NACFB Magazine - January 2018

M

A

G

A

Z

I

N

E

Issue 54 January 2017

The magazine for the National Association of Commercial Finance Brokers

The UK’s flagship commercial finance association

In this issue

Sowing the seeds of growth Is farming a Brexit-resistant business?

Fintech forecast

Things to try in 2018

Unfair practices in leasing

How to apply TCF and remain compliant

2

LOGO

P RO P E RT Y F I N A N C E D I V I S I O N | CO M M E RC I A L | S P E C I A L I S T BT L | CO M M E RC I A L I N V E S T M E N T | S T L & R E F U R B | T R A D I N G B U S I N E S S

SPECIALISTS IN GOOD SENSE

REGULAR SHAWB ROOK B ANK LIMITED SHAWB ROOK GROUP PLC

Our business is built on relationships, and we rely on the support of our Broker Partners to deliver transparent lending solutions to the professional investor, landlord and SME community.

A flexible approach to both client and security: n

Short Term lending from 0.55%

n

Term lending from 2.99% above 3 month LIBOR*

n

Ltd companies, LLPs & Individuals

n

Broad range of security including HMOs & multi-lets

S TA C K E D ( S M A L L U S E ) SHAWB ROOK B ANK LIMITED SHAWB ROOK GROUP PLC

*Shawbrook Bank applies a minimum floor of 0.75% to the LIBOR rate

D I S C U S S YO U R C A S E S TO DAY

0330 123 4521 or email cm.broker@shawbrook.co.uk

www.shawbrook.co.uk THIS ADVERTISEMENT IS INTENDED FOR INTERMEDIARY USE ONLY AND MUST NOT BE DISTRIBUTED TO POTENTIAL CLIENTS

Welcome | NACFB A

s I enter my first full year here at the helm of the NACFB, allow me to pause briefly just to look back on 2017.

After a period of debate and discussion, we were pleased that all proposed AGM resolutions passed with a significant majority.

I have outlined some of these positive changes in more detail further on in your NACFB Magazine (page 8) and will continue to communicate to all Members our direction of travel in both 2018 and beyond.

This year heralds a new era for all NACFB Members. In addition to your NACFB membership, you are now able to benefit from full access to MyNACFB and full support from NACFB Compliance - all within the same membership model.

We are seeking to become the independent professional association of choice for all commercial finance brokers and lenders servicing the needs of business borrowers and property investors, and we are embarking on this journey together.

One of the key Member benefits of the NACFB is the array of dedicated events we have on offer throughout the year. I implore all our Members to look over our events calendar and seek out an event or workshop, relevant in both location and scope, to you and your business.

Our drive for the NACFB to be as transparent and inclusive as possible includes relaying and reaffirming the full benefits of Association membership; and within that, the benefits of our NACFB Compliance team. I make no apology that we will continue communicating these across all of our platforms to ensure our Members know what it is we stand for, what it is we do and how we do it.

I wish you and your businesses every success in 2018 - thank you for joining us on our journey.

Warm regards, Graham Toy, CEO, NACFB

Graham Toy CEO NACFB

In this January issue NACFB News 4-6 7 8-9

In the news NACFB compliance outlook 2018 The UK’s flagship association

Commercial Finance 10-11 Essential news bites

Compliance Updates 12-13 What constitutes a complaint?

Top Story 14

Most online lenders welcome FCA regulatory review

Introducing 16

Downing Crowd launches property development bond

Case Studies

Patron Profile 32-33 Downing LLP invests in the future’s industries

Ask the Expert 34

Donna Bathgate

Special Features 36-37 Sowing the seeds of growth 38-39 New products, closer relationships 40-41 Fintech forecast

Industry Guides 42

Purchase finance: to the rescue of perishables 44-45 Unfair practices in the leasing market

Opinion & Commentary 46

Average bridging term?

Perhaps not all it seems 48-50 Ten lessons - ten years on

18-19 Considering the emotional factor for regulated bridging 20 Three-week turnaround for phased development 22 Agility trumps rate for private bridge refinance 24 Clearing the way for Newcastle high rise

Review 26-30 The UK’s flagship commercial finance association

For further information Kieran Jones, communications manager t. 020 7101 0359 Hamilton House, 1 Temple Avenue London EC4Y 0HA Email: Kieran.Jones@nacfb.org.uk Vera Sugar, editor t. 0203 818 0171 71 Gloucester Place, London W1U 8JW Email: vera@medianett.co.uk

ADVERTISING & EDITING: Medianett 0203 818 0163 www.medianett.co.uk DESIGN & PRODUCTION: Carbide Finger Ltd t. 0845 812 8206

NACFB Magazine | 3

NACFB | in the news Association news and updates for January 2017

New membership model T

he NACFB has streamlined its membership model. The three types of subscription that we offer, namely your NACFB membership, NACFB Compliance and MyNACFB, have been amalgamated under one, single payment.

