Commercial Broker (NACFB Magazine) October 2023

Special

Further

Norman’s Note

Norman Chambers Managing Director | NACFB

Is it possible for the golden hues of autumn to feel as rejuvenating as the budding greens of spring? The unseasonably warm weather in what has turned out to be an Indian summer certainly seems to think so, and this sense of fresh beginnings has resonated deeply with us at the NACFB.

The energy is palpable, especially with the influx of new students into the NACFB Broker Academy – a cohort twice the size of last year’s. And let’s not forget the pride we felt witnessing our first alumni take the stage at last month’s Commercial Broker Awards.

Now, speaking of awards, they can be quite the dance for trade bodies. They’re ceremonies of recognition, after all. Our esteemed panels of judges lose plenty of sleep over ensuring that the deserving are properly acknowledged. But while recognising brilliance at a firm and individual level is paramount, we aren’t fond of merely ‘taking part’ accolades. So, how do we truly highlight excellence? Enter the NACFB’s Assurance Process. A robust step up from our former Minimum Standards Reviews, it is your trade body’s revamped seal of approval, our mark of quality. And, as we approach the year’s end, expect us to champion what this hallmark stands for with ever-increasing vigour.

So, can autumn ever truly herald a season of new beginnings? With fervent students, recognised talent, and a renewed commitment to excellence, this October answers with a resounding, absolutely.

Association updates for October 2023

NACFB News

NACFB partners with Asset Finance Connect

The NACFB has partnered with Asset Finance Connect (AFC) in becoming a corporate member.

AFC provides a forum for debate for all participants in the asset finance ecosystem including brokers and lenders. AFC seeks to enable open discussion – frequently tackling issues that some may find difficult to discuss – issues which otherwise might inhibit growth and the continued evolution of the asset industry.

NACFB managing director, Norman Chambers, commented on the partnership: “The NACFB’s core values of improving access to finance for the SME community with positive outcomes through brokers and collaboration with lenders and funders is very closely aligned with Asset Finance Connect.”

“We look forward to developing this partnership, the fruits from which we believe will benefit the wider asset finance community,” Norman added.

Edward Peck, CEO of AFC, shared: “We are particularly pleased to engage with the NACFB as we become NACFB partners and they AFC corporate members.

“The associations all have an important role to play, representing not only their members’ short term and immediate interests but also their longer-term interest through the building of an efficient and well organised marketplace,” Edward added.

Document updates to reflect Consumer Duty

In response to the FCA’s Consumer Duty, the NACFB has updated its library of template documents, ensuring compliance for broker Members is in line with the regulator’s consumer-focused principles.

This refresh has enhanced over 30 key documents from the broader library of 80+ documents. It includes essential contractual agreements, updated registers, and pivotal business policies, all available on the NACFB website.

NACFB compliance manager, Charlotte Mathieson, commented: “The Consumer Duty isn’t a singular policy but a foundational principle demanding seamless integration into every policy and procedure.” The revised set of template documents aims to help Members meet and exceed regulatory expectations.

Additionally, the NACFB compliance team is seeking input from Members and Patrons on potential new templates to bolster the lender/broker relationship. If any NACFB Member brokers or Patron lenders identify an area they believe would benefit from closer examination or improvement through bespoke documentation, they are encouraged to contact the compliance team.

To access the current and updated template documents –available free to all NACFB Members – simply log in to your account via nacfb.org

£2 billion of offers later…

Last month, Allica Bank announced that we had made £2 billion of offers to businesses introduced to us by our broker community. Reaching that milestone was like hitting a significant birthday – I could see it coming, but it’s only when it happens that it really sinks in.

I’ve since been reflecting on how the business I’ve been a part of has changed over the past four years.

When Allica made our first loan in March 2020 – on the eve of the COVID lockdown – we offered a single property, single product commercial mortgage. Fast-forward to today, and we have a comprehensive owner-occupied and commercial investment mortgage proposition serving all kinds of businesses and needs. This includes a specialist healthcare team, loans backed by the Recovery Loan Scheme, and many discounts and niches to help you support a wide range of clients.

Allica also launched savings accounts in mid-2020, followed closely by asset finance in early-2021. And then, this year, we introduced

our flagship business current account, meaning we’re able to offer established businesses a full-service banking experience.

As a bank, we now have over £2 billion deposited in Allica Bank savings accounts, and last year we became profitable.

None of this would have been possible without the overwhelming support, ideas and collaboration of our broker community. Whether it’s through verbal feedback, our half-yearly broker surveys, or industry awards, the positive feedback we receive is always appreciated, but never taken for granted. Your constructive input continues to shape the many exciting plans we have for growth and diversification coming down the line, such as unsecured business lending and ramping up the support we provide to our more complex broker-introduced customers.

I hope you continue to share your feedback with us. From day one, Allica Bank’s mission has been to give established businesses the banking they deserve. They are an absolutely crucial part of the UK economy and our local communities, but have long been let down by the big banks. We need to collaborate with our broker community to make sure we get this right. So, I encourage you to share your thoughts with us, including in our next broker survey, which should be with you soon.

That just leaves me to say thanks again for supporting us on our journey. We hope you’re enjoying the ride as much as us!

Kate Valdar General Counsel Allica Bank

Products and services are subject to eligibility, status, terms and conditions and availability. All lending is subject to status and our lending criteria. The right to decline any application is reserved.

Industry News

1. Bank of England delays Basel capital rules to July 2025

The Bank of England has confirmed the postponement of the introduction of the final segment of the post-financial crisis international bank capital regulations until July 2025, aligning with the US Federal Reserve’s schedule. Originally set to commence in January 2025, the Bank is now aiming for full implementation by January 2030, shortening the transitional period to 4 and a half years. The Bank plans to unveil near-final policies on market risk, credit valuation adjustment risk, counterparty credit risk, and operational risk in Q4 2023.

2. BBB supports 90,000 businesses with £12.4bn

In the 2022/23 financial year, the British Business Bank (BBB) supported over £12.4 billion of finance to small businesses, significantly surpassing its £10.7 billion target and aiding over 90,000 businesses. Despite the bank’s achievements, including deploying 99% of its finance outside the ‘big five’ banks and investing an additional £152 million through regional funds, it reported a £135.3 million loss due to portfolio valuation drops. Louis Taylor, CEO, said the bank had “re-focused on the UK’s future economic growth as we deliver against our new strategic objectives from 2023/24.”

3. FCA and PRA launch diversity and inclusion consultation

The Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) have unveiled proposals to enhance diversity and inclusion within financial services. These initiatives aim to foster healthy work cultures, mitigate groupthink, and improve decisionmaking and risk management. Among the outlined measures are new rules addressing misconduct like bullying and sexual harassment. FCA chief executive, Nikhil Rathi, emphasised the importance of harnessing talent for the sector’s competitiveness. Both the FCA’s and the PRA’s consultation papers are available online.

4. PRA chief calls for climate event stress tests

Sam Woods, chief executive of the Prudential Regulation Authority (PRA), has suggested testing the financial system to see if it could withstand extreme and sudden climate events, highlighting that banks and insurers have only been tested against the gradual impacts of climate change. Mr Woods said: “The one thing that we are going to need to test is what would happen if we had a very large climate event in the UK, or possibly another major financial jurisdiction.”

6. Rishi Sunak delays net zero policies

The Prime Minister has announced a significant shift in the Government’s net zero policy, scrapping a range of targets that he claimed would have wrought unacceptable costs on the UK public. Rishi Sunak delayed the ban on new petrol car sales from 2030 to 2035, pushed back the ban on new oil boiler sales from 2026 to 2035, and abandoned tougher energy efficiency rules for landlords. He warned that without a properly informed national debate on net zero the public backlash would risk putting the “wider mission” in jeopardy.

7. Landlords using limited companies to cut tax bills

Landlords in England and Wales are increasingly purchasing buy-to-let properties through limited companies to reduce their tax bills. According to estate agent Hamptons, 74% of all buy-to-let purchases this year have been made via a limited company, up from 68% last year and 41% in 2015. Limited company ownership also offers other tax savings. Experts predict that the trend of landlords incorporating their properties will continue. Around 12% of rented homes in England and Wales are currently held in a company structure.

5. Bank Rate holds steady in September

In September, the Bank of England’s monetary policy committee (MPC) voted to keep the interest rate steady at 5.25%, following an unanticipated drop in inflation. With a close 5-4 vote, the decision concluded the Bank’s record streak of rate hikes in 14 consecutive meetings. Despite the majority vote, four prominent MPC members leaned towards an increase, hinting at potential hikes at some point in the near future. Additionally, the Bank shared that it remains committed to its ongoing reversal of quantitative easing.

