Commercial Broker (NACFB Magazine) - June/July 2024

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Exploring funding efforts to support the UK’s pharmacy network

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Norman’s Note

Norman Chambers Managing Director | NACFB

Welcome to the June/July issue of Commercial Broker, your essential read for the latest in relationship-led commercial finance.

As you flip through these pages, many of you are likely gearing up for or already attending the NACFB Commercial Finance Expo. If you’re at the show, please drop by the NACFB stand and say hello to the team. They, like myself, are eager to connect with you.

I’ve been pondering the notion of decision making of late, because making the right decisions is paramount in every facet of our professional lives. Whether it is in casting a vote, engaging with your trade body, going the extra mile for a client, understanding new regulations, or embracing change, informed decisions lay the foundation for success.

This issue arrives on the cusp of some pretty monumental events, most notably the general election on 4th July. The surprise nature of this election has prompted some last-minute adjustments to our conference theatre agenda, including for a short time period where the host was planning to run for office themselves.

Among the significant changes highlighted in this issue is the full implementation of the FCA’s Consumer Duty at the end of July. Additionally, we explore the evolving landscape of using Companies House data to make more informed business decisions.

If you’ve decided to attend this year’s NACFB Expo and are reading this magazine, thank you. Your choice to engage with our services and benefits is a step towards making more informed, impactful decisions in your professional journey. Our community is founded upon the concept of making well-informed decisions and I am confident we will collectively continue to embrace any changes ahead with both confidence and clarity.

Here’s to making the right decisions and to the exciting times that lie ahead.

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Association updates

NACFB News

Funding Future Growth roadshow on a roll

Welsh brokerages, on average, successfully introduced 138 transactions each over the course of last year, indicating a significant engagement with the local market, research from the NACFB’s annual broker survey 2023 found. Armed with this knowledge, the roll-out of the Association’s regional roadshow, Funding Future Growth, kicked off in Cardiff with 35 brokerages present.

‘Twf Busnes’ – Welsh for business growth – was the focal point as the NACFB facilitated a lively panel discussion featuring experts from the FSB, the Development Bank of Wales, UK Finance, Red Flag Alert, and Cornerstone Finance. Representatives from NACFB Patron lenders were also on hand to share transactional insights and support.

Moving on to Glasgow in May, the roadshow welcomed 25 brokerages, another expert panel and ten Patron lenders, all focused on forging closer funding connections and examining the challenges of intermediated Scottish small business lending. The median total originated by a Member in Scotland was £6.25 million, with an average of 21 transactions per Scottish brokerage.

Reflecting on the challenges facing UK SMEs in the devolved nations, NACFB head of policy and communications, Kieran Jones, said: “Evidence from the sessions suggests that the charge for SME growth will be led by commercial finance intermediaries.”

The roadshow continues this autumn, stopping in Leeds and Newcastle. Free to attend and open to NACFB Members and non-association brokers, each show is expected to sell out, so do sign-up soon if you’re planning to come along. More at information at: nacfb.org/events-list

NACFB extends partnership with Red Flag Alert

The NACFB has signed a two-year contract extension with Red Flag Alert (RFA), continuing to offer the service at no cost to the trade body’s Members.

The partnership aligns with the launch of RFA 3, the latest version of the platform with an improved user experience. Additionally, RFA’s new ‘Growth Score’ system has been developed to help brokers identify high-growth businesses locally.

This partnership ensures brokers can confidently verify and identify business opportunities with reliable data. The trade body will continue to offer free search credits for Members, with additional searches available at a nominal cost. The new RFA 3 platform offers enhanced functionality, and dedicated support is available for NACFB Members.

The NACFB’s Norman Chambers noted: “Effective KYC and AML checks are essential in the current climate. Our continued investment in Red Flag Alert provides immense value to our Members. The free-at-the-point-of-use service, subsidised by the trade body, has been well received by the membership.”

Richard West of Red Flag Alert added: “Continuing our partnership with the NACFB is crucial for empowering finance professionals with up-to-date data. The platform not only supports existing clients but now helps brokers identify potential new borrowers too.”

NACFB Members looking to take advantage of RFA’s platform can sign up today via nacfb.org/red-flag-alert

Innovation may be the saviour of business lending

IDave Furnival Head of Broker NatWest

’ve been vocal recently in praising the UK economy –its resilience both in the wake of the pandemic, and in continuing to weather current storms. Whether it’s the cost of energy crisis, high inflation or supply chain risks, the UK economy is on survival mode.

Two recent reports reflect this triumph in the face of adversity. But they also highlight that access to finance is still an open question. In its Annual Business Finance Markets report, which looks at how small business finance markets have evolved over the last decade, the British Business Bank has found there remain regional and place-based challenges in getting finance to many parts of the UK. Finance to female and ethnic minority businesses has changed little in more than a decade.

Crucially, it reports that SME lending fell 9% to £59.2 billion in 2023, despite the increase in the UK business population since the start of the pandemic.

Among SMEs, UK Finance makes a similar point. In its Business Finance Review, 2023 was the third consecutive year of declining gross lending. In 2021 this figure stood at £22.6 billion but by 2023 had fallen to £14.3 billion. In the same period, loan approvals fell from 157,344 to 36,531.

For brokers, there clearly is an opportunity to help businesses with the loan process, and the role of high street banks is critical in this. Comparing 2023 with 2022, the NACFB found there was a 5% growth in the transactions completed by high street banks and an 18% decrease associated with challenger banks. We develop one-to-one relationships

with businesses in a way that places their commercial interests first and complements that with a deep understanding of their business, their sector, their geography, and the fuller economic picture. Being the conduit between finance and the real economy is an essential service to the UK.

To support you in this, NatWest continues to enhance how we approach our broker book. Notably, our quotes are available in minutes, 24/7. Doing so involves four simple steps finishing with a unique quote ID number and updates from your broker development manager. NatWest also gives its Broker Panel access to specialised support from our dedicated relationship managers. But beyond this, we are innovative in our thinking – APIs, our High Growth support, intellectual-property backed loans and the potential for artificial intelligence to augment the finance-seeking process. To enable economic growth we’re not simply lending finance; rather we’re investing in our services, our products and ourselves, continually.

Notably, we offer a Broker Direct service that can help you with quote requests for less than £250,000. With our specialists on hand, you and your customers can expect clear timing plans from the get-go. This speeds up the process and adds some certainty to the process too.

Our ambition is that you streamline your own business lending, to ensure that businesses can access bank lending when they need it and as confidence returns.

We continue to grow our broker panel, to support more brokers and help more clients – together we can do our part to help the UK economy weather the economic storms.

If you would like to find out more, please email the team at brokerteam@natwest.com

Security may be required. Product fees may apply. Business use only. Subject to status.

Industry News

1. FCA’s closed-book product deadline approaches

The Financial Conduct Authority (FCA) has shared a series of ‘Dear CEO’ letters with impacted firms, reminding them that the Consumer Duty must be applied to closed products and services by 31st July 2024. Firms have been urged to focus on data gaps, fair value, vulnerable customers, disengaged consumers, and vested rights. The regulator reaffirmed that compliance ensures good customer outcomes, with an emphasis on supporting vulnerable consumers. Firms must ensure alignment with the Duty’s requirements and the FCA’s guidance by the deadline.

2. Over a third of SME leaders prioritise access to finance

Over a third of UK SME business leaders believe that access to finance for start-ups should be prioritised by the government, according to research by Together which also shows that SME leaders are calling for more investment in the growth sector and improved tax breaks to support enterprise. Additionally, SMEs are facing pressure on fuel and staffing costs, with almost half of them urging the government to prioritise help with rising costs and energy bills.

3. Prof. Trevor Williams: Rate movement likely

The UK’s Consumer Price Index (CPI) increased by 2.3% over the year in April after rising 3.2% in March, missing the expected drop to 2.1%. According to economist, Prof. Trevor Williams, the critical point is that inflation peaked at 11.1% in October 2022 and has since fallen significantly, so, with inflation approaching the target, interest rates need not remain above 5%. “With the economy projected to grow only 0.5% to 1% this year and inflation around 2%, nominal interest rates of 3% are neutral. Therefore, the Bank should cut rates at its next meeting by at least 0.5%,” he said.

4. New-build property sales slump

The number of properties sold before completion has reached its lowest level in over a decade. Experts suggest that the rise in interest rates has driven first-time buyers away from new-builds, opting instead for smaller and more affordable second-hand homes. Data from Hamptons shows off-plan sales have fallen, with only 32% of new homes in England and Wales being bought before completion. The reduction has led to a slowdown in build rates for housebuilders, impacting their bottom line.

5. Next Government faces ‘worst of both worlds’ on finances

The Institute for Fiscal Studies (IFS) has said that based on official forecasts, the next Government “will face lower than average nominal GDP growth (3.6% per year) and higher than average debt interest spending (3.3% of GDP) – the worst of both worlds”. Prime Minister Rishi Sunak’s Government’s recent cuts to National Insurance, the IFS noted, are set to be partly funded by unspecified real-terms cuts for unprotected Government departments including local government and the courts.

6. APPG on Fair Business Banking unveils SME Manifesto

The All-Party Parliamentary Group (APPG) on Fair Business Banking has released its SME Manifesto which outlines a proposed strategy for the next government to transform the UK’s financial landscape for SMEs. It highlights the current inadequacies in the financial system, which leave many SMEs without essential lending opportunities. The document proposes policies to improve access to finance, streamline regulations, and ensure fair treatment for SMEs.

7. High interest rates to cost businesses £41.7bn

High interest rates are set to cost businesses an extra £41.7 billion by the end of the decade as cheap loans expire and are replaced with more expensive debt. Analysis from Baringa suggests that businesses’ debt servicing costs are to rise by an average of £4.7 billion a year. The consultancy also estimates that debts worth £1.6 trillion are due to refinance between 2024 and 2030. Highly leveraged businesses are expected to struggle or collapse. Survivors are likely to pass the borrowing costs on to customers, adding to inflationary pressures.

ABridging perspectives

How fluctuating interest rates affect the bridging sector

Luke Jooste CEO Momenta Finance

key factor in assessing the reasonableness of any bridging loan, as with any funding arrangement, is the rate of interest attached to the funding. Unfortunately, post-Covid interest rate volatility has introduced higher levels of uncertainty across the market, making it increasingly difficult for all participants to assess the viability of transactions.

In this article, we delve into some of the dynamics at play across the market in the context of rapidly changing interest rates. In particular, I consider the environment from both the borrower’s and the lender’s perspective in order to furnish brokers who are new to the industry with some background knowledge.

Borrower perspectives

As brokers know, the property bridging sector plays a vital role in facilitating short-term funding solutions for borrowers in situations where more traditional longer-term property finance options are not always appropriate or available.

Whilst bridging loans offer flexibility and speed, pricing is more expensive and as is the case with lenders, borrowers must remain vigilant as interest rates fluctuate. A rise in interest rates can lead to higher costs attached to servicing loans, impacting affordability and project feasibility, or may impact the planned exit strategy. Borrowers should constantly assess their repayment capabilities and exit strategies while factoring in potential interest rate fluctuations. Borrowers should also be aware of potential changes to the overall lender appetite, particularly if their project will require a refinance at, or prior to,

completion. Of course, this is where a good broker can get involved, supporting their clients with this information and helping them to review their options.