The new membership subscription will apply from your normal renewal date but the enhanced benefits package has already commenced, and is active from 1st January 2018.

This simplification means your membership rate is now £60 per month (£720 per annum). For registered individuals there is no change, so RI fees remain at £210 per annum. This revised model of membership is VAT-exempt and can be paid by direct debit either monthly or annually, streamlining

the payments process. The NACFB is also committing to freezing the membership rate of £720 for 2019.

The NACFB board has continued to debate how to best support the membership over the coming years from a regulatory perspective. From meetings with the FCA and other trade bodies, we all know that regulation has only one direction of travel.

The Association believes that this added security and support will help you and your clients. We are here as your trusted trade body to keep you up-to-date with regulatory issues and provide technical support whenever it may be required.

You can read more about our updated membership model on page 8.

Patron news round-up Kuflink Group appoints new CEO Kuflink Group has announced the appointment of Narinder Khattoare as CEO. Narinder’s promotion from group operations director follows the departure of previous CEO Tarlochan Garcha.

The group has also strengthened its proposition as it announced the appointment of two additional board members, Sukhdev Dhillon and Nattalie Weekes, who between them bring a wealth of experience to the specialist lender.

Following the group’s rapid growth in 2017, Narinder claimed it was important that the lender could welcome fresh expertise and promote talent from within.

Member update 4 | NACFB Magazine

“We are delighted to welcome our new directors. With the strong upward trajectory that has been such a feature of our year, it was important to ensure we had the right complement of experienced professionals on board. We now believe we have the correct balance in place.

“The makeup of the boards also reinforces the importance we place on maintaining complete separation between our peer-to-peer platform, Kuflink, and our lender, Kuflink Bridging. Investors can be reassured that investment and underwriting decision making is kept separate to ensure total transparency.

“Kuflink Group has had an extraordinary year and we have now laid the foundations for our businesses to go the next level in 2018.”

At the time of going to print, we count a total of: 823 Member firms, 135 Patrons.

Creative solutions you won’t find on the high street - SME business term loans - Commercial mortgages - Development finance - Bridging finance - Buy-to-let for landlords - Renewable energy loans - Property investor hunting licence

A fast and flexible approach to lending

Find out more at assetzcapital.co.uk or call 0800 470 0432 Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority (Reg No: 724996). ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.

NACFB News

Continued from page 5 LendInvest marks a record-breaking year for fundraising Property finance lender LendInvest has reported a record-breaking year of capital raising in 2017.

The lender, whose investor range includes global banks, pension funds, family offices as well as private clients, saw its total lending capital hit $1.03bn (£765m) at the end of 2017, demonstrating a 104% rise year-on-year.

The lender also launched the fintech sector’s first secured bond on the London Stock Exchange in August, raising £50m in its first issue from a combination of retail and institutional investors.

To date, LendInvest investors have used the platform to invest almost £1.2bn in secured property loans, made to professional property investors and developers who have built, bought or renovated over 4,000 homes around the UK. Christian Faes, co-founder & CEO of LendInvest, claimed that surpassing the $1bn mark for capital under management confirmed the lender’s place as the UK’s leading online platform for stable, income-driven investments into UK real estate.

“The demand for credit to back UK residential property projects consistently outweighs the supply, but banks and other traditional lenders continually fail to close that gap,“ he added.

“As one of the UK’s leading nonbank lenders, we’re in a unique position to capitalise on the opportunity this creates for the benefit of all our investors.

“With a well-diversified lending capital base, 2018 looks promising for us and our investors.”

ThinCats to provide £100m of funding to manufacturing businesses Alternative finance lender ThinCats has announced it will be making £100m of funds available to manufacturing businesses across the UK. The funds, which will be made available via the lender’s partnership

6 | NACFB Magazine

with Hennik Edge, the networked advisory team for manufacturers, will see ThinCats use its UK-wide network of origination managers supporting those companies in the manufacturing sector that require a level of capital to take their businesses forward.

John Mould, CEO at ThinCats, said: “This is great news for fast-growing manufacturing firms. Since 2011 we have lent £20m to businesses operating in the manufacturing space, with 73 loans servicing 50 different companies.

“With this much-needed funding, and with the expertise of Hennik Edge, we can look to raise the pace of our lending even further.”

“We’ve heard from frustrated manufacturers who need a different kind of finance from what’s on offer in the high street,” added Steven Barr, managing director at Hennik Edge.