8. AI boom may not have positive outcome, warns CMA

The UK’s Competition and Markets Authority (CMA) has cautioned against automatically assuming benefits from the rise of artificial intelligence (AI). The watchdog highlighted potential issues such as misinformation, fraud, and dominant market players potentially bypassing consumer protection laws. The warning was part of a preliminary review of foundational AI models, including tools like ChatGPT. These generative AI systems have sparked discussions on their socio-economic implications, including potential job losses in sectors like law, IT, and media.

9. New tech brings new, higher quality jobs

Research by the Institute for the Future of Work (IFOW), Imperial College London and Warwick Business school has found that the adoption of artificial intelligence (AI), robotics and automated equipment has an overall positive impact on jobs. Of the more than 1,000 UK firms surveyed, over three-quarters said that use of the technology had created new roles within the company. Additionally, some 69% said they believed the technologies had improved job quality either a little or a lot.

10. One in five SMEs reinvest to stay afloat

One in five small businesses has re-invested all their profits just to stay afloat this year, according to research by Smart Energy GB. The cost-of-living crisis, energy price hikes, and increased supplier costs have eaten into margins, forcing businesses to put sustainability plans on hold. However, almost half of the businesses believe that eco-consciousness leads to success. Victoria Bacon of Smart Energy GB, said: “Taking steps to reduce your environmental impact often delivers real cost savings too.”

Membership News

Fleximize receives

£136m

financing for SME lending

Business lender Fleximize has secured £136 million in financing from Goldman Sachs Asset Management and new lender Citi.

The facility will be utilised to redeem existing debt, expand the NACFB Patron’s lending operations, accelerate its growth trajectory, and reaffirm Fleximize’s position as a pioneer in the digital lending space.

Commenting on the facility, co-founder and CEO, Peter Tuvey, said: “The proceeds from this financing will play a vital role in assisting in our growth and broadening our reach, as we continue to provide best-in-market finance solutions to businesses across the UK.”

Fleximize recently hired 18 new staff members and will also use the new funding to invest further in technology to serve its SME customers.

“We are delighted to provide this securitised facility to Fleximize, which will support further lending to UK SMEs,” Sebastian Walf, head of EMEA asset-backed securities at Citi said.

“Citi has extensive experience in European SME ABS, and securitisation continues to play an important role in financing this market,” he added.

Time Finance achieves new £175m lending milestone

Time Finance has reached another milestone in its ambitious growth strategy, reporting a new, own book lending high of £175 million which represents an 18% increase over the last 12 months.

This continued growth forms part of the NACFB Patron’s five-year medium-term strategy, growing its provision of business funding solutions to UK SMEs, including business loans, asset and invoice finance.

As part of this growth, the past year has seen the lender expand its headcount with a host of business development, broker and relationship management appointments.

The business’ success throughout the year has also included its first Asset Based Lending (ABL) facility, a £1.1 million package to support a growing engineering firm specialising in steelwork, manufacturing and installation. Launched earlier this year, the solution is designed to unlock working capital against debtors, plant and machinery, property and stock.

Ed Rimmer, CEO, commented: “We have enjoyed a strong year reaching more SMEs with accessible, tailored and supportive finance, helping them to achieve their growth plans and provide essential liquidity.”

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Putting

Andrew Raphaely Managing Director 365 Business Finance

Stepping up

When we started 365 Business Finance, almost 10 years ago, we saw a gaping chasm between SMEs’ requirements for finance and the support being offered by high street banks. Our aim since then has been to bridge that gap and provide much-needed funding to these businesses that are the lifeblood of the UK economy.

Our NACFB broker partners have been instrumental in helping us to achieve this aim – we’ve built a network of outstanding brokers who we feel are very much an extension of the ‘365 family’. By working so closely with them, we’ve gained mutual understanding of the changing needs of our clients and, together, have weathered the storms of COVID lockdowns and economic uncertainty.

We strongly believe in maintaining close relationships with our brokers and clients; our aim is to anticipate their needs and tailor our funding solutions accordingly. Thanks to a surge in demand for larger amounts of funding, we recently upped our maximum cash advance to £400,000. Similarly, we’ve focused on our processes and built a proprietary AI-powered automated underwriting tool, which has enabled us – and our brokers – to provide funding offers at lightning speed.

By listening to our brokers, we have gained invaluable insight into the market and been able to ask the questions that drive the development of our product. Which sectors are seeking funding? How quickly do they need funding? Is revenue-based finance

a better option than a term loan? Which regions of the UK are under-served? Each of these insights enable us to build a bigger picture of the SME lending landscape, of brokers’ requirements and of the financial health of UK businesses as a whole.

We’ve enjoyed enormous growth over the past few years – including a leap of 146% of advances in the past year alone – and much of this has been down to the way in which we developed our revenue-based finance model, which is built on a few guiding principles.

• Ethical lending: Ensuring we’re lending responsibly, with complete transparency, a single fixed fee that never changes and no debt spirals.

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By listening to our brokers, we have gained invaluable insight into the market and been able to ask the questions that drive the development of our product

A desire to fill the void left by other lenders

• Repayments mirror cashflow: Repayments are taken as a small percentage of future card sales, so clients only repay when their customers pay them.

• Outstanding service: We have the highest customer service rating in the industry. We put our customers first and our award-winning team are committed to providing a world-class service.

• Supporting our brokers: Every broker has a dedicated relationship manager and our commission rates far exceed those of our competitors.

• Striving for excellence: We challenge ourselves to develop and improve every day, building a culture of inclusivity and togetherness. We’ve won many awards over the years, including Employer of the Year at the Women in Credit Awards last month.

A common question we’re asked by brokers is: how long does a typical deal take? Thanks to our automated underwriting and integrations with Open Banking, we can fund most deals the same day.

Another question we’re asked is: why offer revenue-based finance?

We’ve seen demand for this type of funding skyrocket and we can, in part, thank the banks for closing their doors to UK businesses. Where they have been unable or unwilling to lend, we have been able to step in. Thanks to the way in which repayments mirror card takings, the product is perfectly suited to businesses that have seen (and may continue to see) fluctuations in takings or seasonal highs and lows in trading.

But what of the future, I hear you ask. We’re confident that the demand for funding will grow at pace. In the coming months there will be a lot of good businesses unable to find funding, as banks let them down and alternative funders that are overleveraged come under pressure and are unable to provide funding. For us, there’s a great opportunity to increase our customer base and further grow our market share.

I believe that tough times build tough businesses – lenders, brokers, and SMEs alike – and as the funding market grows, businesses that are well-run will successfully navigate any recession in winter and come out the other end with a strong growth trajectory. We look forward to the challenges and opportunities ahead and we’re excited about working with our NACFB broker partners to bring much-needed funding to businesses throughout the UK.

“

There will be a lot of good businesses unable to find funding, as banks let them down and alternative funders that are overleveraged come under pressure and are unable to provide funding

The Basel III framework

And the unintended consequences for UK SME lending

Paul Goodman Chair NACFB

In recent months, the narrative around the Basel III framework and its potential implications for the UKʼs SME lending landscape has intensified. Having penned a letter to the Government earlier this year, I expressed on behalf of the NACFB genuine concern that the unintended consequences of the Basel III regulations might inadvertently increase borrowing costs and stifle competition, putting SMEsʼ access to critical funding at risk.

Our concerns are not isolated. Having attended several All-Party Parliamentary Group (APPG) sessions since that letter, hosted by challenger banks such as Allica and other specialist lenders, thereʼs a resonating sentiment: these new measures, endorsed by the Prudential Regulation Authority (PRA), could critically hamper lendersʼ ability to extend financial support to small businesses at a time when such a retreat is least needed.

The framework’s impact

Under the Basel III PRA proposals, there is a planned imposition of a 100% floor risk weighting on property-secured business loans. Coupled with the slated removal of the SME support factor, which presently allows for an approximately 24% reduction in capital requirements, we are potentially staring at a concerning scenario. Challenger banks, responsible for a record share of gross lending in 2022, could see their capital holding requirements for SME lending rise by nearly a third. Such a measure could inadvertently funnel SMEs towards alternative lending avenues, intensifying an already established trend since 2008.

European counterparts, who are seemingly adopting a softer stance on the Basel III requirements, might then find their lending sectors enjoying a competitive edge over ours. This creates a perplexing

dichotomy: while the government seeks to tread a delicate path between prudential regulation and capitalising on post-Brexit growth opportunities it is likely setting SME lenders up for undue challenges.

The invaluable role of challenger banks in the UK's financial ecosystem cannot be understated. Over 49% of the £45 billion in SME funding originated via the NACFB’s commercial intermediaries last year came through such institutions. Conversely, the high-street lenders accounted for a mere 24%. These numbers arenʼt intended to criticise more traditional big brand lenders; they merely highlight the growing reliance on the more nimble, adaptive tier two institutions in meeting SME financial needs.