Lender perspectives

Lenders are constantly faced with balancing risk and return dynamics across their portfolio of loans. Fluctuations in rates directly impact their own borrowing costs, potentially affecting profitability and risk appetite, and indirectly impact the value of the underlying security by shifting the demand and supply dynamics.

In a rising interest rate environment, as has been the case in the UK over the last 18 months, lenders typically seek to derisk their portfolios and tend to be more selective when granting new loans. Conversely, in a decreasing interest rate environment, lenders may experience compressed margins as a result of increased competition, prompting them to explore riskier lending practices in an attempt to maintain profitability.

“ Borrowers should constantly assess their repayment capabilities and exit strategies while factoring in potential interest rate fluctuations

“Lenders typically raise funding that is linked to a variable base rate and on a term longer than three years. Conversely, borrowers typically seek fixed rate funding over a shorter period

Some lenders have found ways to navigate, or mitigate, the increased risk and uncertainty, choosing to continue lending into the sector –albeit more selectively. Other lenders, who have been unable to react to the increased volatility, have simply withdrawn from the lending sector altogether.

A common dislocation

Lenders typically raise funding that is linked to a variable base rate and on a term longer than three years. Conversely, borrowers typically seek fixed rate funding over a shorter period – often anywhere from six to eighteen months.

The above mismatch in the interest rate type (variable versus fixed) and term (long versus short) can mostly be managed by the lender through hedging strategies but when interest rates are particularly volatile it becomes increasingly difficult for lenders to manage. We have seen this difficulty manifest in recent years as borrower rates are quick to move upward, but slow to move downward.

An alternative strategy, currently being employed by some lenders, is to offer variable rates to borrowers. This removes some of the mismatch and should offer borrowers an attractive proposition in a rate cutting environment. At Momenta Finance, we offer both

fixed and variable loans, giving our borrowers the ability to better plan based on their specific needs. We provide bridging loans across the UK, including Scotland and Northern Ireland, for up to £5 million and terms up to 24 months. Loans are suitable for property purchases, refurbishments, and equity releases.

Future outlook

Looking ahead, lenders and borrowers alike must continue to adapt to changing market conditions, leveraging risk management strategies and financial expertise to navigate the challenges and capitalise on the opportunities. Central bank decisions, regulatory influence, technological advancements, general housing market trends and market innovations will continue to shape the respective lender and borrower perspectives and appetite.

The property bridging sector provides a key source of liquidity into a vital sector of the broader economy. In the midst of fluctuating interest rates, lenders and borrowers must remain vigilant, assessing risks and opportunities to optimise their position. By staying informed, adopting prudent risk management practices, and embracing innovation, stakeholders in the property bridging sector can navigate uncertainties and continue to thrive in a dynamic market environment.

IAs one chapter closes…

Consumer Duty’s scope and closed-book products

Charlotte Mathieson Compliance Manager NACFB

t is rare for a regulatory shift to demand a fundamental rethinking of longstanding approaches. Yet, the implementation of Consumer Duty by the Financial Conduct Authority (FCA) has done just that. Although the ultimate goal of delivering consumer-centric services remains unchanged, the journey towards that goal has been profoundly transformed. The FCA’s Consumer Duty stands as both a totemic milestone and the underpinning of a principle-led approach to service.

The journey so far

The Duty, which came into effect last July for on-sale products only, marked a significant step towards more ethical and customer-focused business practices. Brokers, lenders, and valuers alike have undergone substantial changes to align with the new regulations, which seek to prioritise customer outcomes. For many, this operational shift has included redesigning product offerings, enhancing customer service protocols, and implementing rigorous compliance monitoring systems. Such efforts are never merely about ticking regulatory boxes; they represent a strategic reorientation towards ethical business conduct.

This July sees another deadline, this time for closed-book products, and with it a new set of challenges emerges. Unlike on-sale products, closedbook products – those no longer marketed but still held by customers –require a more tailored approach. In a webinar last December, the FCA highlighted the need for firms to adapt strategies specifically for these products. In the webinar, Nish Arora, the FCA’s director of cross-cutting policy and strategy, outlined that it’s crucial for firms to balance regulatory compliance with some of the unique characteristics of off-sale products.

Closed-book products refer to financial products that are no longer being sold or marketed to new customers but are still being serviced

for existing customers. These products can include older loans, mortgages, or other financial arrangements still held by a borrower. Whilst commercial finance brokers do not typically have products of their own, they still play a crucial role in guiding clients through the complex landscape of third-party financial products. Therefore, it is important brokers are aware of their role in ensuring good client outcomes.

Strategies for closed-book products

For commercial finance brokers, adapting to the expanded Consumer Duty involves several strategies, even though most will not offer their own products. To navigate these responsibilities effectively, the NACFB suggests that Members adopt a high-level, proactive approach. Whilst brokers can expect certain standards from their lender counterparts, as key players in the transactional chain, they must also consider the best interests of their clients.

Brokers should first ensure they have robust lines of communication with their lender counterparts to gain a comprehensive understanding of both current and closed-book products. For many brokers, these lines are already well established. But as ever, transparency is paramount; lenders must provide full disclosure on the terms, conditions, and performance metrics of closed-book products. If such information is not forthcoming, it would be best practice for brokers to inquire specifically about the terms, conditions, and ongoing performance metrics of closed-book products. This dialogue should uncover the steps lenders are taking to ensure these products comply with Consumer Duty standards. Brokers are also likely to need to understand any legacy issues, such as data limitations or system constraints, that might impact product performance and customer outcomes.

Due diligence is, as ever, crucial. Proactive brokers may gather information on the lending panel’s closed-book products, comparing their features to current offerings and assessing their alignment with customer needs. Such an approach may involve an understanding of historical customer feedback and identifying any recurring issues or complaints. Armed with this information, brokers will be well positioned to provide transparent, well-informed advice to their clients,

explaining the nuances between closed-book and current products. They can then guide existing clients on whether to maintain their current products, transition to new ones, or explore alternative solutions.

Additionally, brokers should monitor the status of closed-book products and maintain regular follow-ups with both lenders and clients. This ensures that any changes in terms or conditions are promptly communicated and that clients are aware of their options. By maintaining an active dialogue, brokers can address any issues that arise, ensuring ongoing compliance with Consumer Duty whilst enhancing customer satisfaction.

Looking ahead

As the one-year anniversary of the Consumer Duty’s implementation approaches, the journey is ongoing. Sheldon Mills, the FCA’s executive director of consumers and competition, noted recently that there

is still much room for improvement. Regulated firms must not only comply but also proactively embrace the principles of the Duty, particularly in areas such as price and value, and closed products.

The Consumer Duty still represents a unique opportunity for firms to transform how they interact with their customers. By continuing to embrace the shift, firms can foster trust, bolster their reputation, and establish a foundation for enduring success. Achieving compliance with the Consumer Duty still demands meticulous planning, decisive action, and sustained dedication. However, the benefits of adopting a consumer-focused ethos are vast and deeply impactful, ensuring that the journey towards consumer-centric service continues to evolve.

For brokers seeking guidance on how to approach closed-book products and their Consumer Duty requirements, the NACFB’s compliance team offers support via phone, email, or in person at the NACFB’s Commercial Finance Expo.

Devon Struthers Head of Client Success mnAi

Data; it’s everywhere. It can tell you if your business is working, your marketing is effective, your clients are who they say they are or how much money you are making. But do you know how to read the data? We asked Devon Struthers, head of client success at proprietary data and technology providers mnAi to elaborate and explain how becoming data literate can help brokers succeed.

What is data literacy?

Data literacy involves understanding and utilising data effectively. In business we find there are five stages which represent the evolving understanding and utilisation of data within a company’s structure, each building upon the previous stage’s insights and capabilities. Data resistant – data isn’t a priority; data aware – recognising data’s value but doing very little to act on it; data-guided – focusing on data analysis to drive non-essential decisions; data-savvy – adept at using data for decision making; and finally, data-driven – where decisions are entirely data-informed.

Why is data literacy important to brokers?

Data literacy is crucial for brokers as it enables a deeper understanding of customers and

associated risks, both internal and external. It empowers brokers to achieve more with less, driving efficiency gains and reducing operational costs while enhancing resilience. By leveraging a data platform effectively, brokers can optimise operations, improve decision-making, and increase efficiency. This proficiency not only enhances the broker’s ability to serve clients but also strengthens their competitive advantage in the market.

Are there any drawbacks to data literacy?

Learning to read Q

and business strategy. Each department requires a blend of technical and analytical skills to harness data effectively, ensuring organisational success in the digital age.

How might data literacy be incorporated with a brokerage and what challenges might need to be considered?

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Embracing data literacy has become indispensable in contemporary business. Having access at your fingertips to up to date data is imperative. It’s no longer just an option but a requirement for staying competitive. Neglecting it risks falling behind rivals. Overall, there are no apparent drawbacks to data literacy.

Are there any skills needed by organisations or individuals to become proficient in data literacy?

The exact skills necessary for proficiency in data literacy vary depending on the role. Some essential shared skills include understanding data basics, consistent data collection, and the difference between structured and unstructured data. From there is where we start to see specialisation. This could be coding for data scientists, and interpreting data for managers. Even non-technical roles benefit from grasping data’s implications for decision-making

Data literacy integration varies by role. For a salesperson, it’s about understanding metrics for efficiency and conversion. Conversely, finance teams benefit from tools enhancing operational efficiency, like expense management. Training is feasible across departments but must align with role-specific needs. Overall, data literacy enhances job performance, creates efficiencies and organisational effectiveness, making it a valuable asset across roles.

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Can you provide an example where good data may be misused or used to draw the wrong conclusions?

Good data can be misused or misinterpreted without proper literacy and analytical skills. Manipulation is possible, as selective snapshots can be interpreted differently. Understanding the context and purpose behind data is vital for informed decision-making. Data alone lacks meaning; it’s the story it tells that guides actions. Transparency and critical questioning ensure data integrity and prevent erroneous conclusions, highlighting the importance of not just having data but understanding its nuances and implications.

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Flexible finance

Helping small businesses navigate changing times

BRachael Raymond Head of Broker Funding Circle

y any measure, the first few years of the 2020s have been a whirlwind of challenges for SMEs. Residual effects of the pandemic continue to be felt, while political instability poses risks in a globalised world.

Despite this, optimism among business owners has risen. With fading inflation and the hope of future interest rate cuts, many believe there are better days around the corner. At the time of writing, business confidence and output are both on the rise.

From the businesses we speak to, the general mood is of cautious optimism, and for brokers and lenders alike, the goal is to help them make the most of these changing conditions. They have ambitions and challenges that require finance, but it has to be right for their needs. Rates and service are always important, but so is flexibility, and putting them in control.

Providing more loan options

At Funding Circle, we have always sought to improve our broker service and our finance products so that we can help you provide the best support possible for your clients. We also adapt to the economic environment, adjusting rates and launching new features to give SMEs the best offers we can.

Since the pandemic, we have been one of the leading providers under the CBILS and RLS government-backed loan schemes. As RLS comes to an end, we’ll continue to provide our Funding Circle loans, and our ambition is to make loans available under the Growth Guarantee Scheme as soon as we’re able to.