“This new release of £100m of funding, backed by ThinCats, offers a great alternative for ambitious, growing SMEs.” Aldermore surpasses £1bn of new asset finance lending Aldermore has supported over £1bn of new asset finance lending to UK businesses during 2017.

The specialist bank has reached the landmark figure following a number of key developments across its asset finance division.

This included the extension into new industrial sectors – such as telecoms and IT – as well as recruiting additional resource in its specialist underwriting function.

Aldermore also made its first acquisition in June, acquiring a 48% minority equity stake in asset and commercial finance funder AFS Group Holdings Limited.

Carl D’Ammassa, group managing director for business finance at Aldermore, said: “We are delighted to have reached such a significant milestone this year and would like to thank the broker community for providing us with the opportunity to increase our lending to UK businesses.”

Dates for your diary NACFB Compliance GDPR Workshop – Gatwick When: 23rd January Where: Crowne Plaza, Crawley NACFB Compliance GDPR Workshop – London When: 24th January Where: 68-86 Cromwell Road, London NACFB Compliance GDPR Workshop – Midlands When: 20th February Where: Ibis Hotel Rugby East Parklands Crick NACFB Compliance GDPR Workshop – Bristol When: 21st February Where: Aztec W, Bristol Commercial Finance Expo When: 20th June Where: NEC, Birmingham Gala Dinner & NACFB Awards When: 29th November Where: Park Plaza Westminster Bridge

NACFB News

NACFB compliance outlook 2018 A

s part of your new membership model, NACFB Compliance support is now available to all NACFB Members.

With the Association now in its 26th year representing and supporting the commercial finance broker, we pride ourselves on our understanding of the commercial finance industry and aim to provide our Members with the very best support in this ever-evolving regulatory environment.

NACFB Compliance will provide you and your brokerage with the guidance and support necessary for staying fully compliant with both regulatory requirements and the NACFB minimum standards.

Below we have provided a graphic for you to see the breadth of support available to you and your business.

One of the key benefits is that the team are specialists in commercial lending, but we also maintain a model office

ÂŁ

Est.

1992 25 Years Sector Experience

with a significant range and selection of documents to help you run your business in a compliant manner.

The NACFB Compliance team is also responsible for looking ahead and providing insight into the developing regulatory landscape, such as GDPR. We also take compliance workshops on the road to help you broaden your knowledge and understanding at a location near your business.

Patron Engagement

Compliance

Calendar of Workshops

Model Office & Pragmatic Support

Centralised Personal Support

Regulatory Dialogue & Future Insight

NACFB Magazine | 7

NACFB News

The UK’s flagship commercial finance association Graham Toy CEO NACFB

but it is the motives and thinking behind these that will underpin everything that we, as an association, aim to deliver in the future.

ast year’s NACFB AGM was my first as CEO, and in it we put forward proposals to help navigate the NACFB in what I firmly believe is a passage that will steer the ship safely, as well as facing choppy waters with confidence and agility.

L

NACFB vision:

You should by now be aware that all of the proposed resolutions were passed by a significant majority, but I am enthusiastic to further outline why these positive changes were brought in, to be absolutely transparent before our Members and Patrons of the differences you will start to see.

NACFB mission:

To be the professional association of choice for all commercial finance brokers and lenders servicing the needs of business borrowers and property investors

We will partner our Members to foster professional expertise.

We will embrace the highest industry and regulatory standards, including engagement with our stakeholders, to help your business prosper

Before that though, allow me to provide a little bit of context to help frame my thinking and that of the NACFB board. This organisation has achieved a significant amount in the last 25 years. It has been quite a voyage and it has not always been an easy passage delivering our objectives while trying to predict the future currents and headwinds, coupled with the major issues impacting our industry.

We all felt that last year we had reached something of a watershed moment. While it is an absolute privilege to be given the helm, there was a need for a bit of a shakedown, with the ship needing a bit of a refit.

Where do we go from here?

So, 2017 was a year of change and to recognise such change the NACFB team underwent strategy sessions to discuss in-depth structural matters that provide the very foundation of this organisation. Many of those matters fed into the heart of the resolutions that were proposed at last year’s AGM. From these sessions we developed a clear and focused vision and mission statement. You may have already seen these trailed and spoken of at NACFB events,

8 | NACFB Magazine

At the heart of our thinking are three core principles, the first of which is to foster professional expertise, further enabling the NACFB to remain both a kite mark and hall mark for quality and professionalism. Second, we want to uphold the highest industry and regulatory standards. This is not about reluctantly adopting the regulations but understanding why they are required, and considering the benefits of making sure your business is fit for purpose. Finally, we want to help your business prosper - this is your association and everything we do should be for your benefit.