Yet, the looming Basel III framework poses a tangible threat to this momentum. The question is, how do we safeguard the interests of UK SMEs, ensuring they continue to have ample access to crucial funding?

European counterparts, who are seemingly adopting a softer stance on the Basel III requirements, might then find their lending sectors enjoying a competitive edge over ours

Recent warnings to MPs by SME lenders depict the proposed regulatory alterations as regressive. The potential removal of the SME support factor, in particular, is causing trepidation. Such a step would necessitate SME lenders to earmark a more significant capital amount against loans extended to this sector. Reports commissioned by impacted banks, like Allica, indicate that such changes could culminate in a staggering £44 billion downturn in SME lending.

Enabling solutions

Whilst the PRAʼs forthcoming regulations are daunting, itʼs worth noting that solutions, albeit not exhaustive, are on the horizon. Impacted lenders might do well to consider evaluating how the British Business Bankʼs ENABLE Guarantee programme could pave the way for unlocking wholesale funding lines. This initiative, developed to bolster additional lending to smaller businesses, may provide something of a temporary respite. Participating institutions, incentivised by a governmentendorsed portfolio guarantee, could find this a viable pathway to counteract some of the challenges posed by the Basel III regulations.

Late last month, and following sustained industry pressure, the Bank of England (BoE) confirmed the postponement of the introduction of the final segment of the post-financial crisis international bank capital regulations until July 2025, aligning with the US Federal Reserveʼs schedule. The Bank plans to unveil near-final policies on market risk, credit valuation adjustment risk, counterparty credit risk, and operational risk in Q4 2023. By Q2 2024, it will release policies on credit risk, the output floor, and reporting and disclosure stipulations.

As both your trade body and the industry at large continue to raise concerns with increasingly louder voices, the potential repercussions of the Basel III framework could well reshape an SME lending community that has had to adapt to more than its fair share of challenges post-2008. Ensuring that UK SMEs continue to thrive, with unimpeded access to crucial funding, must remain our shared objective. The future economic vitality of the nation might very well depend on it.

Louise Chapman Commercial Director VAS Valuation Group

Valuation matters Q

Like commercial finance broking, valuing property is full of complexities which might not be realised at first glance. And when it comes to securing funding for a property, achieving an appropriate valuation can make or break a deal. With lenders increasingly allowing brokers to instruct valuations, Louise Chapman from NACFB Partner VAS Valuation Group, shares her insight to broaden brokers’ knowledge of the process and help them to better manage client expectations.

What are the benefits of letting brokers instruct valuations?

Put simply, giving brokers more control helps them to keep abreast of the progress of a valuation which, in turn, gives the client greater confidence. It also allows any issues to be addressed more quickly and efficiently which ultimately speeds up the deal. We have stats to prove this pathway delivers an increase in volume of instructions for each lender, and ultimately the lenders save thousands of hours of administration time per year.

Why do commercial property valuations typically cost more than residential ones?

&

They require a lot more work and time to complete. Long-form valuations are used on commercial properties and development sites because they are generally complex propositions. Finding comparable evidence can be difficult and the valuation must cover the minimum requirements of the RICS Red Book which goes into great detail and includes issues like planning, flood risk and statutory enquiries.

Why is the estimated GDV key when lending against property or land, not the development?

An estimated Gross Development Value needs to be provided to the valuer at quotation so they can understand the complexities and risks involved. From this, the valuer can make any relevant deductions to arrive at a market value. This is known as the Residual Method of Valuation and is based on the principle that the value of land/property with development potential is equal to it after development, minus the costs and a profit for the developer.

Why can one surveyor’s report not be sent to another surveyor?

Reports are confidential and only for the benefit of the instructing lender; however,

there are two occasions where a broker may want to send a valuer’s report to a newly instructed valuer. First, while the new valuer is actually carrying out the valuation, although this is discouraged because it’s important that the new valuation is independent and not unduly influenced. Second, when a broker or client wants to contest a valuation on completion of the new report. In this instance, we would discourage this approach because fresh factual evidence is needed as opposed to someone else’s opinion.

Why is it important to get property specific information before getting a quote?

Being provided with more information at the outset allows a panel management business to find the most suitable firm to carry out the valuation. It also helps the valuer to provide a more accurate fee quotation which, ultimately lessens the chances of potential delays in the process.

How can brokers find out more about the commercial property valuation process?

VAS’s website has a Knowledge Hub where brokers can find lots of information. We also encourage brokers to get in touch if there is anything in particular they want to know. Often, the answers to these questions end up on the website for the benefit of all.

For your buy to let cases:

1. Experience with purpose built student accommodation

2. More involved ownership structure permitted

3. HMOs/MUFBs of any size accepted

4. Single loan for multiple properties

5. No maxiumum portfolio size

InterBay it.

Using our expertise and detailed understanding of the market, we’re determined to support bespoke solutions for your landlord clients. So the next time you’re facing a challenging buy to let case... InterBay it.

Speak to your specialist finance account manager today or visit interbay.co.uk for more information.

Digging it

The clever money is on Purpose Built Student Accommodation

Marc Callaghan Head of Specialist Finance InterBay, part of OSB Group

Purpose Built Student Accommodation (PBSA) is a far cry from the dingy college digs many of us remember. More and more students are turning away from dated house shares and old-fashioned university halls of residence towards PBSA units which have more to offer today’s discerning consumer.

PBSA offers a range of options, from studio flats to clusters of six or seven en-suite bedrooms sharing a variety of living spaces. Those spaces may provide cable TV, gym facilities, cinema rooms, relaxation lounges and laundry facilities. Many are positioned in central locations, come with top-quality wifi and offer all-inclusive rents. The pandemic may have helped increase demand for PBSA, with more students seeking their own en-suite bathrooms for hygiene reasons and superfast broadband for online learning, according to Rider Levett Bucknall, and more communal spaces to combat loneliness (PBSA News).

International students are also attracted to PBSA, as it gives them the security of booking their accommodation online and knowing in advance exactly what they’re getting, rather than having to trawl around student houses on arrival.

Demand for PBSA is only likely to increase given the forecasts for strong growth in student numbers.

According to UCAS, the number of UK undergraduates starting degrees has reached record highs of over 600,000 every year since 2020. CBRE predicts volumes will rise further over the next five to 10 years due to a demographic bulge in the number of 18-year-olds, plus a challenging economy encouraging young adults to upskill. Higher Education

think tank HEPI calculates that the total number of university places required in England, Scotland and Northern Ireland will have risen by 358,000 between 2020 and 2035. CBRE says that international student numbers are also predicted to increase, building on record figures in 2022/2023, when one in every 10 undergraduates in the UK came from outside the EU.

Then there are the long-running constraints on housing supply to consider – universities such as Bristol, Exeter, Edinburgh and Glasgow are warning that they may have to put students up in hotels or make them double up in rooms with bunk beds this October.

All told, it’s little wonder property investors are eyeing the PBSA sector with interest. In fact, investment in the sector hit a record £7.2 billion in 2022, an increase of 69% on the previous year, and markedly higher than the previous long-term five-year average of £4.1 billion a year, according to Knight Frank. Rising interest rates, soaring inflation and escalating labour and material costs did cause the market to dip in Q1 this year, but Q2 rebounded to see investment of £1.1 billion in the PBSA sector (Knight Frank).

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Demand for PBSA is only likely to increase given the forecasts for strong growth in student numbers

Potential returns are very attractive, but the sector is relatively new and can be challenging to navigate so it’s essential that brokers and their PBSA clients work in partnership with an experienced lender who knows this market and can make the experience as frictionless as possible. At InterBay we have significant expertise in the PBSA sector, having worked closely with some of the UK’s largest providers of student accommodation, such as KexGill Group.

Earlier this year, InterBay arranged £24.9 million in commercial refinance and development loans for Kexgill. Of that, £20 million was a 10-year facility fixed for five years, interest-only commercial investment refinance of 350 student bedrooms, all previously mortgaged with InterBay, located in Bradford, Hull, Liverpool, Middlesbrough, Nottingham and Preston. All of the properties are student accommodation that has been finished to a high standard, including a number in the prestigious PBSA University Quarters neighbouring Hull and Nottingham Trent universities developed by Kexgill.

As any broker knows, the bigger the deal, the greater the potential stress for the borrower. However, the Kexgill team were reassured by the process all larger cases go through with the assistance of OSB Group’s High Net Worth team and approval by the bank’s internal Transactional Credit Committee (TCC) which reviews every application worth more than £2 million. If the TCC agrees a case, it provides confidence and comfort to the broker and their client that InterBay will support the application.

