don’t have to wait your turn if the stand is busy. For those interested in attending the conference, you’ll find an agenda and speaker profiles. The app also features a floorplan to help you find your way around including locating lenders’ stands, the conference arena, the Members’ Lounge, and importantly, refreshments. If you’re an iPhone user, please go to the App Store and search for NACFB Commercial Finance Expo to download the app. If you use an Android device, please go to Google Play.
2. Discover an array of exhibitors Demand to exhibit at this year’s NACFB Expo was higher than ever, so much so that by April the waiting list to host a stand had reached double figures. From high-street giants and familiar faces to boutique funders and the latest challenger banks, all are in attendance for the same purpose – to engage with the UK’s premier funding pathfinders. This year sees the NACFB Expo welcome industry partners from UK Finance and the ASTL for the very first time.
3. Fuel your day
5. Visit the NACFB stand
To keep the energy in the hall, the NACFB has facilitated more food and drink outlets for 2022. Nearer the back of the arena, you’ll find the Potting Yard eatery with a great range of culinary options. You can still access the legendary networking café in the middle of the room and there is the new NACFB Members’ Lounge to help sustain energy throughout the day. Also making its first appearance this year is our chill and charge zone – where you can relax, catch-up with peers and ensure your phone battery remains topped up.
We’re always delighted to catch up with Members and Patrons so do come over and say hello. Throughout the day some of the HQ team will be on hand to chat or answer any questions you may have about the show, compliance, or membership. You’ll also find some of the Board Directors who can tell you more about their role and our plans for the future. And if you’re not a Member, Patron or Partner of the NACFB but are thinking of joining us, we can help with that too.
4. Expand your knowledge Every year the NACFB Expo’s conference theatre plays host to a diverse range of voices, chewing over the latest industry developments whilst igniting high-level debate. BBC Breakfast’s Naga Munchetty returns to host for a second time and will oversee a greater blend of panel sessions and speaker addresses. Want to join the debate? You can ask questions via both the mobile app and in person. The day’s best questions will receive a pair of tickets to next month’s sold out NACFB Summer Party. 52 | NACFB
Five Minutes With
ive F Minutes with: Nick Smith Nick Smith Group Managing Director Reward Finance Group Describe your role in ten words or less? Drive the business forward today and plan for the future.
How do you make a difference? Engagement, communication, setting the agenda.
need to know more about money, saving, investing.
What is your favourite SME success story? Our own! We are an SME after all, which is hugely important when talking to clients.
– however, my old manager at the bank set me on the right path many years ago and gave me the tools and the thoughts to succeed.
What was the last great book you read? Legacy by James Kerr, about the All Blacks rugby union team.
In your view what are the key elements to a successful deal?
What advice do you have for the modern commercial finance broker?
Delivering a customer-oriented solution, not a lender ticking a box.
Understand the client’s needs and the deal, and what they actually want.
The home of Leeds United – Elland Road.
What’s the most common reason for turning away a deal?
What is your favourite piece of management/leadership advice?
What is the best live music experience you’ve ever had?
We rarely do – we spend a lot of time educating our introducers on what we can and can’t do.
What gets measured gets done – although my team will say seek forgiveness, don’t ask permission.
Oasis, Maine Road, 1996.
If you were to start your own small business, what would it sell?
Which person has inspired you the most?
If there was an Olympics for everyday activities, in what activity would you have a good chance at winning a medal?
Financial knowledge in schools – kids
I’m not really one for inspirational people
Selling!
54 | NACFB
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