Your membership benefits The next piece of work the NACFB team and I undertook was to make sure we all had a clear focus on how we add value. There is little point in having a carefully crafted vision

Code of Practice

Compliance & Regulation

Collaborative Events

PI Insurance

Member Benefits

Broker & Lender Engagement

Est.

1992 Brand & Reputation

Industry Voice

NACFB News

and mission without having a clear handle on exactly what we do to deliver value to you, the Members.

For an extra £16 a month you will recieve:

From this we developed our USPs and we hope that you will agree that these are at the heart of what we do, and that they do actually help your business prosper.

Full Access Full Support

I hope that you will agree that this is a comprehensive range of activities designed to help you run your business and I am keen to ensure that these benefits are clearly communicated to both existing and new NACFB Members.

Streamlining your NACFB membership We wanted all NACFB Members to be able to benefit from full access to MyNACFB and full support from NACFB Compliance, in addition to NACFB membership. To this end we have amalgamated the three types of subscription that we offer. Instead of subscribing to NACFB Compliance Services, paying for MyNACFB and paying the membership fee, all Members will now receive all these benefits under a single membership fee.

Full Membership Helping Fund UK Business

“We want to help your business prosper - this is your association and everything we do should be for your benefit”

This revised subscription for Members is now £60 per month (£720 per annum). There is no increase for registered individuals and their membership will remain at £210 per annum. This revised model of membership is VAT-exempt and can be paid by direct debit either monthly or annually, streamlining your payment process. This new membership fee will remain frozen for all Members throughout 2019.

2018 and beyond I do hope you now have a clearer understanding not only of the changes that are taking place, but crucially why they are being made. This is an independent, Member-driven association and together we are striving to become the professional association of choice for all commercial finance brokers and lenders.

The ship is in good order, we are on a clearly defined course, and although it may not always be plain sailing, I hope I can rely on your support to partner with us to help foster greater professional expertise while embracing the highest industry and regulatory standards, allowing your business to prosper.

NACFB Magazine | 9

Commercial Finance

RICS director tops proptech influencer list

British Business Investments to provide £30m SME funding line

10 | NACFB Magazine

Pub and bar insolvencies rise 9% The number of pub and bar business insolvencies has jumped 9% in the last year, according to a new report.

Research by Ortus Secured Finance has shown there were 482 pub/bar insolvencies in 2016/17, up from the 444 reported in 2015/16.

This is the first time in four years that the number of pub/ bar insolvencies has increased.

47% of SME owners use personal savings for business More than one in five business owners (22%) said getting funding was their biggest challenge, according to the Esme SME Study 2017.

The study revealed that 47% of business owners relied on personal savings to get their business started, and 35% used savings for additional funding.

42% took out a business loan once they got their business off the ground.

Dan Hughes of the Royal Institution of Chartered Surveyors has topped LendInvest’s PropTech Influencer List for 2017.

As director of data and information product management for RICS, Dan has demonstrated commitment to initiating debate and promoting proptech globally.

The list recognises the 25 people who have done the most to develop the understanding of proptech in the global market.

Construction productivity could save £15bn New plans to revolutionise British infrastructure and boost the construction sector’s productivity could save £15bn a year. The plans were revealed alongside the national infrastructure and construction pipeline, setting out projects for the next 10 years.

The £600bn pipeline includes public and private investment, and will encourage the sector to invest in technology and skills to meet demand.

PCF new business originations up 24%

British Business Investments, the commercial arm of the British Business Bank, is to provide £30m of funding to SMEs through commercial finance provider Independent Growth Finance.

SMEs can borrow against assets their business already owns, including property, plant and equipment, and inventory.

The funding is to support SMEs struggling to access finance from traditional lenders and to enable business growth.

Enra Group named in Fast Track 100 Enra Group, parent company of specialist lender West One Loans, has ranked at number 35 in the latest Sunday Times Virgin Fast Track 100, featuring for the fourth consecutive year.

The index recognises the top 100 companies in the UK with the fastest-growing sales.

The group’s annual sales showed 101% growth in three years.

PCF Group PLC has announced that new business originations have increased to £84.6m for the year ended 30th September 2017.

The specialist bank saw a 24% increase on the £68.4m of new business originations reported in 2016, and recorded portfolio growth of 20% to £146m.

The bank also revealed that underlying profit before tax was up 25% to £5m.

Business confidence dips during November Overall business confidence dropped by two percentage points to 24% in November 2017, according to Lloyds Bank Commercial Banking’s barometer.

Economic optimism was shown to be well below the long-term average of 19%.

Business confidence in the North increased by one percentage point to 33%, and remained higher than both the Midlands and the South.

Precise launches income supported BTL

Criteria Hub attracts first 50 lenders ‘Deep search’ engine Criteria Hub has achieved its initial target of 50 partnering lenders.