Presentation to the TCC takes place before a valuation is instructed to agree a decision in principle, potentially saving substantial amounts of money, particularly in a deal of this size.

Revaluing a portfolio as large as this Kexgill student investment inevitably posed a challenge due to the sheer volume of units involved. However, the InterBay Real Estate team enjoys a close relationship with its panel of valuers. Working collectively with the panel, the client, the solicitors and broker, the team was able to complete the deal smoothly.

This joined-up approach makes all the difference when it comes to the sort of large-scale cases currently typical in the PBSA sector. But market knowledge and experience are also key. As increasing numbers of smaller investors are drawn to PBSA, alongside the typical larger developers and institutional investors, brokers should carefully check lenders’ credentials when it comes to expertise, and the quality of service that they can offer.

If you want to find out more about the ways InterBay can support PBSA cases, speak to our national Specialist Finance Team or visit interbay.co.uk

“ Potential returns are very attractive, but the sector is relatively new and can be challenging to navigate

A delicate dance

Unravelling the psychology of business borrowing

Norman Chambers Managing Director NACFB

In the intricate ballet of the UK’s small business ecosystem, there’s a subtle movement that often goes unnoticed by the casual observer: the dance between a business’ need for funds and its decision to borrow. At the heart of this choreography is a complex interplay of transactional psychology, motivations, and emotions that shapes a business’ narrative and drives its financial decisions.

The dance isn’t just a series of predetermined moves. Much like the art of dance itself, borrowing decisions carry a weight of expression, emotion, and intent. There’s a story to be told, with a beginning rooted in necessity, a middle filled with evaluations and decisions, and an end that either elevates the enterprise or leads to a series of new challenges.

At the centre of this intricate performance is the broker, the choreographer if you will, orchestrating a broader dance between the business and the lender. The broker not only understands the rhythms of the market but also the deeper psychologies at play, ensuring each step is taken with precision and purpose.

Significant studies have delved deep into the nuances of borrowing, attempting to decipher the underlying motivating factors. Beyond just the tangible – like interest rates and terms – lies a realm of emotions: fear, hope, ambition, and sometimes, desperation. How does the spectre of past financial downturns influence a business owner’s decision to borrow now? What role does peer pressure from industry competitors play? And in an era of viral success stories, how much is the decision driven by the dream of rapid expansion and the allure of headlines?

As we waltz through this feature, we’ll not only explore the broader elements of transactional psychology but we will pirouette closely around the nuances of borrowing money. We’ll seek to better understand the subtle and not-so-subtle factors that push businesses towards, or pull them away from, the decision to borrow.

So, get on your dancing shoes, and let’s embark on a journey to understand both the art and the science of business borrowing, where each step, leap, and turn beneath the proverbial glitterball carries implications far beyond the dance floor.

Recognising the rhythm

Among the UK’s small business sector, there exists a palpable energy that underlies their financial decisions. The tempo is often set by growth ambitions. Indeed, last year’s NACFB survey findings confirm this sentiment, revealing that a staggering 88% of businesses borrowed

to enable their growth aspirations. But what causes the owners to tap into the rhythm of external financing to realise their dreams?

At the heart of every business beat, especially in the initial stages, is the aspiration for more. Like a dancer stretching for a higher leap or a more extended twirl, there’s a yearning to push boundaries. Each grand jeté and pirouette in the world of business corresponds to expansion steps, be it scaling up operations, entering new markets, or investing in innovative technologies.

As the music evolves, the subtle hints of physiological triggers begin to make their presence felt. The dance floor of business decision-making is illuminated by both cognitive and emotional lights. Cognitive rationales often begin with the basic acknowledgment of a market opportunity: a gap that beckons, a new niche waiting to be explored, or perhaps the allure of a broader customer base. However, merely recognising an opportunity is like knowing the dance steps but not feeling the rhythm.

Then comes the emotional impetus – the real fire that fuels the composition of growth. This could stem from a deeply rooted desire to be the best in the industry, perhaps a personal goal to achieve a landmark turnover, or maybe the simple thrill of seeing one’s own creation flourish and bloom. The pride of scaling, the vision of a legacy, or even the hunger to surpass competitors can all be profound motivators.

But even as the steps seem clear, the path illuminated, there comes the critical juncture in this dance: the need for resources. Capital is the oxygen that can ignite the spark of ambition into a roaring flame of success. And while bootstrapping can carry the rhythm to a certain extent, there comes a point where external funding becomes the only viable key to unlocking the next level.

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Like a dancer who needs to synchronise with a partner’s movements, intermediaries must find the perfect balance between the undulating needs of borrowers and the rhythmical preferences of lenders

Aligning steps

In business financing, the intermediary stands as a maestro, delicately coordinating the instruments at play to produce a harmonious outcome. Like a dancer who needs to synchronise with a partner’s movements, intermediaries must find the perfect balance between the undulating needs of borrowers and the rhythmical preferences of lenders.

This alignment is more intricate than one might imagine. The borrower’s needs might be in seeking flexible terms or capital to navigate a risky market venture, while the lending market’s cadence often beats to the tune of risk aversion, seeking assurances and solid returns. Bridging these two melodies requires not only expertise but also an intuitive understanding of the nuances involved.

Research delves deeper into this intricate choreography. Selling professional services, as observed, carries a different psychological pulse than selling traditional products. While tangible products resonate with the senses – what one can see, touch, or feel – professional services like financial intermediation are intangible, their value often resonating with trust, assurance, and the promise of potential.

In a study conducted by Dr. Elisa Martinelli from the University of Modena and Reggio Emilia, it was revealed that when selling professional services, there’s a heightened emphasis on relationshipbuilding. It’s less of a flamenco’s fiery passion and more of a tango’s intimate trust. Clients seek confidence, credibility, and the promise that their needs are understood. On the flip side, selling to lenders, especially in today’s ever-cautious economic climate, is like

performing a precise ballet, where every step, every leap is calculated and risk-assessed.

For intermediaries, this dance is complex. But the very best attune themselves to the subtle undertones of both sides, understanding the emotional and logistical nuances. They’re not just matching numbers; they’re aligning beats, rhythms, and, most importantly, expectations.

The final curtain

Whilst sales skills are undeniably an essential part of a broker’s repertoire, it is crucial to understand that the role of intermediation transcends mere salespersonship. This dance is much more nuanced, layered with both dedication and understanding.

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Much like the art of dance itself, borrowing decisions carry a weight of expression, emotion, and intent

In the delicate balance of financial transactions, the commission earned by a broker may appear at face value to be a nod towards a more sales-centric approach. However, this interpretation misses the mark. Instead, broker commission should be viewed as earned remuneration, a just reward for the meticulous groundwork, diligent due diligence, and unwavering support provided by the intermediary. It’s the compensation for their expertise and efforts in turning potential obstacles into seamless choreography, transforming a hesitant ‘no’ into a confident ‘yes’.

There’s no denying that within the space in which brokers operate, there exist some who can best be described as mere lead generators for lenders. Their modus operandi involves passing on rudimentary client contact details and swiftly moving on to the next potential lead. Such entities, while perhaps performing a service, lack the depth and commitment that truly defines a broker. They miss out on the profound intricacies of the dance, and in doing so, will simply never embody the standards and values upheld by bodies like the NACFB.

The true art of advisory intermediation is not in the brief encounters but in the enduring relationships. It is found in the painstaking hours devoted to truly understanding an enterprise, meticulously examining profit and loss statements, and balance sheets, and getting into the granular details of a business’ operations. But beyond just the numbers, it’s about grasping the very essence, dreams, and ambitions of the business owners. The dance of a high quality broker begins long before any product type is considered and well before any lender is approached.

In essence, the real dance of a quality broker perhaps isn’t a quick jive but a ballet, marked by grace, dedication, and a genuine commitment to understanding and serving their partner – the business – in every step of their financial journey. As the music plays on, the successful intermediary leads this dance with elegance, ensuring both parties move in tandem. They know that in this dance of finance, every step, twist, and turn is crucial for the final bow to be one of shared success.

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The dance of a high quality broker begins long before any product type is considered and well before any lender is approached

Setting the standard

Embedding sustainability in commercial real estate lending

Nick Russell Sales Director TAB

The UK has set ambitious targets to reach net zero greenhouse gas emissions by 2050. This will require changes across all sectors of the economy, including real estate. Property lenders have important roles to play in supporting the transition to more sustainable buildings, but there are some important factors to consider.

First, sustainable lending products must remain accessible for brokers and their borrowers. The incentives and benefits for landlords to improve energy efficiency need to be balanced with keeping financing solutions open.