We recently launched debentures as an alternative option to personal guarantees on selected term loan offers. For business owners who aren’t comfortable with signing a personal guarantee, this gives them the opportunity to get the finance they need, but with added peace of mind.

We have also launched electric personal guarantees, or ePGs. This allows applicants to provide electronic signatures, which are much quicker and more convenient for all parties. All our term loans continue to come with no early settlement fees too, giving businesses the option to refinance at a lower rate in the future.

More cash flow freedom with FlexiPay

Our FlexiPay line of credit product is about to get a major upgrade, giving your clients more control in how they manage their finances.

Since it was launched in 2022, FlexiPay has provided a simple way to spread business costs over three equal instalments and help small businesses with cash flow, one of their biggest pain points. There is no interest, just a simple fee on each transaction, and it can be used for almost anything, including rent, VAT, stock, invoices, business travel and equipment.

Last year we added a Visa business credit card, so businesses could make card payments with their FlexiPay credit too.

Now, we’re increasing the options available, so your clients can choose whether to spread costs over three, six, nine or 12 months. This will allow them to break up larger sums that need to be spread over a longer period, and choose the repayment period that best suits a particular expense.

For card transactions, FlexiPay users will also have the option to settle at the end of the month and pay no fee, giving them free credit for up to 45 days.

A dedicated team to support you

As businesses adjust to the changing landscape, we believe these changes will give them the flexibility to take on their challenges and seize any opportunities that come their way. As always, our dedicated introducer

Secured and unsecured loans

Short-term funding

Lines of credit

Come and see us at the NACFB Expo at Birmingham NEC on June 26th (Stand C07), have a chat with us and claim your free Funding Circle Bluetooth earbuds.

team will work hard to give you the support you need, and fulfil our shared mission of helping SMEs get the finance they deserve.

If you want to get in touch with us, email broker@fundingcircle.com or call 020 3667 2208.

TIn good company?

Getting the house in order

Kieran Jones Head of Communications & Advocacy NACFB

he quiet, leafy side street of Henry Drive in Leigh-on-Sea in Essex hides a secret. Don’t let appearance fool you, for this seemingly tranquil non-descript road in a quiet seaside town is actually a bustling hub of international business activity. That is, according to Companies House. The government agency’s own data suggests that Henry Drive is also at the heart of a global wholesale clothing market, with entrepreneurs from across Europe using the street as their operations base.

However, reality paints a different picture. In just four months, dozens of bogus companies have been registered to properties on the street – 14 of them in one week alone. Each business purports to specialise in selling clothes, typically listing a single company officer, invariably described as an ‘entrepreneur’ from Italy, Georgia, Germany, France, or Morocco. The given addresses for these ‘entrepreneurs’ range from the real to the absurd, including general street names, empty lots in Morocco, and a religious meeting hall in rural France.

For Henry Drive residents like Ian Ross and his wife Tess – who have had six fake companies registered to their home alone – the situation is both disturbing and frustrating. Their first indication that something was awry was a letter from Companies House addressed to a business they knew nothing about, followed by more mail from HM Revenue and Customs with an activation code for corporation tax and a unique taxpayer reference number.

“None of these businesses have anything to do with me,” Mr. Ross told the BBC. “The first one was set up at the beginning of June, and the latest one was set up just two days ago.” Far from being a cosmopolitan titan in the clothing sector, Henry Drive remains “just a quiet residential street,” he adds. “In the one postcode we are in, we now have 80 businesses registered – it would be like a clothing alley if it were true.” The more letters they receive, the more it becomes clear that the system is out of control.

The following seeks to examine the critical role of Companies House, the benefits and pitfalls of its data, and the recent efforts to enhance the integrity of the information it holds.

Betting on the house

Founded in 1844, Companies House has long been the cornerstone of corporate registration in the UK. The venerable institution is tasked with incorporating and dissolving limited companies, storing, and maintaining company information, and making this information available to the public. For finance professionals, particularly those involved in small business finance intermediation and lending, the data provided by Companies House is indispensable. However, any reliance on this data is not without its challenges, particularly given the proliferation of misleading and outright fraudulent filings.

The Cardiff-headquartered agency maintains a comprehensive register of companies, serving as a crucial resource for finance professionals. For commercial brokers and lenders, access to detailed information about potential borrowers is essential. The data from Companies House allows these professionals to verify the existence of a business, assess its financial health, conduct thorough due diligence, and evaluate creditworthiness. In this context, accurate and reliable data from

Companies House is vital, as missteps can lead to significant financial losses and legal complications.

Despite its totemic importance, Companies House has faced criticism for its susceptibility to fraud. The registration process, based on the principle of good faith, requires no verification of the submitted information, provided the forms are complete. This leniency has led to numerous cases of fraudulent registrations, which can have severe consequences. One prominent issue is the registration of burner companies – fraudulent entities set up to engage in criminal activities. These companies often use fake or stolen identities and addresses, leading to cases of identity theft and severe disruptions for innocent individuals – as the residents of Henry Drive know all too well.

Between April 2021 and April 2022 alone, Companies House received 2,432 applications from directors who had not consented to act, and 10,387 applications to change disputed registered office addresses. These numbers highlight the scale of the problem and the ease with which fraudulent activities can occur under the current system. Indeed, many users of Companies House data are unaware that the information is unverified. A survey by Which? revealed that 29% of respondents mistakenly believed that Companies House checks directors’ ID documents. It would seem then quite a low bar for fraudulent companies to obtain loans and grants, leaving banks and government departments at a loss. Any businesses and advisers relying on this data for due diligence can all too easily make misguided decisions based on false information.

The value of reliable data

Red Flag Alert is one such system that utilises Companies House information to help organisations across the finance ecosystem make

more informed and data-driven decisions. Rory Traynor from the NACFB Partner highlighted the crucial role of Companies House, describing it as performing “an incredibly important function: to be the single source of truth for UK company information.” However, he points out that the ease of registering companies without stringent regulations or sufficient documentation poses significant challenges. He noted: “The largest problem coming from Companies House is the lack of regulation around, and ease with which companies can be registered,” allowing for the creation of fraudulent shell companies.

Despite these issues, Traynor emphasised the immense potential of completely reliable Companies House data. For finance professionals, this data could then serve as something of a ‘golden source’ of business information, providing essential details about a company’s legitimacy, ownership, and performance. Accessing this data directly from Companies House can be cumbersome and unintuitive. However, platforms like Red Flag Alert, which ingest and analyse this data, help to transform it into meaningful insights. This process, Traynor shared, allows credit professionals to gain “much deeper insights and understanding into their potential or existing business partners.”

By enhancing the accuracy and reliability of Companies House data through improved regulation and verification, the data can truly become an invaluable resource. This would better enable finance professionals to conduct thorough due diligence, assess creditworthiness with confidence, and mitigate the risks of fraud, ultimately strengthening the integrity of business transactions across the UK.

Fixing the roof

In response to a growing chorus of concerns, the Government passed the Economic Crime and Corporate Transparency

Act earlier this year, aimed at enhancing the accuracy and reliability of the data held by Companies House. One of the most significant changes is the introduction of compulsory identity verification for all company directors. This measure is designed to ensure that individuals listed as directors are who they claim to be. Under the new regulations, Companies House has also gained the authority to query filed information it believes is suspicious, misleading, or fraudulent. This represents a significant shift from the current system, where the registrar has limited powers to verify or validate the information submitted. The new querying power allows Companies House to question information submitted before and after company registration, ensuring that only accurate and legitimate information remains on the register.

These changes are part of a broader government-led programme to transform the register, described as the most fundamental change to its role and purpose in its 180-year-old history. The state has so far invested £20 million in this transformation programme, with a further £63 million pledged up until next year.

However, these changes will take time to implement fully. The plan is for identity checks to be imposed on longstanding companies in due course, with directors and officers who fail to verify themselves facing escalating measures. Possible penalties range from an ‘unverified’ status displayed next to their name on the register, to unlimited fines and criminal proceedings. It may well take years for existing companies to be checked in the same way as new ones, so finance professionals will need to continue to exercise caution when the new rules come into force.

Moreover, the economic crime and corporate transparency measures will require substantial financial and human resources to be effective

over the long term. Experts estimate that a proper clean-up, using technology-based controls, would cost at least five times the current budget. There is also the question of whether businesses should foot the bill. Banks already contribute to the new £100 million-per-year economic crime levy. Charging companies more to incorporate would make sense. Fees are rising from £12 to £50, but they will still be lower than in many other countries. A rise to £100 would be more likely to deter scammers than genuine entrepreneurs.

Transparency breeds legitimacy

For now, any information found on Companies House should be taken with a pinch of salt, especially when performing due diligence on a firm or individual. The usual warnings and red flags still apply. For example, a director with a history of registering and disbanding lots of companies in quick succession, without filing accounts, should raise eyebrows. Company addresses can be checked on Google Maps for plausibility – one wouldn’t expect a top investment company to be located within an industrial warehouse or a nondescript residential home. But even something that appears genuine doesn’t guarantee legitimacy.

Whilst Companies House remains a vital resource for finance professionals, it is essential to approach its data with caution. The planned reforms will undoubtedly improve the accuracy and reliability of the information, but it will take time for these changes to take full effect. In the meantime, vigilance and due diligence remain the best defence against fraud and misinformation. By getting the house in order, the UK can better protect its businesses and citizens from the cascade of financial crimes that have marred the integrity of its corporate register.

Loans vs asset finance

Thoughts

from

an underwriter

OPhilip Knight Credit & Risk Director Asset Advantage

n the face of it, the credit risk and the underwriting principles for loans and asset finance should be the same. Even ‘hard’ asset transactions, underpinned as they are by residual values, are still all about the customer’s ability to service the debt; ‘soft’ asset deals even more so.

Loans, therefore, should be simpler to get approved and paid out. There’s no supplier involvement or assets to inspect; however, I suggest that in fact, loans, despite their apparent simplicity, are actually more complex deals to transact.

Asset finance has evolved with a built-in risk mitigant in that the lender knows what the cash is being used for and, ignoring supplier fraud, can be certain that they are paying for a ‘thing’; even if that ‘thing’ has little or no resale value. Factor in the added benefit that assets – both hard and soft – are generally related to income-generating activity then there is an element of self-financing. With a loan, once the cash hits the borrower’s bank account, the lender loses all control over how it is used. Indeed, there’s no contractual or legal obligation for the borrower to use it for the originally proposed purpose. It might be fraud, but a loan proposed for an acquisition can easily be used to pay a tax bill with the lender being none the wiser.

Loans also carry considerably more compliance risk than asset finance. Quite obviously they are an easier money laundering vehicle than asset finance and thus anti-money laundering checks place an additional underwriting burden. And the same applies to Politically Exposed Persons (PEPs) and sanctions given that most bad players subject to these definitions are after cash, not photocopiers! For these reasons

alone, nobody proposing a loan deal should be surprised at a more forensic approach being applied to their deals.