The platform aims to provide lenders’ most indepth criteria for mortgage advisers, clubs and networks.

Developed by director and mortgage broker Jason Hegarty to save advisers time when researching sources of finance, the platform is due to launch officially in 2018.

Orca accepted on to FCA sandbox

Distributor announces new SME finance arm

Starling Bank granted full approval for product offering Starling Bank has been granted approval by the PRA and FCA to offer customers a full range of financial products via its app.

The mobile-only bank can now provide direct access to products, including loans, mortgages, Isas and other investment products, all from its app.

Starling’s plan is to use open banking regulations to give financial control back to its customers.

Specialist lender Precise Mortgages has launched its income supported buy-to-let offering.

The product allows customers with excess income to bridge the gap between the rent achieved by their property and the rent required to achieve the loan they want.

The offering has no restrictions to product selection, opening up the market to more customers who want to invest in property.

Brighton & Hove report improvement in planning decision speed

Peer-to-peer investment aggregation platform Orca has been accepted on to the third phase of the FCA’s regulation sandbox programme.

The sandbox allows firms to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place.

Orca will be testing a peer-topeer investment aggregation platform facilitating investment in a diversified portfolio.

Finance 4 Business has announced the launch of the Liquidity Club, an alternative business channel to assist SMEs looking to raise finance for growth.

The Liquidity Club will be based in two offices in Birmingham and Leeds and will cover the Yorkshire, North West and Midlands regions.

The specialist finance distributor has appointed David Totney as managing director.

Planning application decisions in Brighton & Hove are now far exceeding government standards, according to new figures.

In September 2017, the city council was deciding 92.54% of major applications within the government’s 13-week limit.

The speed of decisions on minor applications increased by 20% within a year to just over 80%, exceeding the government’s target of 70%.

Brokers more positive about UK economy than customers 36% of brokers believe most of their customers have a negative economic outlook for the next three years, according to United Trust Bank’s latest broker sentiment poll.

Of over 140 property and asset finance brokers, 35% reported a positive outlook for the UK. 35% of brokers reported a neutral, and 30% a negative outlook, showing decreased broker confidence since the referendum.

NACFB Magazine | 11

Compliance | update The latest from our in-house compliance team

What constitutes a complaint?

James Hinch Compliance consultant NACFB

In last month’s compliance feature, we outlined how best to implement a complaints handling procedure in order to address any complaints your business may receive.

Scenario A A solicitor you have known for some time calls your office and outlines that they are not happy with a proposed fee on a commercial mortgage deal.

They inform you that you will not be paid unless your quoted figure is revised.

Scenario B You meet up with a farmer that you have been liaising with for 18 months and they tell you that they have decided to self-fund an asset finance deal for upgraded farm machinery.

They have already agreed to terms of business and the fees.

T

Scenario C You have been working with a lender on behalf of a jeweller client who requires a level of invoice financing. The lender returns to you saying that the deal you have presented does not contain enough information to put before their credit team.

Identifying complaints Below we have highlighted four scenarios of day-to-day correspondence to test if readers can identify which of the below could be considered a complaint.

Scenario D You are referred to a client in the retail sector who you then source funding. They call you when their first repayment is due, telling you that the payment is higher than they were expecting.

his month, we shall focus on how to recognise a complaint, the types of complaints that should be logged and those that can be rightly discarded.

12 | NACFB Magazine

So, which of these scenarios might be considered a complaint?

The answer is all of them.

Complaint recognition Let’s look at a common thread from the examples to ascertain if we can apply some general rules and frameworks to complaint recognition. We can then establish a working process through which we can view all correspondence and filter out any complaints.

First, it is important to note that a complaint can arrive at your business through any medium – not all complaints will arrive on letterheaded paper or come in an email with the words ‘formal complaint’ in the subject heading. Indeed, most complaints you and your business will receive will come verbally, either face-to-face or on the telephone.

The customer does not even have to specifically use the word “complaint” in order for a complaint to be registered and the complaints handling process to be implemented.

The FCA defines a complaint as “any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, a person about the provision of, or failure to provide, a financial service or a redress determination”. This definition is clear, but it also highlights another factor we should consider: legitimacy.

You may receive some complaints that you feel are entirely unjustified; unfortunately, these are still complaints and should be treated as such. It sounds very obvious, but even the most receptive of businesses can subconsciously turn a blind eye to those more unfounded or baseless complaints.

Every time a customer grumbles about service they have received, your firm must decide if a complaint is being made. Often it is only the customer seeking to get a matter off their chest or provide feedback.

Usually it is clear that the customer is making a complaint because they have suffered, or are likely to suffer a financial loss. If the customer believes they are out of pocket because of something related to their relationship with your firm, the matter should be treated as a complaint, even if the customer has not said they wish to complain. The same is true if material distress or material inconvenience has been caused. Deciding if circumstances are “material” will always have to be a judgement call on the part of the complaints handler.