Second, lenders should consider looking beyond just EPC ratings to encourage meaningful sustainable improvements. While EPCs provide a baseline measurement, more holistic measures of environmental performance and social impact are needed. ‘Sustainable tenancies’ that enable long-term covenants are the future. Through smart building features, sustainable improvements and technology upgrades that lower utility costs and improve productivity, properties can address climate change concerns while becoming more attractive to tenants.

Last, lenders must anticipate that most UK properties will require retrofitting and refurbishment to comply with future regulations. Getting ahead of these changes through financing incentives will allow landlords to futureproof assets.

Lenders currently tend to position green financing products as niche offerings. However, there is a clear need and opportunity for sustainability to become integral to mainstream lending. By embedding sustainability criteria into standard lending practices, lenders can help steer the market toward low-carbon properties and support national climate goals.

Firms including TAB are leading the way with products designed to encourage sustainable outcomes. TAB’s new commercial mortgage offering goes beyond EPC ratings and provides discounted exit fees for borrowers who meet positive ESG benchmarks. At the end of the loan term, borrowers are rewarded with reduced exit fees if they can demonstrate sustainability improvements. This is an example of how lenders can shift green financing from a niche product to a core part

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The EU Taxonomy sets out technical screening criteria to determine whether assets qualify as green under its sustainable finance classification system

of their lending strategy. By making sustainability incentives available to as many borrowers as possible while letting them opt in based on their goals, lenders make environmentally conscious practices mainstream.

Other lenders need to follow suit by embedding sustainability criteria into their standard mortgage offerings. This includes defining what constitutes a ‘sustainable’ property. Robust data collection and metrics are key to tracking the performance of buildings in lender portfolios, data will be the driver to the success.

Government and industry bodies can assist by providing frameworks, data infrastructure and consistent standards around sustainable properties. For example, the EU Taxonomy sets out technical screening criteria to determine whether assets qualify as green under its sustainable finance classification system. The Task Force on Climate-Related Financial Disclosures (TCFD) has been formed to help companies provide better information to investors, lenders and insurance underwriters about the risks and opportunities posed by climate change. By following these recommendations, companies can provide more consistent, comparable and reliable climate-related financial disclosures, which in turn helps with underwriting decisions.

Lenders should also consider incorporating sustainability risks into regular credit risk modelling and due diligence. Energy efficiency directly impacts operating expenses, asset values and rental income potential. Poor housing quality could deter tenants, undermining sustainable tenancy goals. Climate change also directly affects

properties located in areas vulnerable to more extreme weather –for example, a risk map plotted by Climate Central shows that if the current rate of sea level rise continues, by 2050 Peterborough could find itself completely underwater. By accounting for these environmental risks, lenders can more accurately price sustainability features into their lending products.

Financial incentives like preferential rates, discounts and extended loan terms can be structured around meeting energy and emissions targets. This encourages developers and landlords to implement sustainability features that reduce operating costs over the long term.

Government policy can also play an enabling role. Adjusting regulations around permitted development rights based on sustainability criteria will motivate more comprehensive green retrofits. With a requirement for 340,000 new homes in the UK each year, there are 676,000 houses vacant and one in four privately rented properties fail to meet decent home standards. An adjustment to policy and sustainable financing could form part of the solution. Tax incentives for energy efficiency investments further support the business case.

The potential rewards are immense for lenders who position themselves at the forefront of sustainable finance. As tenant demand and regulatory pressures drive the transition to low-carbon buildings, lenders positioning themselves at the forefront will benefit the most. While embedding sustainability takes time, by proactively implementing environmental criteria into commercial mortgages, UK commercial property lenders can make a meaningful contribution towards net zero goals.

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There is a clear need and opportunity for sustainability to become integral to mainstream lending

Staging posts

Aligning the right finance to the business journey

Neil Rudge Head of Enterprise Shawbrook Bank

Everyone knows that cashflow management can make or break a business, especially in the early stages of setting one up. Funding is a key component in transforming an idea into a reality, particularly in sectors where initial start-up costs may be high. As NACFB Members know all too well, businesses differ vastly from one another across industry, size, ambition, trading conditions and more, which can make finding the right funding for your clients and their circumstances both challenging and critical.

The early business stages

At the crux of every burgeoning business lies the challenge of cashflow management. Especially during the initiation phase, when a mere idea strives to metamorphise into a tangible business entity, funding becomes its lifeblood. Sectors with considerable start-up costs further underscore the importance of this financial aspect. It is the broker’s responsibility to navigate their SME clients towards appropriate funding, ensuring the business’ unique needs are met.

For brokers, it’s not just about knowing the varied funding options available; it’s about linking these options to the specific phase their SME client is in. Typically, an SME’s lifecycle is divided into key phases – ‘startup’ and ‘establish’. The ‘start-up’ phase marks the birth of the business. Here, the objective is clear: transforming a vision into a working model. As the enterprise progresses to the ‘establish’ phase, there’s a clear shift in focus. Business owners will often incorporate the lessons from their

early experiences, tweaking their strategies and setting the stage for sustainable growth. For NACFB Members, understanding and distinguishing these stages for their clients is paramount. It paves the way for advising on financial decisions tailored to the client’s immediate needs, ensuring efficient cashflow, and fostering business expansion.

Start-ups: Funding insights for brokers

Start-ups, by their very nature, are ventures stepping into uncharted waters. Their novelty often means they’re resource-intensive in the beginning. Everything, from initial research, infrastructure development, to equipment procurement, demands capital. Here’s where traditional banks and lenders often tread cautiously. A start-up’s non-existent trading history can deter many financial institutions.

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For brokers, it’s not just about knowing the varied funding options available; it’s about linking these options to the specific phase their SME client is in

As brokers, recognising this challenge is half the battle won. The other half involves guiding clients through alternative avenues. Often, the primary reservoir of funds for start-ups comes from within – either as equity from the business owner or as shareholder loans. Such funds could stem from personal savings or even significant financial commitments like property remortgages. However, it’s also common for start-ups to look outward for financial assistance. Seed capital, gathered from close acquaintances, friends, family, or angel investors, is a prevalent choice.

Entering the ‘establish’ phase

Transitioning from a start-up to a consistently trading business is a significant milestone, marking the ‘establish’ phase. As businesses get a feel of their operational landscape, they begin to refine their propositions. However, with evolution comes the associated costs –be it for procuring technology, materials, equipment, or managing stock. Such financial demands become even more pronounced when there’s a mismatch between incurred costs and sales-driven cash inflow. This can lead to cashflow challenges that need swift redress.

For businesses, the ‘establish’ phase often sees them grappling with such financial conundrums. As brokers, this is the juncture where your expertise can really shine. Whilst unsecured borrowing avenues like business overdrafts or credit cards might seem attractive, their

feasibility can be limited due to the business’ short trading history. More substantial, secured borrowing options, therefore, emerge as the front-runners. From factoring or discounting invoices with lenders to lease financing equipment, several pathways open up. It’s worth noting that these options not only address immediate financial needs but also provide the impetus for long-term growth.

Maintaining dialogue, empowering clients

No financial journey is complete without a thorough understanding and a robust support system. It’s imperative for SMEs, especially those in their early stages, to foster open communication channels with their finance experts. Whether it’s a diligent accountant or a seasoned commercial finance broker, these professionals can be the linchpin for a business’ financial health. They not only ensure optimal and targeted investment but also help businesses align with lenders who genuinely understand and support their vision. As a broker, guiding your SME clients through this maze, ensuring they opt for the best-suited alternative, becomes your primary responsibility.

For NACFB Members, staying informed, adaptable, and client-centric is the key. As the business landscape continues to evolve, so do the challenges and opportunities it presents. With a deep understanding of SME funding intricacies, brokers can truly make a difference, steering their clients towards lasting success.

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Whilst unsecured borrowing avenues like business overdrafts or credit cards might seem attractive, their feasibility can be limited due to the business’ short trading history

Pulling together

Bridging and development opportunities for brokers and lenders

D’mitri Zaprzala Chief Executive Officer Avamore Capital

It’s been a difficult market to navigate this year, but as so often happens in challenging times, there has been a real sense of pulling together. By that I mean, the broker-lender dynamic has deepened with both parties working hard to get deals done.

At the start of 2023, whilst there were many bridging and development finance enquiries in the market, there was a real sense of borrowers shopping around, spooked no doubt by what seemed at the time to be ever-increasing rounds of rate rises. Deals were dying, deals were stalling. The mainstream market drew back, their offers were pulled as quotas were filled and products became more restrictive.