The purpose of the loan brings additional complexity to the proposal, although it should also provide more opportunity to get to know the customer. Compare and contrast an asset finance proposal for some replacement IT kit and a loan to make an acquisition. The purpose behind the IT deal is blindingly obvious – perhaps with a few caveats –whereas the loan proposal opens up a whole gamut of opportunities, or as underwriters might view it, can of worms. Why is the customer making an acquisition? What is the strategy behind the acquisition? Why is it being sold? How was the price arrived at? How will it be integrated into the existing business, etc., etc. Whilst this might seem to be a whole heap of work, the reality is that most, if not all of this information is probably the subject of the very telephone call brokers have with the customer. It just needs to be rewritten down.

Loans aren’t an easy option, but the work needed to get them away should pay dividends with the deeper knowledge of the customer –which could lead to further business – and an opportunity to impress a lender with a comprehensive and clear proposal.

“

With a loan, once the cash hits the borrower’s bank account, the lender loses all control over how it is used

Unleashing cash flow

The rise of asset refinance

ORobert Still Managing Director Reward Asset Finance

ver the past few years, we have seen businesses face huge economic uncertainty and pressures to adapt to rapidly changing market conditions, making the future difficult to predict.

In addition to the disruption caused by Covid-19, quantitative tightening has affected interest rates and increased borrowing costs, resulting in banks cautiously tightening their lending requirements and limiting loan availability.

There are businesses thriving in these uncertain times that need additional finance to aid expansion, but there are also many who are constantly treading water, or worse, drowning, that need funding to help see them through to calmer waters.

Unsecured business loans are a popular way of putting cash back into businesses quickly, with their speed easing cash flow pressures. When the need is short term, and the business can afford the repayments, they can be a good option.

However, when the issue is more long term, SMEs firstly need to raise cash quickly but secondly face the challenge of money going out of the business quicker than it is coming in. A swift cash injection may only solve the first part of the problem. When that money has been spent, there is still the same issue of the debt not being serviceable – further compounded by the short-term nature of unsecured loans.

Asset refinance is an increasingly popular option to solve both these challenges. Sale and HP Back is a form of asset refinance that can be used against most types of hard assets, where cash can be freed up from assets already owned within the business. This can be done against unencumbered assets, or assets that are currently on finance

with other lenders, providing the assets are moveable, identifiable, and saleable.

Depending on how far into the term it is, the debt against the assets on finance can be consolidated into a single loan over a longer term, with the repayments calculated in line with the income of the business, making serviceability demonstrable.

This is particularly useful in sectors where the business is asset-rich but cash-poor, such as construction, manufacturing, and engineering.

Asset refinance allows businesses to create working capital, aid cash flow and consolidate existing debts, whilst helping raise deposits for new purchases to drive growth. A good example of this is when we were recently asked to fund a £1 million facility to refinance a company’s business assets. Consolidating all of the HP debt into a single payment over a longer term saved the business over £500,000 per annum and supported its expansion.

This demonstrated how it’s vital for SMEs to work with a broker and lender that has the expertise in structuring complex refinance facilities to meet its specific needs. Whilst cash remains king, finding the right finance solution has never been so critical.

“

When that money has been spent, there is still the same issue of the debt not being serviceable – further compounded by the short-term nature of unsecured loans

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DDiversity, equity and inclusion

How to forge elite performing, diverse teams

Nicola Goldie Head of Strategic Partnerships and Growth Aldermore

iversity, equity and inclusion (DE&I) is here to stay –according to McKinsey – and with the right resources, you can create teams that perform at the top of their game whilst channelling the DE&I. I like to think that when it comes to the workplace, we’re living in an increasingly open, more tolerant world and aside from this being what most people would consider the right thing socially, it’s also the right thing economically too.

McKinsey’s diversity reports make this case eloquently. The 2015 report found that, when it comes to DE&I implementation, the top 25% of companies had a 15% greater likelihood of financial outperformance versus the bottom 25%. By December 2023, that likelihood had grown to 39%. In 2020, the global corporate spend on DE&I was $7.5 billion and is projected to more than double to $15.4 billion by 2026. Wherever you or your organisation is at when it comes to incorporating DE&I, there are three key things that can be done to move forward quickly.

Encourage mentorship

Mentorship programmes create development paths for plenty of young people, some of whom might feel they come from “the wrong type of area” or “don’t look the type” to forge a career in finance. Mentorship helps to dispel these myths, enabling talented people from all backgrounds to get on in life, whilst providing invaluable management experience to mentors as well. Sage previously discovered that 97%

of those with a mentor say they’re valuable, whilst 93% of SMEs surveyed recognised that mentoring can help them to succeed. Mentorship schemes, both internal and external, are a valuable way to encourage the best of the next generation into financial services.

Dig into the data

ʻCollecting data’ can send a shiver down people’s spines but when applied well it’s crucial for mapping how equitable a company is. If an organisation understands where its staff went to school and their socioeconomic origins – as well as characteristics such as gender, ethnicity and sexuality – the employer can paint an accurate picture of who works for them.

“

Wherever you or

your

organisation is at when it comes to incorporating DE&I, there are three key things that can be done to move forward quickly

“Students from social mobility cold spots often don’t see finance as a viable career. This is a preposterous waste of talent

In turn, that will give the employer an opportunity to identify blind spots of representation or biases within divisions. It’ll also enable them to see if it’s fairly promoting a diverse range of people and track the internal progression of historically underrepresented groups.

Aldermore partners with the Purpose Coalition to help drive equality of opportunity and to improve social mobility. Chaired by the Rt Hon Justine Greening, the Purpose Coalition is made up of organisations working to break down barriers to opportunity.

In 2022 Accenture revealed that the profits of organisations focusing on social mobility are 1.4 times higher than those of their competitors. So, utilise data to better map your company’s DE&I then implement policies to improve it, and there’s a clear trend for enhanced profitability to follow.

Embrace partnerships with the right people

You can’t just magic expertise in DE&I out of a hat. It takes patience and investment, and the companies that do DE&I most effectively know when and why to partner with external agencies.

It’s vital to help people when they’re young, as much as possible.

That’s why Aldermore partners with EVERFI in schools in the Greater Manchester and Cardiff areas. Designed for secondary students aged 14-16, the programme develops young people’s understanding of how the economy affects their lives.

Students from social mobility cold spots often don’t see finance as a viable career. This is a preposterous waste of talent and organisations such as EVERFI help financial services firms to demystify the industry in the process.

Aldermore’s partnership is having a positive impact. 80% are putting money into a savings account, or plan to do this in the next year (compared to 67% before.) 67% consider when is best to invest and save and why (compared with 42% before), and we’ve seen a 26% increase in financial assessment test scores before and after the programme. We’re not the only bank doing this sort of thing and plenty of other firms are doing similarly good work.

It’s not easy trying to shrink DE&I down into three recommendations when there’s so many social, political and economical factors at play. But if your organisation is serious about wanting to be both inclusive and successful, then implementing or improving in these three areas will set you on the right path.

Construction funding

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T&Cs will apply, subject to status and affordability. Any asset used as security may be at risk if you do not repay any debt secured on it.

Aldermore Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register number: 204503). Registered Office: Apex Plaza, Forbury Road, Reading, RG1 1AX. Registered in England. Company No. 947662. Invoice Finance, Commercial Mortgages, Property Development, Buy-To-Let Mortgages and Asset Finance lending to limited companies are not regulated by the Financial Conduct Authority or Prudential Regulation Authority. Asset Finance lending where an exemption within the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 applies, is exempt from regulation by the Financial Conduct Authority or Prudential Regulation Authority.

Making it possible

The art of dancing in the grey

In the bustling heart of London’s financial district, amid the glass and steel towers, lies the new home of Hampshire Trust Bank (HTB) on Fenchurch Street. Here, overlooking the iconic Gherkin, we catch-up with Alex Upton, their dynamic managing director of specialist mortgages, to explore her career journey, her philosophies on leadership, and her unwavering commitment to “making it possible.”

It’s a bright, crisp Friday morning ahead of the May Bank Holiday weekend, a month before the NACFB Expo, and HTB’s preparations are well underway. Amidst this flurry of activity, Alex made time to sit down with us and share her story, reflecting on the path that led her to this pivotal role and the ethos driving HTB’s success.

Commercial Broker (CB): Can you start by telling us how you got into the world of commercial finance?

Alex Upton (AU): I kind of fell into the finance industry, like I think a lot of people do. I took a four-week job before university at Santander, then didn’t go to university and decided to build a career there instead. I started as an admin assistant on an internet help desk and worked my way up to underwriter, then BDM. I was there for 12 years before moving to Castle Trust in 2013.

Castle Trust was my baptism into specialist finance. I joined as a BDM, quickly moved to head of sales, and then sales director. We dealt with innovative equity loans and other quirky finance products. It was challenging, but I learned a lot about the specialist lending market. In 2018, I joined HTB as sales director for the mortgage division. During my initial three years in specialist mortgages, we grew the mortgage book from £160 million to over £1.5 billion. During Covid, we made sure to support brokers and borrowers continuously.

In 2021, I moved to development finance, where we built a strong team and broke many records in new business volumes. In April 2024, I returned to specialist mortgages as managing director – which for me, was something of a homecoming.

CB: That’s an impressive journey. Can you describe your leadership philosophy and how it influences your approach to managing the team at HTB?

AU: It’s very collaborative. We don’t employ smart people to tell them what to do; we employ them to tell us what to do. I believe in knowing my team, understanding their goals, and working together to achieve success. When I joined HTB, I made it a point to meet with every single team member to understand their goals and what motivates them.

This personal touch extends to our external partners as well. We hold our solicitors and valuation panels to the same high standards. Regular feedback and accountability are key to maintaining our service levels.

For brokers, we aim to be a genuine lending partner, not just a lender. This means understanding the client’s drivers and finding solutions that work. Our brokers often come with a solution in mind, but sometimes we need to structure things differently to meet the client’s needs. If a broker needs our top table on a call with their customer, they get it. I believe it’s this level of accessibility and collaboration that sets us apart in a competitive market.

CB: Your mantra of “making it possible” is quite compelling. How do you implement this philosophy within HTB and with your partners?

AU: It starts with our team. We ensure that everyone, from BDMs to underwriters, understands our commitment to finding solutions. Regular feedback and accountability help maintain this ethos.

For instance, we had an issue recently with a restriction on a title at the completion stage. Our underwriter picked up the phone and talked directly with the solicitor and broker to resolve it. This kind of proactive communication is essential. We constantly look for ways to add value, even in complex situations.

Our strategy involves constant adaptation and finding niches where we can add value. We dance in the grey, finding opportunities that others might overlook and turning them into successful ventures. It’s about continuous improvement and building on our strengths.

CB: What role do brokers play in HTB’s success, and how do you view your partnership with them?

AU: We pride ourselves on empowering brokers. They are the lifeblood of our business. Without them, we wouldn’t be here. The brokers who

“ Our strategy involves constant adaptation and finding niches where we can add value. We dance in the grey, finding opportunities that others might overlook

“

My advice to brokers is to stay close to your clients. Regular check-ins are crucial because the market is always changing. Understand their needs, keep them informed, and be proactive in finding solutions

maintain close relationships with their clients will always add the most value. We aim to enable brokers to deliver the best service and solutions to their clients. Our partnership with brokers is not just transactional; it’s about building long-term relationships based on trust, collaboration, and mutual success. We support them with the tools, access, and expertise they need to excel.