The bottom line is that if your customer expresses dissatisfaction verbally or in writing then you need to instigate some form of a response.

If you can do this by the end of the next business day, both you and your clients have everything to gain. You

cannot ignore the complaint on the grounds that the customer is mistaken or is making unreasonable requests.

Maintaining best practice A firms’ attitude towards how complaints are recognised and handled are key indicators of the TCF culture of the firm and whether customers are truly at the heart of their business. Firms with the right culture look for new ways to improve and understand that complaints provide an opportunity to identify any failings within their business and directly address them - which in turn contributes to future positive relationships with customers.

You should aim to resolve all complaints internally. However, if a complainant is not satisfied with your suggested resolution, or if eight weeks have passed since you first had the complaint brought to your attention, it may be referred to the Financial Ombudsman Service, your trade body – the NACFB – or the FCA.

NACFB Magazine | 13

Top | story Our pick of the latest Patron news

Most online lenders welcome FCA regulatory review Vera Sugar Editor NACFB Magazine

UK Alternative Finance Market Volume, 2011-2016 Source: CCAF £4.58b

O

ver 80% of UK online alternative lenders consider the FCA’s ongoing crowdfunding regulatory review process to be adequate and appropriate, according to a new report by Cambridge Centre for Alternative Finance (CCAF).

£3.2b

The fourth annual UK alternative finance industry report, ‘Entrenching Innovation’, surveyed over 8,300 investors and lenders, to provide an in-depth overview of the UK online alternative finance market in 2016.

Of participating loan-based crowdfunding platforms, 88% found existing FCA loan-based crowdfunding regulations to be adequate, and 84% of surveyed platforms considered the review as appropriate. Seven percent claimed existing rules were too relaxed, while five percent found these rules to be too stringent.

14% of surveyed platforms stated that the FCA’s ongoing review may lead to excessive regulations in the crowdfunding sector.

The CCAF has provided selected evidence from the report to the FCA as input into the regulator’s ongoing review of the crowdfunding regulatory regime.

According to the report, the alternative finance market went from strength to strength in 2016, showing a staggering 43% growth to £4.6bn from £3.2bn the previous year, suggesting alternative finance is rapidly becoming an increasingly important source of funding for start-ups and smaller businesses.

Peer-to-peer business lending was the largest market segment, growing

14 | NACFB Magazine

£1.74b

£0.49b

£0.67b

£0.31b

2011

2012

2013

36% to reach £1.23bn. This was followed by peer-to-peer consumer lending, up 47% and reaching £1.17bn, and peer-to-peer property lending, up 88% and reaching £1.15bn.

Further findings included:

• Invoice trading: £452m – up 39% crowdfunding: • Equity-based £272m – up 11% estate crowdfunding: • Real £71m – down 18%

• Reward-based crowdfunding: In his foreword to the report, Bryan Zhang, co-founder and executive director of the CCAF, said: “With equity-

2014

2015

2016

based crowdfunding now accounting for 17% of all seed and venture stage equity investment in the UK, and peerto-peer business lending providing an equivalent of 15% of all new loans lent to small businesses by UK banks, alternative finance has entered the mainstream and is likely here to stay. “… Good financial innovation not only improves the efficiency of capital allocation and reduces information asymmetry, but also can achieve a greater degree of financial inclusion, increase welfare and benefit communities. In that sense, perhaps this report marks just the ‘end of beginning’ for the UK alternative finance industry.”

MFS

When it comes to property, speed is everything MFS are specialists in fast, flexible bridging loans E: info@mfsuk.com W: mfsuk.com Berkeley Square House, Berkeley Square, Mayfair, London, W1J 6BD

Associate Lender

T: 020 7060 1234

Association of Bridging Professionals

Introducing New and refreshed offerings for NACFB brokers on behalf of Patrons and Members

Downing Crowd launches property development bond Julia Groves Partner & head of crowdfunding Downing

I

nvestment platform Downing Crowd, part of Downing LLP, has launched its first property development bond in a bid to help address the lack of finance for SME developers.

The Downing Development Finance (DDF) Property Bond will offer investors fixed term, fixed returns and a degree of diversification across a range of property developments.

The proceeds of the new bond will be used to fund a range of residential property developments and support small business owners who want to develop their premises, such as pubs and care homes.

As part of the bond launch, the platform has recruited a range of specialist property investors, including private equity professionals from Funding Circle, to help develop Downing’s expertise in residential property.

from Funding Circle’s own closed property loan book, which will be included in the DDF portfolio.