This left a gap which was quickly filled by the specialist lenders who were more flexible, commercially minded and creative with a lesser tick-box mentality. These specialists, and I include Avamore Capital, are the lenders that brokers as well as developers and property investors will increasingly lean on because they – we – keep both the transactions and the market moving. As a collective, both brokers and the specialist lenders have worked hard together to find solutions and make things work.

So, for me, 2023 has highlighted the importance of partnership and the value of those broker-lender relationships. Now, as things start to improve, brokers and lenders alike will always remember the firms and the people who delivered in the hard times.

Whilst the hard times may not be fully over, the bridging and development finance sector has a huge opportunity ahead and arguably, as we recover from the turbulence of 2023, this will be where the specialist lenders have the opportunity to show their worth – and brokers know it.

One sector with a bright future

is Purpose Built Student

Accommodation and Avamore has recently moved into this space. In July, the CBRE reported that the continued growth in demand for higher education across the UK has led to increased demand for PBSA. It records that this year there were an estimated 734,000 student beds in operation but that the gap between supply and demand stands at more than 580,000 – and that’s not counting the new 2023/24 student intake. In fact, Unite Students reported 98% occupancy for 2023/24 as at July 2023 (compared to 91% at the same time last year).

The shortfall has been attributed to various barriers including rising construction costs, difficult planning conditions and inflation. Further, existing PBSA has faced an increase in operating costs which has led to strong rental growth. The opportunity then, is clear and we have been using our knowledge of heavy refurbishments and office-to-resi conversions to help the growth of the sector.

As we head into 2024, our focus will be on driving growth effectively. We have plans in place which will allow us to expedite our processes so that we can transact more deals in a shorter space of time and focus on engagement with our broker partners.

“ Brokers and lenders alike will always remember the firms and the people who delivered in the hard times

Square pegs and round holes?

Why human interaction is key

Jayne Follows Head of Real Estate Finance Cambridge & Counties Bank

With the difficult market conditions in the buy-to-let sector over the last 12 months, is it worthwhile considering a different type of lender for your buy-to-let (BTL) applications? Cambridge & Counties Bank is well known in the industry for commercial property finance and asset finance, but what about BTL? We don’t add our products to sourcing systems and we don’t offer online portals that provide an auto-accept or decline. Alongside a range of property finance, we specialise in BTL lending to experienced landlords. So, what can we do?

Rate

Let’s begin by addressing the elephant in the room, which is rate. You may be wondering why our products don’t show on the sourcing systems. For us, it’s all about your client’s circumstances and having a deeper understanding of their business requirements and future aspirations. We do not publish rates on sourcing systems because our view is that every deal is different, and we make our decisions based on risk and the complexity of a deal. There are some advantages to this model, the most obvious one being that we avoid trying to fit a square peg into a round hole. Brokers want lenders they can trust. Not only does this mean the client gets the individual case over the line, but it also further strengthens the relationship with the broker. If they know their adviser can complete the deal, even if it is a slightly more challenging case, then they are more likely to return to that broker in the future.

Limited company BTL

Industry data from BVA BDRC shows that there has been a steady increase over recent years in the proportion of BTL business written to landlords operating as limited companies. The driver has been the

change in government policy, which came about from the phasing out of mortgage interest tax relief from 2017. This meant that soletrading landlords were no longer able to deduct mortgage expenses from rental income. Limited company landlords often manage substantial portfolios, necessitating larger loans and sometimes, product variety within this sector is constrained.

Landlords holding properties through a Special Purpose Vehicle (SPV) limited company essentially manage their portfolio as SMEs and as such, consider it their main occupation. This is exactly the target audience we can help. We offer non-regulated lending to experienced property investors who make a full-time living from their property business. Many of these deals can be complex as property portfolios have built up over several years. These types of applications do not respond very well to online portals and human intervention is key to help shape the deal, which is where our experienced team and manual underwriting comes in, considering each case on its merits.

Larger borrowing and unlimited portfolios

Limited company landlords often have larger portfolios and need access to larger loans too. However, this sector is limited in terms of product availability and is often priced depending on the customer’s circumstances. Cambridge & Counties Bank not only offers lending for an unlimited property portfolio and borrowing of up to £15 million per customer but also has an experienced team that is used to managing sizeable loan discussions, which is imperative.

Lenders bridge the gap between those SMEs searching for help and those who can provide it. Our unique strength is our ability to meet the increasingly complex needs of the BTL landlord, which is why we choose to avoid being included in sourcing systems.

We have worked hard to produce a model that will support growth to the SME market and provide a different option for your clients who don’t fall into the typical BTL arena. So don’t try and push a square peg into a round hole, get in touch with our experienced team who would be happy to help in providing your clients with the bespoke solutions they need.

Brown before green

The opportunities for maximising brownfield land

Jackie Copley MRTPI MA Planning Policy Lead CPRE

CPRE, the countryside charity, has for decades promoted the need to reuse our plentiful supply of previously developed sites, known as brownfield land, for housing developments before any needless destruction of our countryside and green spaces. This approach makes sense. Brownfield land lays wasted, often a blight on communities, while our green lands provide space for nature and food production, climate adaptation as well as benefits for people’s health and wellbeing.

Harnessing the potential of brownfield land has multiple benefits and any barriers to its redevelopment ought to be resolved. In our annual report, State of Brownfield 2022, the CPRE highlights the brownfield land capacity across regions in England and offers recommendations for increased use of our brownfield resource.

Brownfield land continues to be a perpetually regenerating resource with the current capacity now standing at 1.2 million new homes, up from 1.1 million in 2021 and 1.05 million in 2018. This capacity comes from 23,000 sites on 27,000 hectares – compared to 21,500 sites on 26,250 ha in 2021; and 17,650 sites and 28,350 ha in 2018.

Also, brownfield land can be found in high supply in all regions of England, with particular hotspots in the North West (165,919 housing

plots), Yorkshire and the Humber (115,052) and the South East (170,941).

Despite this, most brownfield land still does not have current planning permission although there has been a 45% increase in 2022 in the proportion of brownfield land with planning for housing units, compared to the 44% increase in 2021. However, totals are particularly low within regions needing levelling up, specifically the North West (33%), West Midlands (36%) and Yorkshire and The Humber (40%) regions. Individual local authorities with the highest brownfield capacity in terms of housing plots include Birmingham and Manchester city councils and three London boroughs.

With the above in mind, the CPRE made a number of recommendations to government in response to an official consultation (launched in December 2022) on the new National Planning Policy Framework (NPPF). We called for clear policies which prioritise the use of brownfield land over greenfield. In particular, we asked for the framework to include:

• A firm presumption against giving planning permission for additional greenfield sites for development compared to those already in local plans.

• Only allocating greenfield sites in local plans where either sites are primarily affordable homes for local needs, or where it can be shown that as much use as possible is already being made of brownfield land, and in particular providing more housing in town and city centres. This test already applies in cases where local authorities are considering building large housing developments on currently designated Green Belt land. We believe that it should apply across the country.

We recommended that the NPPF also needed to change to require that all new developments have diversity of housing tenures and types as outlined by the 2018 Independent Review of Build Out.

We also asked for the New Homes Bonus to be reformed so it is only paid out to support either development of brownfield land and/ or additional affordable homes (with affordable homes needing to provide for people on average local incomes or below).

The Infrastructure Levy is another initiative that could be reformed. We asked that it should be set at least double the rate on greenfield land compared to brownfield, to reflect the high costs of greenfield development to local communities, although brownfield redevelopment should still make a direct and effective contribution to meeting local affordable housing need.

Lastly, we asked for the NPPF to provide local communities with stronger mechanisms to bring brownfield land forward as a source

of land supply, such as increased compulsory purchase powers. Local authorities should also have increased control of the order in which development land is built on so that suitable brownfield sites are developed first.

Having received a high number of consultation responses, the National Planning Policy Framework was finally updated last month, several months later than originally expected.

Regrettably, the Government did not tighten up the NPPF Section 11: Making effective use of land, which is a missed opportunity. More jobs and housing could be focused on brownfield to reduce the unnecessary loss of our farm fields for development. Instead the NPPF relaxed the identification process for sites for onshore wind development. CPRE supports more renewable projects, such as solar on rooftops, but it urges wind development to avoid our rural landscapes that are sensitive, particularly National Parks and Areas of Outstanding Natural Beauty. Offshore wind is preferred as it can be developed without harm to countryside.

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Brownfield land lays wasted, often a blight on communities, while our green lands provide space for nature and food production, climate adaptation as well as benefits for people’s health and wellbeing

Cause and effect

SMEs in the era of rising costs

Stephen Hand UK Sales

The lending landscape in the UK has scarcely been less certain. So far, recession has been narrowly avoided, but growth remains stubbornly low, making life challenging for businesses of all sizes – not least, for SMEs.