CB: How do you balance the demanding nature of your job with your personal life?

AU: My children are my priority. My daughter is a competitive ballroom dancer, so I spend a lot of time supporting her. We also enjoy family activities like attending Formula One races and are looking forward to seeing Lewis Hamilton in Ferrari red next year. It’s about finding time for what’s important and making it work.

Work-life balance can be challenging, but it’s essential. I make sure to carve out time for my family despite the demands of my job. I think it’s important for my children to see that I work hard, but also that I value my time with them.

CB: Given your experience, how do you see the current market, and what advice would you give to brokers navigating it?

AU: The market is always challenging, and I’ve been saying that for years. Right now, the biggest challenge is interest rates. However, the demand for rental properties is higher than ever. Investors need to navigate these rates, but the end product is still in high demand.

My advice to brokers is to stay close to your clients. Regular check-ins are crucial because the market is always changing. Understand their needs, keep them informed, and be proactive in finding solutions.

CB: And what’s next for HTB under your leadership?

AU: We’ll continue to build on our strengths, finding new niches and improving continuously. The demand for rental properties is high, and we’re focused on providing the best solutions for our clients. We’re not looking to reinvent the wheel, just to keep building on our strengths.

Banking on integrity

The rise of ethical lending

IRichard Crook

Senior Business Development Manager The Co-operative Bank

n recent years, the concept of ethical banking has gained significant traction as businesses increasingly seek financial institutions that align with their values. As someone working in commercial finance, it’s been fascinating to see this shift firsthand, and it holds significant implications for both brokers and their clients.

The Co-operative Bank, formed in 1872 as part of the co-operative movement, has a rich history of ethical banking. In 1992, we introduced our customer-led Ethical Policy, and in doing so became the only UK bank driven by an Ethical Policy formed from our own customers’ priorities. For example, we refuse to bank businesses involved in the production, extraction, or exploration of fossil fuels.

Our most recent Values and Ethics Poll from 2021 revealed two main concerns among customers. The first is social inequality, heightened by the cost-of-living crisis, which has increased everyday costs and squeezed household budgets. The second is climate change and the biodiversity crisis, exacerbated by our reliance on fossil fuels and the unsustainable use of natural resources.

As commercial finance brokers, it’s crucial to understand why many businesses now choose ethical banks like us. Ethical banks prioritise positive social and environmental outcomes, supporting initiatives such as renewable energy projects, affordable housing, and community development. By recommending these institutions, you’re not just facilitating funding for your clients but also contributing to the greater good.

Transparency is another key factor. With an ethical bank, you’ll know that your clients’ money isn’t supporting harmful industries like fossil fuels or exploitative work practices. This alignment with values can

resonate with your clients, who will feel good knowing that their loan supports positive change.

Our research has revealed that over a third of UK adults (37%) would consider switching to a banking provider with stronger ethical and social credentials. Despite this, only 15% of UK adults currently know what their banking provider’s ESG rating is. When selecting a bank or lender, it’s important to consider their ESG ratings, which provide insight into how they run their business and treat stakeholders, employees, and society as a whole.

Sustainability reports are also useful as they typically cover a bank’s activities, environmental disclosures, emissions, charitable activities, and community work. Additionally, third-party sustainability partnerships, like access to Zellar – a platform that helps organisations track their environmental impact, reduce energy bills, and offset carbon emissions – a valuable tool to measure your clients' sustainability impact.

By choosing an ethical bank, you ensure that your clients’ loan interest is contributing to something good. It’s a powerful way to make a positive impact while meeting financial needs. If you’re interested in learning more, speak to one of the experienced members of our business development team.

“

Over a third of UK adults (37%) would consider switching to a banking provider with stronger ethical and social credentials

Cutting to the chase

Factors influencing a cut in Bank Rate

BMatt Foley Director of Credit Avamore Capital

ank Rate, the most important interest rate in the UK. Often called the ‘Bank of England base rate’ or even just ‘the interest rate’, it is set by the Monetary Policy Committee (MPC) as part of their remit to meet the target that the Government sets to keep inflation low and stable. It determines the interest rate the Bank of England pays to commercial banks and influences the rates those banks charge to borrow money or pay on savings.

Bank Rate is currently 5.25% with mortgage rates increasing, reversing some of the cuts seen at the start of the year. General market consensus is that the first cut will be in July or August with a lot of people (including me!) scouring MPC meeting minutes to search for any hint to support a forecast. So, what factors does the committee consider before cutting Bank Rate?

Monetary policy objectives

Price and financial stability, and economic growth; the MPC assesses the trade-offs involved when adjusting interest rates. Over the last 12-18 months, inflation has been the key driver when setting Bank Rate resulting in rises from an historic low of 0.1% in March 2020 to its current rate.

Inflation

The rate at which prices for goods and services rise, inflation has certainly been at the forefront of the public’s thoughts. Peaking at over

11% in October 2022 (the highest level ever seen in the UK), inflation is 2.30%, still above the target of 2%.

Economic growth

The rapid rise in Bank Rate led to weak economic growth with the UK entering a recession at the end of 2023 following two consecutive quarters of GDP contraction. Whilst this weak growth would ordinarily lead to a reduction in Bank Rate to encourage spending, inflation was too high, and a stagnant economy was an acceptable consequence of controlling inflation.

Unemployment rates

Low unemployment rates suggest a strong labour market and increased spending power, which may lead to higher interest rates. Conversely, high unemployment rates may prompt policymakers to lower interest rates to stimulate job creation and boost economic activity. The difficult market conditions (high inflation, high Bank Rate and a stagnant economy) appear to have had little impact on the UK’s unemployment rate. It currently stands at 4.3% (ONS – March 24) and the rate hasn’t been above 5% for three years. The strong labour market results in wage inflation fuelling inflation in the wider economy.

Global economics

Global growth rates, geopolitical events, and trade dynamics can have spillover effects on the UK economy. Changes in global interest rates and financial conditions can influence the MPC decisions. There has certainly been a myriad of external events that have significantly impacted the UK – war in Ukraine, conflict in the Middle East, and disruption to shipping to name a few.

Financial market conditions

Central banks consider the stability and functioning of financial markets – including stocks bonds and currency markets – when determining interest rates. Market volatility, credit conditions, and investor sentiment are all taken into account.

As you can see, there are multiple conflicting factors that make the setting of the Bank Rate a very complex task, and

even harder to predict. The interplay between these factors and the dynamic nature of the economy makes interest rate setting and forecasting constantly subject to change based on new data and evolving circumstances.

It’s important for banks and other lenders to stay abreast of all these factors. Keeping on top helps them to make careful, considered lending decisions that do not put borrowers under undue stress or risk, providing support through the difficult times as well as the good.

IHousing fundamentals

Near-term outlook for the property sector

Rob Lankey Chief Commercial Officer GB Bank

t’s tempting at this time of year to look for signs of renewal and growth with the hope that the financial world will mirror the revival we see in nature. This is even more so when we have endured what has been a winter of discontent on the economic front. However, there are some good reasons why we can look forward to brighter days ahead, particularly in the property sector.

Mortgage rates are falling and with the Office for Budget Responsibility (OBR) now forecasting inflation to reach an average of 2.2% by the end of the year, affordability for homeowners is on the rise. This relatively rapid turnaround is starting to have an impact on house prices. While the picture is changeable, at the start of this year, estate agency Knight Frank went from predicting a 4% fall in house prices during the course of 2024 to forecasting a 3% rise in the space of just three months. In March, estate agents reported a third consecutive monthly rise in demand.

A recent survey of residential landlords carried out by online property portfolio management provider Lendlord, also found that over a third of those with four or more properties were planning to expand their portfolios this year. This is perhaps unsurprising when average rental costs went up by almost 10% last year, according to Zoopla, with a further 5% rise predicted in 2024, improving yields and boosting affordability for landlords and buy-to-let investors.

When you consider the fundamentals of the housing market in the UK – an under-supply of properties for the people who want them –

it is perhaps unsurprising to see that investment in this sector is on the rise, after a challenging 2023 for the PRS sector. Estate agent Foxtons reported in January that instructions for buy-to-let properties had risen by 25% compared with the same month in 2023.

At GB Bank, we’ve certainly seen increasing demand from buy-to-let investors and developers and we’re anticipating that demand to grow further as we move into the second half of 2024.

In the sector in which we specialise – experienced SME property developers and investors – we’re starting to observe the green shoots of this turnaround as agile operators look to take advantage of the changing situation.

That’s not to say that SMEs are not facing challenges –in a recent survey from Bibby Financial Services, 60% of small and medium-sized companies reported their existing lender had reduced the availability of credit in recent months. However, the same survey found 61% of SMEs expected an uptick in sales in the next six months.

And let’s take the NACFB’s own findings. The Association’s annual survey revealed a strong sense of optimism for the future of the UK’s small business lending sector, with 63% of NACFB Member brokers expressing at least some level of optimism. The broadly positive outlook was echoed by their commercial lender counterparts, 80% of whom are optimistic about their future loan book performance. Additionally, 29% of lenders expected the property sector to be the biggest source of growth this year.

While one swallow doesn’t make a summer, the evidence is mounting that the sun is starting to shine once more on the property sector.

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Take care

How bridging is helping de-banked care home owners

AMax Lewis CIO and Co-Founder Hilco Real Estate Finance

s care homes emerge from a turbulent few years, we’re seeing lots of activity with operators seeking finance to invest in expansion and improvements. However, many are struggling to source the funding they require with lots of lenders having exited what they view as a non-core sector.

There’s no doubt that care homes have faced a succession of challenges from Brexit and Covid-19 to ever-increasing regulatory requirements, spiralling energy prices and staff shortages. However, given the UK’s ageing population and the much-discussed need for care facilities, there is real potential for operators that are able to deliver the greater comfort and quality of life demanded by residents and their families.

Many of the traditional lenders that have left the market have done so because care homes do not ‘fit the box’ of their rigorous lending criteria – these lenders are not able to look beyond the short-term and support what are, in many cases, viable businesses. For example, there is usually a requirement for a three-year trading history which is often not possible given the upheaval of recent years. What’s more, many simply lack a real understanding of the sector meaning they do not have the confidence to lend.

Today, care home owners are under pressure, not just from their regulator, but also from residents and their families keen to ensure that homes are of a higher quality with modern facilities. Unfortunately, there is a very real lack of access to funding with a much-reduced pool of active lenders. In fact, we have come across a number of care

home owners who have become ‘unbanked’ with their lenders having either chosen not to refinance them or selling their loan to a more aggressive creditor.

For these reasons, the more flexible option of bridge lending, particularly over terms up to two years, is becoming increasingly popular. Not only does it have the advantage of giving operators rapid access to funds with small, boutique firms able to make swift decisions, but genuine sector expertise means those with experience in the care home space are actively looking to lend.

Whilst not a long-term finance solution, it can provide care home owners with breathing space, giving them time to negotiate a sale or achieve longer term finance from a more secure position.

Given the imbalance between supply and demand, we are confident that operators with vision have a bright future and that bridge lenders and brokers who understand the sector will help them achieve it.

“

Given the UK’s ageing population and the much-discussed need for care facilities, there is real potential for operators

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Our understanding of the complexities of Development Finance gives us the ability to take higher risk on LTGDV and LTC.