Julia Groves, partner and head of crowdfunding at Downing, said: “We believe the new DDF Property Bond can offer investors something really unique in the popular world of property investing.

“Unlike some other platforms that offer this type of property lending, we offer fixed rather than target rates, so investors know what returns to expect.

“The fixed term of the bond also means investors know when they should get their capital back.”

The bond will offer a choice of two fixed rates, either paying 5% pa for investors who hold the bond for one year, or 6% pa for two years.

Investors also have the chance to earn higher net returns by receiving interest tax free on the DDF Property

Bond through the Downing IFIsa wrapper.

The annual fees charged by Downing will be capped at 2% pa, which aims to keep the cost of finance down for the borrower and maximise returns for investors.

“We believe we are launching the new bond at an interesting time in the broader property market – with increasing restrictions on buy-to-let, some property investors are looking elsewhere for the competitive, risk-adjusted returns offered by the DDF Property Bond,” added Julia.

“The bond can also help address the lack of financing for small- to medium-sized property developers, which is a contributing factor to the ongoing housing shortage in the UK.” A summary of the loan book will be published online and show the rate of interest that the borrower is paying.

Downing will apply its own due diligence process to carefully select a number of loans

The annual fees charged by Downing will be capped at 2% pa, which aims to keep the cost of finance down for the borrower and maximise returns for investors

16 | NACFB Magazine

We’re redefining standard

We’ve put a lot of thought into our newly extended suite of short-term lending products.

In an increasingly diverse world we know brokers need maximum flexibility to handle the widest possible range of client scenarios.

Standard bridging that’s anything but standard • • • • •

Prime Bridging Standard Bridging Light Development Development Commercial

Are you ready to rethink what standard means?

masthaven.co.uk Masthaven Bank Limited is a company registered in England & Wales with registration number 09660012 and whose registered office is at: 11 Soho Street, London W1D 3AD. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Firm reference number 719354).

The “Masthaven” name and logos and all other brands, names, logos, marks and slogans on this document are the trademarks or service marks of us or our licensors.

Case Studies Completion highlights from a selection of our Patrons and Members

Considering the emotional factor for regulated bridging

S

ince Greenfield Capital recently became a Patron of the NACFB, we have seen a significant uptake in our regulated bridging lending. Indeed, we’ve already drawn on a healthy £1.8m bridge, presented by NACFB Member Tariq Ansari of River Commercial.

Our client had been living in her London home for more than 50 years. Based in SW18, it had appreciated significantly in value and was now being marketed for sale at £2.8m. She planned to downsize to a smaller property and had already found the perfect home for £1.2m, which accommodated her wheelchair requirements.

However, she had a number of challenges to resolve. First, she hadn’t sold, so could not pay cash to buy her new home as planned, nor was she in a position to fund stamp duty.

Second, the estate agents of her new

18 | NACFB Magazine

home stated that the vendor had another offer, but wanted to know if she could move quickly as they were not prepared to wait until she had secured a sale on her current home.

Third, she was unlikely to qualify for a standard residential mortgage as her income was too low to meet the serviceability requirements. If she had qualified for a long-term residential mortgage, she would have had issues regarding how long it would take to put this in place and whether there would be any exit penalties when her property was sold. And finally, she had mentally already moved into the new home and did not want to miss the opportunity of the dream purchase.

about the borrower looking to make money. The commercial decision can be very black and white for unregulated cases as there is a profit line involved. Emotion is often the driving force of regulated lending, so it’s about managing hearts and minds to see that sound judgement is not impaired by irrational thinking.

This highlights a problem in the London market where some properties move speedily, whereas other, pricier properties may well take longer to sell. It also highlights the emotional factor to consider in a residential case as it’s not necessarily

Lewis said: “As an experienced bridging loan broker, I want the best possible deal for my clients. That can include speed, price, underwriting and quick decision making. One of the lenders that stands out for me is Greenfield Capital. I recently

This being a regulated case, IFA Lewis Walker of Walker Commercial Finance presented the KFI and gave independent financial advice to the client. He recommended a regulated bridging loan as the most suitable lending solution and Greenfield as the most suitable lender.

used them in a £1.8m application in London, where the application had a lot of complexities, including a matrimonial restriction on the forward purchasing property. Greenfield once again demonstrated that their approach is simple, immediate and positive, looking to do the deal, not find reasons not to, problem-solving swiftly any potential issues as they arose. I need to know if speed is vital, then I have a good point of contact who understands my client’s specific circumstances and requirements.

“With this application, Greenfield and my point of contact Latifur Rahman once again showed that they look after every facet of the application and made sure my application ran smoothly and quickly to completion. This proactive attitude demonstrated both by Greenfield and their solicitors – who worked tirelessly, liaising with the client and her solicitors in overcoming

Regulated lending is about managing hearts and minds to see that sound judgement is not impaired by irrational thinking

the challenges faced – resulted in completion within a fortnight of the initial application being received.