What’s more, there’s no immediate sign of the pressure easing with recent inflation figures showing only a marginal slow down and interest rates still remaining at a high not seen since 2008. Our 2023 Global Business Monitor report reveals the challenges and opportunities SMEs are facing going into 2024 and paints a picture that brokers will be more than familiar with.

The lingering impacts of the pandemic together with soaring inflation, a cost-of-living crisis and shifting monetary policies make for a uniquely complicated landscape to navigate. Faced with a cocktail of economic uncertainty, borrowing and investment are becoming increasingly difficult to plan – particularly for small businesses operating on tight margins.

Our report highlights the key challenges facing SMEs today, and provides a steer for lenders and brokers alike, as to the kinds of strategies and solutions we should be looking to in the short term.

The current business landscape for UK SMEs paints a multifaceted picture, fraught with challenges yet tinged with a resilient spirit of optimism. A striking 46% of UK SMEs believe that 2023 has been more punishing than during the pandemic, underscoring the gravity of their struggle. Furthermore, a significant portion (37%) feel that

the global economy is fairing less well than it was in the immediate aftermath of the global financial crisis. This perspective sheds light on the depth of economic disturbances faced by SMEs in the present climate.

Managing bad debt in supply chains

A major knock-on impact of external economic pressure is bad debt. According to the Global Business Monitor, a quarter of UK SMEs have suffered bad debt in the last 12 months, and the average write-off is a hefty £21,000. Beyond that, small businesses can be left struggling to cope with invoices that are never honoured. For approximately a third of SMEs in the UK, this situation has been compounded by customers entering administration in the past year.

Naturally, brokers can help SMEs identify lenders who offer bad debt protection as part of their service. Invoice factoring also enables the business to outsource client payment collection to the lender which can improve processes and help manage cashflow.

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Faced with a cocktail of economic uncertainty, borrowing and investment are becoming increasingly difficult to plan

Director Bibby Financial Services

Getting a handle on late payment

SMEs have long been plagued by the burden of not being able to rely on prompt payments. Over half of the UK’s SMEs say their customers are taking longer to pay than a year ago and the average value of unpaid invoices is staggering, at over £68,000.

Again, we believe that invoice finance and the working capital it releases may be able to provide an immediate solution. At Bibby Financial Services we’re committed to working hand in hand with brokers to ensure as many SMEs as possible are aware of, and have access to, this option.

Cashflow is still king

Cashflow will always be a key consideration for SMEs. Though 54% of small businesses in the UK claim to have a stable cashflow, one in three have insufficient funds to grow and circa one in ten can’t operate effectively on a day-to-day basis.

Now more than ever, SMEs need help to understand the financial landscape and the funding sources available to them. Brokers will continue to have a critical role to play in providing guidance to SMEs through this year and beyond.

A glimmer of hope

But even with so much uncertainty, recent growth forecasts offer a glimmer of hope for the mid- to long-term. Inflation is predicted to ease up in the second half of next year, and interest rates too are likely to either at least remain stable or potentially reduce at some point in 2025.

Despite economic conditions, 87% of UK SMEs remain confident and optimistic about their prospects, which is above average within the nine international-markets that participated in our Global Business Monitor.

It’s clear to those of us with many years’ experience working with SMEs – which so often demonstrate outstanding resilience and innovation through times like these – that much of the UK’s predicted growth will come from them, provided they are properly supported by policy makers and industry partners alike.

For SMEs, the partnership between lender and broker will be critical. Brokers are uniquely placed to help SMEs in pairing them with the right funder for their needs. Whatever the coming months bring, we’ll continue to support SMEs as we have done for the last 40 years –through the rough and the smooth.

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Despite economic conditions, 87% of UK SMEs remain confident and optimistic about their prospects

United we endeavour

Rising to funding challenges in the North East

Joanne Whitfield Fund Director FW Capital

North East businesses have shown great resilience over the last two years, with many seeking funding to support future growth. At FW Capital we’ve seen a significant uptick in lending enquiries coming through to our team which is largely down to the economy settling down and some mainstream lenders being more cautious in terms of credit appetite.

According to Business Finance Review, lending to SMEs remained flat in the second quarter of 2023 and lending from the main high street banks was broadly unchanged from Q1 at £3.6 billion. A quarter-on-quarter increase in gross lending to SMEs was recorded in just four regions in Q2 – London, the East Midlands, Scotland, and the largest at 12%, in the North East. It is great to see our region standing out, demonstrating the ambition of our local businesses and drive to reach their potential.

The ‘Levelling Up’ initiative has had an impact in the North East bringing buoyancy, although there remain clear challenges in the economy as companies are looking to push ahead, but many of them need support. Access to finance is a lifeline for SMEs everywhere. Emerging businesses need a clear route to receive investment to reach their potential.

The latest ICAEW Business Confidence Index for the North East remains in positive territory in Q2 2023 but the fall to +4.2 from +8.5 in the previous quarter suggests that confidence is fragile. Domestic sales growth is healthy but is expected to slip slightly behind the UK average. Export expansion has picked up in the last quarter, with a 4.0% year-on-year rise in Q2 2023 being the third highest across the UK. The Index also points to capital investment growth in the North East as among the strongest in Q2 2023 and it’s here the role of lenders and brokers is vital to help bridge the funding gap experienced by so many businesses.

Despite hurdles, the North East has displayed resilience, especially in the aftermath of the COVID-19 pandemic. Businesses have been creative, and the North East has demonstrated an eco-conscious approach with strong sector clusters accelerating investment towards Net Zero.

SMEs in the North East are adapting, evolving, and striving to write a future that does justice to their rich past. It’s a journey that deserves both recognition and support from stakeholders across the UK.

Access to funding is vital to encourage business growth, innovation, and job creation. Businesses can unlock investment from a broad range of sources, and we’ve been really active at FW Capital in driving growth as a funding partner to businesses across the North East. We value our relationship with our broker network and look forward to continuing to work with them to help their clients achieve their growth ambitions.

A vision for the North West

Building on the past, pioneering the future

Cities driving innovation and investment

Heartland of the Industrial Revolution and home to some of the country’s most beautiful landscapes, the North West of England has a long history of innovation and enterprise.

Early industrialisation brought canals and the silk industry before the cotton industry acted as catalyst for the rise of the famed industrial cities of Manchester and Liverpool. It’s economy has changed dramatically since then, but as the third-most-populated region in the United Kingdom, after the South East and Greater London, the North West continues to play a crucial role in UK growth.

Today, the engines are principally digital and financial, but the spirit of enterprise remains untamed. The North West, which contributes an impressive 10% to the UK’s GDP, has transitioned from its industrial heritage and, now, its cities play host to burgeoning financial services, technology, media, and cybersecurity sectors. This shift isn’t just a testament to adaptability but to vision.

There are three specific areas picked for growth in Manchester’s city strategy, says Richard Bell, managing partner for UK financial advisory at Deloitte: healthcare innovation, advanced materials innovation and ensuring it’s a digital city. “And the M&A markets reflect those three things that local government is focused on. There’s a mirroring of where the investment is going at a government and private level.”

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Today, the engines are principally digital and financial, but the spirit of enterprise remains untamed

Ian Wood Marketing Director Capify

In November 2022, Stephen Rotheram, Metro Mayor of the Liverpool City Region (LCR) announced a landmark partnership and action plan with Innovate UK, aimed at accelerating business innovation and reflecting the city region’s highly developed approach and world-leading capabilities in innovation. This year, Mayor Rotheram reaffirmed his commitment to the initiative, at the LCR Innovation Investment Summit in May. “We’re putting our money where our mouth is too, with plans to invest 5% of GVA into R&D and plans that could create around 44,000 high-skilled, well-paid jobs for local people and add £42 billion to the local economy.’’

Speaking at the same summit, Institute of Chartered Accountants (ICAEW) North West region Chair, Steve Stuart, concluded: “This summit really demonstrates the progress the City Region is making; innovation is the key to economic growth and success over the next seven years… This environment provides SMEs with a real opportunity to get on the growth journey and flourish over the next few years.”

Looking to the future

This sense of growth opportunity is reflected in the overall business confidence in the region, which has increased in the second quarter of 2023.

According to research from Capify, business confidence in the North West has risen as a result of improved trading performances over the first half of the year. Furthermore, the overwhelming majority – 80% – of North West SME owners expect turnover to grow over the coming year, with 53% expecting profits to grow over the same period. This improved confidence in operating conditions, means that 47% of firms are planning business expansion over the next 12 months.

These findings are echoed by other research. According to ICAEW’s Q2 2023 Business Confidence Monitor (BCM), business confidence has strengthened in the North West and now stands notably above both the region’s historical norm and the UK average.