Every development has the potential to be a success, and our terms and appetite reflect that.

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Identifying clients with lifetime value

Introducing Red Flag Alert’s Growth Score

Rory Traynor Head of Content

Red Flag Alert

s trading conditions remain tough for UK businesses the need to maximise cashflow and secure long-term revenue streams is becoming of increased concern for directors. Adding to this is the fact that marketing and customer acquisition processes can be expensive and time consuming, often relying on a scattergun approach or hours of meticulous prospecting.

Brokers are now considering the lifetime value of both their existing and potential customers as a key metric when planning, making strategic decisions and valuing their client book.

But how is it possible to judge a company’s future? And how can it be done at scale? Red Flag Alert not only makes this possible, we make it easy. Our revolutionary growth score gives you the power to find growing businesses in your area with the click of a button. What’s more, all NACFB Members have access to Red Flag Alert, including our growth score, free through their NACFB membership.

What is a ‘growth score’?

In short, Red Flag Alert’s Growth Score rates the likelihood of a company growing their turnover by 20% or more over the course of the next twelve months. The definition is the same as the Organisation for Economic Co-operation and Development’s and the score is available on Red Flag Alert business reports.

It separates companies into four simple bands of growth potential: Very likely, likely, unlikely, and very unlikely. Whilst other growth scores existed before, these were primarily based off investment data which is deeply flawed. This is because it discounts organic growth and also because investment is no guarantee of growth. It is also not useful for the wider credit industry as they have already secured funding.

In developing our score, we conducted deep analysis of over 640,000 businesses across eight years of financial data. Our data scientists considered such metrics as company finances, sector growth trends, and both national and regional economic trends. From this we identified the common signs of growth as well as signs of stagnation and were able to build a comprehensive and highly accurate growth propensity scoring system.

What this means to you is the ability to gauge the ongoing finance needs of a company and the potential return they represent.

“Red Flag Alert’s Growth Score rates the likelihood of a company growing their turnover by 20% or more over the course of the next twelve months

“

Companies undergoing growth will almost universally need access to lending

Why is it a game changer for credit brokers?

As having customers who will provide repeat and ongoing business becomes increasingly vital, our growth score gives you the means of easily identifying and targeting them. Companies undergoing growth will almost universally need access to lending, and in today’s landscape of high interest rates and reduced lender risk appetite they will also need a trusted adviser to help them navigate their options.

As they continue on their growth journey, they will repeatedly need access to lending and finance. By positioning yourself as their expert adviser and helping them develop their lending strategy, you will be in a prime position to win this business. An additional advantage is that due to the unique ability of our growth score to identify organic growth, you are able to find the many growing companies that traditional methods of identifying growth cannot. This means that they most likely will be struggling to access lending at a reasonable price and, in many cases, this will be the main inhibitor to them easily achieving their growth targets. It also means that you will have access to a lucrative and underserviced portion of the market.

It is important to note that having a high chance of growing turnover by 20% or more does not mean that a company does not represent

any risk. Fortunately, our reports contain all the credit risk and business information you need to make an informed decision; including a health rating that concisely summarises a company’s financial health and credit risk.

Using Growth Score to identify SMEs with high lifetime value

Finding high growth companies in your area is incredibly simple via our B2B prospector tool. This allows you to easily create searches that are anywhere from high level to extremely granular. When building your prospecting search simply select the growth likelihood you would like to include in your results. It really is as easy as that!

Other filters include health rating, auditor, debenture holder, sector, geographical area, turnover, and many more. Whilst our estimated turnover and best match SIC code features give unparalleled access to UK SMEs.

So, what are you waiting for?

Ensure your NACFB brokerage is accessing this free powerful tool and sign-up today via nacfb.org/redflagalert

Revolving around you

Helping developers deal with cashflow challenges

SJonathan Rubins Director Alternative Bridging Corporation

hort-term lenders have long been the go-to finance partners for SME property developers. Initially offering ‘standard’ bridging loans, over recent years providers have tailored their short-term loan propositions into development finance products.

Created specifically for property developments, such loans fund projects ranging from significant structural alterations and major extensions to the establishment of completely new properties on freshly acquired land.

Development finance has been a very successful offshoot of bridging finance and the majority of bridging loan providers now offer it in some form or other. As with bridging loans, the application process for development finance is relatively quick, so long as the broker ensures that all of the relevant information and paperwork is provided to the lender in a timely fashion.

That said, there are times when developers’ circumstances require something a little different, especially when it comes to managing cash flow. For example, property developers will typically be buying materials from various sources as well as dealing with a number of different contractors at any one time. They may also need money to kick off a new project before they’ve cashed out on an existing development.

This is where a revolving credit facility can be invaluable. It provides the client with access to funds without having to go through an application

process every time they want to use the finance. Unlike term loans that provide a lump sum of money upfront, a revolving credit facility allows developers to draw funds as needed, repay, and draw again.

The benefits of such a facility to developers are varied. For instance, developers often struggle to secure the materials they need for their projects quickly, resulting in them facing higher prices, especially in the recent inflationary environment. Instead, revolving credit facilities can help developers access capital at the start of their project, keeping a lid on costs and maximising a project’s profitability.

Temporary cash flow issues can also be mitigated by a line of revolving credit. For example, a developer can use the facility to cover expenses even if its receivables haven’t yet been collected. Alternatively, the facility can help with business expansion opportunities without having to renegotiate a new loan or seek additional financing. It can also help the borrower move extremely quickly to take advantage of an opportunity which won’t be around for long; certainly not long enough to complete a traditional loan application process.

The facility can be drawn and repaid many times, making it an ideal overdraft for real estate purchase, property auctions, site acquisitions, or work-in-progress funding.

It’s also important to note that in a revolving credit facility, interest is charged only on the amount drawn rather than on the entire credit limit. This means that a developer will not be paying for the privilege of having the whole facility, rather just on the funds they’ve drawn on.

The development finance loan is key for SME developers who require funding for their projects. However, they may also need to act quickly and decisively, and the revolving credit facility can provide such immediate access to liquidity whenever required, which is why it should also be part of every developer’s armoury.

LBalancing the ecosystem

Tackling the underlying reasons for bank declines

Katrin Herrling CEO & Co-Founder

Funding Xchange

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WUnsurprisingly, the APPG has called for an overhaul of the MBR scheme and new ideas to help SMEs ‘get ready to borrow’ including efforts to better signpost available resources and help businesses navigate the “patchwork” of existing institutions.

The unintended consequences

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hen Mandatory Bank Referrals (MBRs) were introduced in 2015 the scheme was billed as an innovative regulatory initiative that would leverage the power of alternative funders to boost competition and unlock funding for UK businesses.

The programme, enacted through the Small Business Enterprise & Employment Act, required the UK’s biggest banks to pass on the details of SMEs declined for finance to three designated platforms able to connect them with alternative finance providers.

Almost ten years on, few would argue that MBR has delivered on its early promise. Treasury stopped tracking volumes in 2020, but in its first four years, circa 45,000 scheme referrals resulted in approximately 3,000 transactions, worth only £56 million.

To put it more bluntly, nearly 94% of referred businesses were unable to secure access to finance via the scheme, prolonging their difficulties rather than providing the support they needed. “[MBR] has failed to match customers and lenders at anything close to the scale needed to amplify access to finance,” the All Party Parliamentary Group (APPG) on Fair Business Banking chaired by Minister Kevin Hollinrake, wrote in its recent SME Manifesto.

Indeed, a referral programme intended to create more awareness of alternative sources of credit feels out-of-step with where finance markets have moved. High street banks, which once controlled nearly 80% of the market, now have approximately 40% share of new lending.

Different groups may debate the factors that have limited the effectiveness of the MBR scheme, pointing variously to the impact of Covid, the challenges facing the UK economy or the specific evolution of Fintechs and intermediary platforms.

But regardless of the causes, regulation introduced to make it easier for SMEs to access finance has had a limited effect and even some unintended consequences. Banks are now more, not less, reticent to share feedback or decline reasons, due in part to concerns that doing so will result in costly disputes.

“Banks are now more, not less, reticent to share feedback or decline reasons, due in part to concerns that doing so will result in costly disputes

“Nearly 94% of referred businesses were unable to secure access to finance via the scheme, prolonging their difficulties rather than providing the support they needed

And today, there is possibly less support for SMEs than a decade ago. Waves of bank branch closures, and the associated loss of staff, have removed a crucial, informal source of advice for SMEs even as lending options and schemes have proliferated.

As a result, businesses are forced to navigate the complex world of Start-up Loans, CDFIs and alternative lenders on their own. Commercial brokers, accountants and others are there to help, but can only do so much in such a fragmented space.

A new approach

What is missing is credible, personalised, easily scalable support for business owners, provided when they are most receptive to it (i.e. looking for funding) and supported by a broad coalition of industry participants – banks, lenders, brokers, and government agencies.

To address this major gap, FXE has developed a ‘Funding Health Checker’. Leveraging FXE’s experience with SME credit assessment, the tool helps business owners understand how their company is viewed by banks and lenders.

The tool combines data from Credit Reference Agencies (CRAs) and Companies House to review the profile of a business, flag areas of concern and suggest actions to improve fundability, all in a visual, easy to digest format that borrows from innovations in consumer applications.

Moreover, the tool is perfectly positioned to ‘join up’ the ecosystem – acting as an impartial central information and navigation hub that connects businesses to the right resources and the right specialists, including brokers, who can provide the right support, at the right time.

For businesses unsuited to commercial finance, that might mean referrals to Start-up Loans and CDFIs, while for sound businesses declined for funding, introductions to brokers who can help structure a compelling application might be appropriate.

The NACFB is already actively involved in the dialogue around how best to develop and deliver the Funding Health Checker solution and close collaboration with key industry groups will certainly help more businesses access finance.

Initial results are promising. In a recent pilot supported by four leading high street banks, 80% of owners saw improvement in their understanding of the factors affecting the fundability of their business and 90% would recommend the tool to a friend.

Unlocking a billion pound prize

The prize on offer is substantial. SMEs in the UK are missing out on as much as £3 billion in potential funding by not taking simple actions, such as filing accounts on time or using their overdrafts prudently, to boost their credit profiles, based on a review by FXE.

Unlocking that potential would have dramatic benefits for SMEs and the broader ecosystem, allowing lenders to fund more businesses, amplifying the impact of government-sponsored support schemes and strengthening the UK economy.

Funding Health Checker shows just what can be accomplished when different parts of SME lending ecosystem – banks, brokers, FinTechs, regulators – collaborate to deploy imaginative solutions. The industry knows what it needs to do. Let’s get to work.

From

opportunity to investment.

For professional intermediary use only All security types considered across England, Scotland & Wales, including land | Loans from £26k to £5m (higher by referral) | Dual representation and internal legal solutions | Complex lending structures and overseas nationals considered |

Dear prudence

Understanding invoice finance and debt protection

IAdrian Taylor Head of Invoice Finance

Paragon Bank – SME Lending

nvoice finance may be one of the lesser-known funding solutions that SMEs can employ; however, it can be useful if a business is looking to raise funds. For brokers new to the world of commercial finance, here’s an overview of how it works and why clients should also consider protecting themselves against bad debts.

Invoice finance enables companies to utilise unpaid invoices and borrow against them to raise capital for its business needs. As soon as the business raises an invoice, the invoice finance lender can advance up to 95% of the invoice value. When the business’s customer pays, the lender will send remaining balance of the invoice minus any fees.

Discounting or factoring?

There are two primary invoice finance products: invoice discounting and invoice factoring. The main difference between the two, is that with factoring, the lender undertakes primary credit control responsibility which enables them to interact directly with the business’ customers.

Businesses use invoice finance for several reasons, including to fund a restructuring or management buy-out, to replace an existing form of finance like an overdraft or to accelerate growth by releasing capital. A benefit of invoice finance is that, as the business grows, the facility can increase in line with turnover, whereas an overdraft, a loan or capital injection tends to be a fixed sum. It is also utilised by businesses to support clients and win new ones, such as extending existing credit lines or arranging better payment terms.

Ultimately, the way in which the capital is used is up to the business, but it does tend to be used to support growth.

Bad debt protection

When arranging an invoice finance deal, brokers should consider recommending that the client takes out protection against the damaging effects of bad debt. Bad debt protection, also known as customer protection, can be used to mitigate the impact of loss when invoices are not paid. Put simply, it’s to ensure that if the customer ultimately paying the invoice becomes insolvent, the broker’s client won’t be left unable to repay the advance.

Bad debt protection is especially worth considering when taking out invoice finance if the business only has one or two clients or if clients’ invoices are very high in value, both of which could then leave the business vulnerable to customer insolvency if a client were unable to repay.

Despite the recent GOV.uk figures showing that registered company insolvency in March 2024 was 17% lower than in March 2023, insolvency rates remain higher than pre-Covid-19 and during the pandemic. Therefore, it’s important for brokers to get their clients to think prudently about their own credit policy and consider the wider economy before taking out invoice finance and/or bad debt protection.

“Bad

debt protection is especially worth considering when taking out invoice finance if the business only has one or two clients or if clients’ invoices are very high in value

Less taxing

Index findings point towards credit solution for SMEs

WKarl Leitelmayer

Sales Director – Tax Premium Credit

hilst the tax and VAT marketplace is currently worth around £190 billion annually, we estimate that only £3-£5 billion is financed. This represents a significant opportunity for brokers to grow their business.

Paying tax bills can be a substantial burden for small and medium-sized enterprises (SMEs). According to the findings of the 2024 Premium Credit Tax Index, over the past 10 years, one in seven SME businesses (14%) say they have found paying their tax bills a challenge.

This fact is hardly surprising given that talk of tax increases is never far from the headlines, coupled with financial headwinds brought about by the cost-of-living crisis, and a legacy of high inflation well above the government’s 2% target. As such, many business owners are looking for new and innovative ways to meet their tax liabilities.

Innovation is needed

Further findings from the index show that currently, one in 12 (8%) of the UK’s 5.546 million SMEs say that VAT and Corporation Tax are most likely to be causing financial headaches. Of these companies, around 42% say they will look to agree payment terms with the tax authorities but 26% say they will cut jobs to pay the tax bill. These are worrying times for some.

The study also found nearly one in five (17%) SME owners and managers say it has become harder to pay tax since the cost-of-living crisis started

and nearly one in four (23%) believe it’s likely their company will find it tougher paying one or more tax bills in the next five years. As a result, businesses are having to consider serious actions including cutting overheads to help them meet their tax obligations.

The data also indicates that around 7% of SME owners and managers said there was a risk that their business could go under within the next five years due to tax issues, while 7% say they have worked for firms where HMRC has sent enforcement officers or bailiffs to identify goods for seizure to meet tax obligations.

Spreading the cost

For SMEs who are able to pay their tax bills, the expenditure can seriously dent their cashflow and eek out a large chunk of their cash reserves earmarked for other business critical areas. Brokers who identify clients in this position, are increasingly encouraging clients to consider using credit as an effective payment option. Credit can make tax bills more manageable by utilising monthly outgoings rather than a single, large annual lump sum payment. Credit can also significantly help businesses by freeing up cashflow and cash reserves.

For the SME utilising a tax-specific loan facility, paying in monthly instalments is a simple, straightforward, and cost-effective process. The lender directly funds HMRC billing, allowing businesses to compliantly pay their bills in full and on time. This makes financial planning easier and safeguards the SME’s cashflow. It’s a strong option for companies looking to maximise their income and a great opportunity for brokers looking for ways to increase their support to clients.

The full findings from the 2024 Premium Credit Tax Index will be made available at this year’s NACFB Commercial Finance Expo.

Expertise: whenever (and wherever) you need it

Live updates on every application, direct access to underwriters and live chat facilities with our experts; we’re here to make every mortgage simple, whatever your customer needs.

Understanding funding lines

Why it pays to be curious

TMarcus Dussard Sales Director KSEYE

he bridging market is unusual in that nobody knows exactly how many lenders are active in the sector, with providers ranging from banks to bridging specialists and small family offices.

This variety of lenders brings with it a selection of different funding models. Some lenders will fund their loans through retail deposits or investments, while others will have institutional investors. Peer-to-peer (P2P) funding continues to be used by some lenders, and there are many smaller lenders whose loans are funded by the wealth of high-net-worth (HNW) individuals and families.

As a broker, you may wonder why it matters how a lender is funded. The funding model a lender uses can have a direct impact on the certainty that funds will be provided to your client – are you confident that the lender will have the liquidity to pay out when the loan completes?

Beyond this vital reason, there are other ways in which a lender’s funding model can impact you and your clients.

As the engine room for any lending, the way a lender is funded dictates its proposition, in terms of both rate and criteria. Each avenue of funding comes with costs and considerations. For example, a lender whose loans are funded by HNW wealth may have greater flexibility in terms of loan use and security, but limited ability to provide larger loans and be less competitive on price.

By contrast, a lender sourcing its funding from institutional investors may be able to offer keener pricing but have a more rigid lending policy because it must adhere to the covenants of its investor agreement.

The speed of funds also changes slightly depending on the source of the funding. This means that the variety of funding sources in bridging ultimately creates greater choice, as different models provide brokers with different options depending on the circumstances of a case.

Diversity of funding is one of the reasons why bridging lending has continued to grow in recent years, as it can meet a huge variety of client needs. Lenders which use a combination of institutional funding and HNW investors often have an advantage over lenders which employ one source of funds in that they can place a loan with the most appropriate credit line, depending on the particulars of the case.

Diversity also ensures bridge funding can be delivered to tight deadlines, sometimes on the same day that it is requested, whilst maintaining the flexibility to fund things that can lean more on the quirky side.

So, when it comes to choosing bridging finance, consider how the providers are funded and what this could mean for your ability to serve your clients.

“

The variety of funding sources in bridging ultimately creates greater choice, as different models provide brokers with different options depending on the circumstances of a case

What We Do

Asset backed SME funder

Lending up to £5m

Lending to every market sector

Regional presence throughout the UK

Finance Solutions for Property Investors and SMEs

AA tonal shift

Time to accentuate the positive

Stephen Spinks Head of Broker Sales –Commercial Mortgages (South) Allica Bank

t the start of the year, we predicted that the outlook for British SMEs in the first half of 2024 would be a positive one. At the time, it felt like a big call. Rising interest rates, surging inflation, and geopolitical friction were all causing serious headaches for business owners. Our view was that, after many months of uncertainty around these issues, they were no longer new problems.

Instead, this high-cost environment had become the ‘new normal’ –familiar territory for business owners who had proven, once again, they could still operate despite everything that’s been thrown at them.

Our prediction does look, in large part, to have come true. Allica has seen strong demand from business owners taking advantage of the relative stability. We’ve heard countless stories of businesses finally deciding to bite the bullet and buy their premises or purchase an investment property because they felt more confident about what the future held than they did before.

Confidence is clearly up despite the more expensive economic environment, and businesses are investing for growth once again.

Going for growth

Looking ahead to the second half of the year, I predict the outlook for brokers to be similarly positive. The Bank of England has hinted that rates may soon go down rather than up, which I expect will lead to a surge of deal activity. With rates still likely to be higher than businesses have been used to over the past decade or so, it will be vital for business owners to seek the ‘whole of market view’ and the expertise of brokers to find the best deal available.

As confidence slowly returns to the market, Allica will continue to work closely with our broker partners to ensure we meet their needs and help enable the ambitions of their clients. For example, we know how much sustainability continues to stay top-of-mind for many and have therefore continued to offer discounted rates on properties with an Energy Performance Certificate rating of A-C. It’s only by listening to our customers and brokers that we’re able to do this effectively.

While challenges remain, the resilience and adaptability demonstrated by British SMEs provide a hopeful outlook. By leveraging the expertise of brokers and focusing on sustainable practices, businesses can navigate these turbulent times with greater confidence. The first half of 2024 has shown that, despite a high-cost environment, SMEs are finding ways to thrive, and with continued support and smart decision-making, the second half of the year holds promising potential for further growth and stability.

With an election on the horizon and ongoing geopolitical crises, it is, of course, important to remain cautious. However, the signs are there that 2024 could shape up to be much more positive for businesses than in recent years.

It’s amazing what a bit of stability can do.

“

Confidence is clearly up despite the more expensive economic environment, and businesses are investing for growth once again

New options without personal guarantee now available

Secured and unsecured loans Short-term funding Lines of credit

We offer a range of finance options, so we can help your clients find funding that works for them – from secured and unsecured loans to FlexiPay, our low-cost line of credit. Plus, your limited company or LLP clients can apply with no impact to their credit score, so they can decide if it’s right for their business with total peace of mind.

Working with over 900 active Introducers, we’ve lent more than £5bn to small businesses, and we’re here to help your clients reach their goals too.

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TDispensing opportunity

How lenders and brokers can support pharmacies

Karen McGrath Regional Business Development Manager

Atom bank

he importance of quality local pharmacies has never been clearer. However, the Fight4Pharmacies campaign group warn that the closures seen in the last couple of years could double without greater support from the authorities.

But it’s not just the central government that could provide better backing to pharmacies. There are all sorts of SMEs keen to purchase and establish pharmacies across the country, but they are finding it unnecessarily challenging to secure suitable funding.

The pharmacy opportunity

In a bid to boost overall profitability, we are seeing big corporates looking to offload some of their smaller, less profitable sites and focus instead on larger pharmacies, although it’s important to note that this is not necessarily a reflection on the sites themselves. Potential returns from pharmacies have been hampered by the corporate owners’ reliance on more costly locum staff, or simply a lack of hunger in chasing opportunities to boost revenues through greater referral levels.

This opportunity has been spotted by SMEs and we are seeing great interest from first-time buyers and those with a pharmacy or two already in their portfolio who want to expand. Both cohorts recognise the potential of these sites; how with a little drive and focus they can be turned into far more impressive outlets.

Unfortunately, their appetite is not always matched by lenders, leaving these buyers seriously short of options. There has been a retrenchment from some of the funders who previously dominated this sector. In some cases, lenders have severely tightened criteria, making it more difficult for would-be pharmacy buyers to obtain the financing they need, while in other cases lenders have exited the market entirely.