Yet, according to the ICAEW, this confidence is likely to be frail,

as companies and consumers continue to be impacted by a challenging economic period of high inflation and ratcheting interest rates.

Indeed, alongside the improvement in the region’s business confidence, the Capify survey also revealed that continuing inflationary pressure is placing a significant strain on SME owners’ cash reserves, with 47% of respondents reporting they were concerned about the level of cash in their bank accounts.

These concerns around cash reserves are undoubtedly accentuated by issues related to cash collection. Nearly one in four owners (24%) stated that they were worried about unpaid invoices, and the survey found that the average amount of money owed to SMEs in outstanding invoices was £46,000.

Yet, these challenges are not insurmountable. The North West’s SMEs possess the resilience and dynamism to navigate these turbulent waters, but they will need continued support from policymakers and access to the finance they need to fuel their ambition. By understanding the region’s unique sectors, opportunities and challenges and providing the right support, finance providers can play an instrumental role in scripting the next chapter of this illustrious region’s economic story.

“

80% of North West SME owners expect turnover to grow over the coming year, with 53% expecting profits to grow over the same period

Puncturing the pressure

Striking a balance between cashflow and investment

Steve Nichols Head of Asset Finance Time Finance

As the summer holiday season comes to an end and it’s strictly back-to-business, the air is filled with economic chatter. Will interest rates climb? Is inflation on the decline? Has our economy grown? Or are we headed for a recession? These questions loom large, casting a shadow of uncertainty over businesses. While staying tuned to wider economic debates is crucial, it can also stir up doubts in the minds of business owners. Our job is to provide the right solution, so that businesses’ investment plans don’t fall needlessly by the wayside.

Looking beyond traditional lending routes

In these uncertain times, the role of alternative finance has never been more important. Businesses, especially SMEs, yearn for accessible alternatives to the conservative world of traditional lending. Yet, what we can provide them now goes beyond alternatives; it’s all about flexibility.

Many businesses are still struggling with soaring overheads, and until inflation finds its way back to the targeted 2-3%, these financial pressures will only persist. So, what does that mean for a business that has ambitions to grow? Some might assume those plans should be shelved until the economy stabilises. Thankfully, with alternative finance, that isn’t the case.

Balancing the present with future ambitions

Our partners in the broker community are sounding one common message: businesses need stability. Obviously, this doesn’t mean standing still and waiting for the storm to blow over. To succeed, businesses need to keep moving forward, and so it’s our duty to equip them with the right financial tools to plan and forecast effectively… Of course, while simultaneously helping them to invest in the future. In recent months, we’ve started to see some movement already.

For example, gaining a surge in enquiries for solutions like refinancing. What this indicates is a growing demand and determination amongst businesses to unlock capital whilst leveraging the equity in their business. When it comes to alternative solutions, it offers huge potential for growth, allowing businesses to safeguard their day-to-day cashflow and channelling the equity from existing assets into their growth plans.

Finance that works for all priorities

Business priorities are changing. In asset finance for example, no longer do we constrain ourselves to just thinking about financing traditional equipment, be it large-scale machinery or IT systems. We can see that the urgency to invest sustainably is gaining momentum. But, with our own research indicating that half of businesses see sustainable investment as a key priority for this year, and yet, 40% see access to finance as their greatest barrier to investment, we know we need to make these investments more attainable.

With alternative finance by a business’ side, SMEs have the solution to strike that necessary balance between making investment plans a reality whilst protecting all-important cashflow.

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And the winners are...

NACFB honours elite Members at Commercial Broker Awards 2023

Buy-to-Let Mortgage Broker of the Year

Winner: Wharf Financial

Highly commended: South West Business Finance (SWBF)

Industry Ambassador of the Year

Winner: Marc Champ – Wharf Financial

Highly commended: David Farmer – Lime Consultancy

Sponsor: Cambridge & Counties Bank

The Emirates Old Trafford cricket ground was buzzing with energy and applause on Friday 15th September as the winners of the NACFB’s fourth Commercial Broker Awards were unveiled in Manchester.

The grand event saw 16 prestigious awards handed over to the crème de la crème of the intermediary-led lending industry. Adding to the celebration, the occasion also marked the graduation ceremony of the inaugural alumni of the NACFB’s Broker Academy. In a touching gesture, the young brokers were congratulated by the NACFB team in a private reception before collecting their individual honours on stage.

Making the event even more memorable, comedian Sindhu Vee lightened the mood with her wit and charm. Not only did she glide through the awards presentations, but she also championed fundraising initiatives for the Association’s chosen charity for the year, the Newman Holiday Trust.

The full list of distinguished award winners and individual achievers follows.

Asset & Leasing Broker of the Year

Winner: PMD Business Finance

Highly commended: Alpha Asset Finance Sponsor: Haydock Finance

Broker Network of the Year

Winner: Commercial Finance Brokers UK

Highly commended: White Rose Finance Group

Sponsor: YBS Commercial Mortgages

Sponsor: OSB Group

Cashflow Finance Broker of the Year

Winner: Millbrook Business Finance

Highly commended: Christie Finance & Pilot Fish Finance

Sponsor: Funding Circle

Commercial Mortgage Broker of the Year

Winner: Watts Commercial Finance

Highly commended: Finanze

Sponsor: Lloyds Bank

Deal of the Year

Winner: Wharf Financial

Highly commended: Philip Meek Commercial

Sponsor: Time Finance

Development Finance Broker of the Year

Winner: Arc & Co. Structured Finance

Highly commended: Beta Commercial Finance

Sponsor: LendInvest

Digital Broker of the Year

Winner: Swoop Finance

Highly commended: FinSpace Group

Sponsor: Red Flag Alert

Invoice Finance Broker of the Year

Winner: TSF Finance

Highly commended: Go-Factor

Sponsor: Ultimate Finance

Intermediary Excellence Award

Winner: Go-Factor

Sponsor: NACFB

Rising Star of the Year

Winner: Dilan Jadav - Halo

Corporate Finance

Highly commended: Jo Payne –Mesa Financial Consultants & Sarah Sheeran – TSF Finance

Sponsor: Shawbrook

Service Excellence Award

Winner: Bathgate Business Finance

Highly commended:

2XL Commercial Finance

Sponsor: Aldermore

Short-term Finance Broker of the Year

Winner: LDN Finance

Highly commended: Pilot Fish Finance

Sponsor: MFS

SME Champion Award

Winner: Bathgate Business Finance

Highly commended: Synergi Finance

Sponsor: Allica Bank

Sole Trader of the Year

Winner: Unicorn Commercial Finance

Highly commended: Finance 55

Sponsor: NatWest Bank

Five Minutes with: Kelly Green

Kelly Green Relationship Manager Reparo Finance

Describe your role in ten words or less?

I help everyone across Reparo Finance from our BDMs to clients, ensuring there is a smooth process when providing finance solutions for small businesses.

How do you make a difference?

Within our team, I can link everyone together, from BDMs to credit to solicitors to our broker clients so that small businesses can access the funding they need. I then help our clients through their time with us. If they need support, they know I am just a phone call or an email away. I feel making a difference is people knowing you are there and being ready and willing to listen so you understand exactly what they need.

If you were to start your own small business, what would it sell and why?

Children’s fidget toys. I have spent a small fortune buying these for my daughter over the years. She now even makes her own from bits around the house.

What is your favourite SME success story and why?

I don’t have one specific success story. My favourite SME success stories are where we as a business help SMEs to grow and succeed whether that’s supporting them through tough times or helping a business take their next step.

What law would you pass if you were Prime Minister for the day?

A paid two week holiday away for each household. I have the best memories when away with my family with no stress of general life; washing up, cleaning and cooking. I think more people should have these chances.

What is your favourite piece of management/leadership advice?

Believe in your own ability, knowledge, and ideas. Being part of a team is being able to contribute and have your opinions heard, but first you must believe in yourself.

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

Stay close to your clients, get to know them and ask the hard questions. The more you know about your client the easier the process with us can then be.

Which person has inspired you the most and why?

Queen Elizabeth (it’s a little cheesy) however she took a vow to serve a nation and did so for so long. It was inspiring to grow up with a person who stuck to a promise she had made.

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

Winston Churchill. I have always been interested in history and the decisions made by those in charge. He was Prime Minister through a major part of modern history. My grandparents also used to tell us stories about the war and they used to talk about his speeches.

The right structure for complex property finance

the specialist effect

At UTB we understand that performance is everything and our team of knowledgeable and personable specialists work closely in partnership with developers and intermediaries to provide flexible deal structuring, fast decisions and quick delivery of project funding.

UTBANK.CO.UK

Email: structured@utbank.co.uk

Telephone: 020 7190 5555