Taking the first step

This is short-sighted. It’s not uncommon for first-time buyers to have a close connection with the premises in question – they may have worked there as a locum, for example, giving them insight on business performance and potential opportunities – perhaps through closer links with local GP services. The requirement by some lenders that they need to have previously owned a pharmacy before they can purchase premises is unhelpful.

Bespoke pricing needed

Another frustration commonly raised by brokers supporting clients in this area is the price of funding – should it be available. All too often lenders employ a rigid approach, treating individual businesses as a homogenous group rather than taking the time to understand the unique circumstances and plans for the pharmacy, resulting, all too often, in more costly funding than is necessary.

It doesn’t have to be this way, though. Instead, lenders can take the time to appraise the client on their own merits, to get a better sense of where the borrower stands and what they are looking to achieve, allowing the lender to deliver a more bespoke solution. Ultimately, this could result in the borrower paying a more appropriate rate for their funding, setting them up properly for success.

Delivering for our local communities

There’s no question that the pharmacy sector needs greater support from lenders. Pharmacy services are essential for our local communities, and there is a great swathe of SMEs chomping at the bit to take on premises and deliver. They know that there is an opportunity to not only raise the standard of services being provided, but the profits involved from running such businesses too.

But they won’t be able to do so unless more lenders embrace the sector, and provide the sensible, bespoke pricing and processes which we know are so highly valued by brokers and borrowers alike.

“

Pharmacy services are essential for our local communities, and there is a great swathe of SMEs chomping at the bit to take on premises and deliver

Hey, big lender

We’re the UK’s largest asset finance provider*. Fact. But in reality, what does that mean for you and your business? We offer specialist sector specific advice, tailored expertise and support. We know what matters when it comes to asset investment and funding your growth. Yes. That’s big. Search Lombard Asset Finance to find out

IEmerging from the woods

Inflation drop signals rate cut

Professor Trevor Williams Economist

University of Derby

n late May, news that UK consumer price inflation had fallen to a three-year low of 2.3% was welcomed as an unequivocally positive development. This indicated that the long fight against rising inflation, precipitated by Russia’s invasion of Ukraine in February 2022, appeared almost over, with the annual rate closing in on the Bank of England’s 2% target. With inflation nearing its long-term target, it seems only a matter of time before interest rates are lowered from their 16-year high of 5.25%.

Many expect the rate cuts to begin as soon as June when the Bank of England holds its next meeting. Although cutting interest rates during what will be an election period – a General Election is scheduled for July 4th – may seem to some like a political decision, it will be purely an economic one.

With price inflation significantly below its 11.1% peak in October 2022, rate cuts in the next month or so seem reasonable. However, it could also be argued that the Bank of England will want to avoid any appearance of political bias and may delay any rate cut until the July meeting, after the election has taken place.

These anticipated cuts aim to provide relief to struggling households and businesses by reducing the cost of borrowing and interest payments on existing debt. This move is expected to positively impact business and household incomes, offering a timely boost to the economy.

However, it’s crucial to note that the potential benefits of the interest rate cuts should not overshadow the ongoing challenges. Despite the decrease in inflation, prices have not fallen; they are simply rising at a slower pace. This is evident in the negative impact on businesses, as illustrated by the increase in bankruptcies, higher debt repayments by SMEs, and a general decrease in company borrowing.

The increase in the UK’s price level over the last three years has been a little over 22%, equivalent to 11 years of 2% inflation compressed into just three years. This should be the objective measure of the hit to living standards since inflation surged in 2021. In this environment, the sooner interest rates are cut to ease the burden on firms and the economy, the better.

While the prospect of lower interest rates brings hope, it’s essential to remain cautious. The road to economic recovery is fraught with challenges, and the impact of inflation is still being felt across the board. Lowering interest rates will provide much-needed relief, but it must be part of a broader strategy to stabilise the economy and support long-term growth.

In summary, the drop in inflation is a positive development, paving the way for interest rate cuts as soon as this month. These cuts are expected to alleviate some of the financial pressures on households and businesses, stimulating economic activity. However, to support a broader economic recovery further policy action to encourage productivity gains are required to ensure a balanced and sustainable recovery.

“

The Bank of England will want to avoid any appearance of political bias and may delay any rate cut until the July meeting, after the election has taken place

ALifecycle lending

An holistic approach to seamless property financing

Sophie Meller Business Development Manager TAB

s property investors navigate the aftermath of a higher inflation economy and adapt to increased interest rates, embracing a perspective that encompasses the entire property lifecycle has become more crucial for real estate financing solutions.

Taking a holistic approach to lending offers significant benefits for brokers and their clients. Instead of meeting clients’ immediate lending needs in isolation, a lifecycle approach proactively considers and plans for the client’s evolving financing requirements over the entire lifecycle of owning, investing and disposing of that property.

In today’s market, there is a growing demand for such holistic lending solutions. It is no secret that current refinancing solutions are taking longer due to various factors including lenders’ hesitancy amidst persistently high base rates and legal processes that have become more drawn out. This leaves property investors uncertain about their exit strategies, and without these, lenders are less likely to lend. This uncertainty can be a source of stress and anxiety, potentially hampering the investor’s ability to capitalise on future opportunities.

Today’s investors seek comprehensive solutions where they can seamlessly transition from initial acquisition to long-term financing and any requirements in between.

A product that addresses all stages of a property investment’s lifecycle will eliminate the need for clients to worry about refinancing upon the redemption of their short-term loans. It provides them with a clear roadmap and a sense of security throughout the investment journey. With this approach, brokers can proactively address these concerns for their clients and alleviate the uncertainties surrounding exit strategies.

Whether it’s purchasing and refurbishing investment properties, developing new residential or commercial projects, or refinancing existing assets to unlock equity, a holistic approach streamlines the process. It seamlessly facilitates transitions from short-term bridging finance to long-term mortgages, ensuring a smooth progression throughout the investment cycle. Additionally, lifecycle products provide the agility required for auction purchases, enabling investors to secure properties swiftly through bridging finance before transitioning to a term mortgage. In the commercial realm, this offers a practical solution for investors who require time to establish a year’s worth of accounts before converting to a commercial mortgage.

By addressing the exit strategy proactively, brokers can alleviate these uncertainties for their clients, positioning themselves as trusted advisers capable of delivering tailored solutions that align with their long-term goals.

In today’s competitive landscape, brokers who embrace a holistic approach to lending will undoubtedly stand out. By offering comprehensive solutions that address the entire property lifecycle, they can provide their clients with a seamless experience, mitigating risks, and maximising returns on their investments. This approach transcends the transactional nature of traditional lending and elevates the broker’s role to that of a strategic partner, guiding clients through the complexities of property financing with a forward-thinking perspective.

A trusted partner for business funding

We’re one of the

Invoice

Discounter

Throughout a history spanning four decades, the NACFB has leveraged its annual membership survey findings to help better understand the dynamics of the evolving commercial lending market. Such comprehensive assessments track sector development, transactional activities, and market sentiment.

In case you missed the latest version –published earlier this year – five extracts from beyond the headline findings can be found below. The full 40-page Pathways to Prosperity report can be downloaded for free online at nacfb.org/advocacy

1. Broker panels shrink as lender connections grow

The 2023 survey marks a noticeable trend in the intermediated commercial finance sector with the average number of lenders per NACFB Member’s panel decreasing to 96, a drop from 106 in 2020. In contrast, NACFB Patron lenders have sought to expand their broker connections, with 53% of surveyed lenders noting an increase compared to the previous year. Additionally, for commercial lenders an average ‘active panel’ of 227 brokerages was reported.

membership survey highlights

2. Impact of rising interest rates

Last year’s increase in the UK Bank Rate to 5.25% had a tangible impact on commercial lending, with 43% of lenders reporting a decrease in loan completions. This shift underlines the sensitivity of the commercial lending market to national economic policies and emphasises the need for strategic adaptability in the face of fiscal changes. Although the impact is clear it is also worth noting that 25% reported no significant change in their completion rates.

4.

Resilience amidst decreased lender appetites

52% of Member brokers observed a decrease in lending appetite across all types of lender last year, with just 14% noting an increase and 35% seeing no change. Reflecting brokers’ resilience and adaptability, nearly half of those who highlighted decreased appetites sought alternative lenders in response. Remarkably, only 5% of brokers reported a reduction in their lending volume due to the fluctuating lender appetites.

5. Optimism for the future

Finally, the findings also revealed a strong sense of optimism for the future of the UK’s small business lending sector, with 63% of NACFB Members expressing at least some level of optimism. The broadly positive outlook was echoed by their commercial lender counterparts, 80% of whom are optimistic about their future loan book performance. Less than a fifth (17%) of NACFB Members were pessimistic about the future.

3. Steady broker-to-direct lending ratio

Last year saw 69% of total lending via NACFB Patron lenders to UK SMEs facilitated through the commercial intermediary channel, mirroring the 2022 figure of 70%. Despite uncertainties about future changes in this dynamic, the expansion of the broker-facing teams by 56% within lenders in the same year indicates a probable continuation of this trend. This balance between direct lending and intermediary reliance illustrates not just the value of broker-led transactions but also of the dependence upon this route to market for small businesses seeking growth.

Five Minutes with: Mike Davies

Mike Davies Head of Business Development YBS Commercial Mortgages

What’s your favourite sandwich?

Cheese and onion on granary bread. The more mature the cheese and the stronger the onions the better.

If you have a pet, what is it and what’s its name?

I have two dogs, both cockapoos called Betsy and Mabel – when they run off in the park it sounds like I’m shouting at two old ladies.

What was your first car? Did you name it?

It was a 1978 Ford Fiesta. It was called Trevor, I honestly cannot remember why.

What’s your favourite colour?

As a proud Welsh rugby supporter you might expect me to say red, but its blue, goes with my eyes.

What is the oldest item in your wardrobe?

I have a pair of rugby shorts back from when I still used to play. I’ve kept them for sentimental reasons, and the hope that one day they might fit me again.

If you could choose any celebrity to be your best friend, who would it be?

Arnold Schwarzenegger, I really admire his drive and ambition, he’s achieved some fantastic things in his life. I feel like he’d be a very reliable friend, he would always Be Back!

If you could speak any language, what would it be?

I am learning to speak French. I’ve been at it for years now, so forget speaking it, achieving a basic level of competence would be an achievement.

What is the best part of your current role?

We are committed to a really ambitious growth journey. The ability to make some really meaningful decisions which improve our service delivery to borrowers and broker partners is a rare opportunity to build a great business.

Why did you choose the field you are in?

My first job was with Barclays. It was a job straight out of university and I wasn’t sure that it was going to be

for me. When I first worked in corporate and commercial relationship banking I was sold. The chance to support a business’ growth is hugely satisfying and the value that support can bring to the business themselves and the wider economy is extremely rewarding.

Did you pick up any work habits during lockdown?

I wear shorts pretty much all the time when I’m working from home. I think it’s great –Mrs Davies not so much!

What helps keep you motivated at work?

We have just expanded our business development team, I have some fantastic people working in the team. Seeing their enthusiasm for business development and their desire to put deals together is hugely motivating.

What professional skills do you think everyone should have?

Empathy and emotional intelligence should be a prerequisite for every professional in every industry, not just financial services.

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