Not only did Greenfield complete the purchase of the downsized property, but also funded the stamp duty.”

As a successful collaboration, Tariq added: “What I liked about Latifur from our very first conversation is that he goes the extra mile to ensure a high level of service is delivered and ultimately the deal completes – hence, four years later, Greenfield is still my first point of contact for bridging loans.”

Latifur Rahman Business development manager Greenfield Capital

NACFB Magazine | 19

case studies

Steve Larkin Director of development finance LendInvest finance

A

Three-week turnaround for phased development

t LendInvest, we firmly believe that small- and medium-sized property professionals are fundamental for a healthy housing market, and key to tackling our chronic undersupply of homes in the UK. This is why it is always a delight to be approached by a developer with a wealth of experience in his or her local area, eager to get more homes on to the market.

The project, Court Lodge, is near the centre of Epsom. With a modern design and high specifications, it is Zestan’s flagship development of 2017.

Located adjacent to a recreational area with an open aspect across parkland towards the town centre, the location provides quick access to the town’s facilities and transport links, while benefiting from being in a quiet, residential neighbourhood.

In this case, our developer Zestan Ltd needed a fast development loan to complete on a residential site in the developer’s home town of Epsom, Surrey, having successfully completed several projects in the past couple of years in the area.

The first phase – which is planned to be completed in summer 2018 – required the demolition of an existing building to make way for a three-storey new build made up of 10 one-, two- and three-bed luxury apartments. The second phase of 13 further apartments is due to be completed at the end of 2018.

Introduced to us by a specialist broker in development finance, LendInvest has supported and championed the project every step of the way. Following a short period of setbacks that resulted from planning restrictions set by the local council, LendInvest advised on Zestan’s submission to (and subsequent appearance in) the ‘2017 Parliamentary Review for Property’, a widely read assessment of the government’s role in supporting developers while they put more homes on UK streets.

The remainder of the development has progressed on schedule, and the developer has been consistently pleased with the flexible approach LendInvest has taken throughout the build.

20 | NACFB Magazine

When the developer first came to LendInvest, a lot of their capital was already tied up in planning.

This meant the clock was ticking when it came to completing on the development loan itself in time to fit the construction schedule.

With a three-week deadline for issuing funding, we streamlined the internal process by ensuring the same relationship manager monitored the deal from start to finish.

The LendInvest team was able to provide a competitive loan to Zestan that met their exact requirements on this project. The team delivered an initial loan size of £3m based on a GDV of just under £5m,

as well as providing flexibility on LTC to meet their needs.

As a result of the project’s success, Zestan is now contemplating further, similar phases in the near future, using the same design.

Andries Stricker, CEO at Zestan, said: “My experience with LendInvest so far has been brilliant. Being able to pick up the phone and share my frustrations with someone who can not only appreciate, but also help solve any problems that arise quickly is key for me. In this business, you don’t want to be seen as just another number, and it’s the personal service that keeps you coming back. This is definitely one of the things the team at LendInvest gets right.”

Zestan’s depth of knowledge in the local area made this project particularly attractive for us.

We look for professional, highly experienced developers with the expert approach that Zestan Ltd takes.

With strong transport links and easy access to the M25, the developer has already received substantial interest in the new homes and a number of them have been reserved by interested purchasers. LendInvest is currently assisting on several ongoing projects with Zestan in the same area.

Bigger is better.

Extending or improving a residential property?

Our Refurbishment Finance can help.

Call us on 0203 846 6809 or visit intermediaries.lendinvest.com. LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929).

ICO number ZA179467. Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.

case studies

Agility trumps rate for private bridge refinance Tom Branson Director Charterbank Capital

A

s established and trusted principal lenders with a strong reputation for speed and reliability, every day brings with it varying propositions. This particular day and case were no different.

The applicants had purchased the subject property, a freehold pub.

They also owned and ran another business. The original intention was to sell the business and move into the pub trade thereafter, however, the purchase presented itself as an opportunity somewhat unexpectedly and, therefore, prior to the sale of the current business.

Purchase monies were made up of capital of their own, together with a private loan from a friend: a classic bridge in many ways, albeit from a personal source. The sale of the applicants’ business was agreed and progressing well, but later fell through, leaving the applicants unable to repay the private bridge.

They came under increasing pressure to repay, ultimately resulting in a court order for possession in favour of the lender. Possession was to be surrendered in a matter of weeks.

The case was received from an introducer in Brighton – we had not spoken or dealt with the introducer previously. Nevertheless, we quickly established a rapport and, after a brief overview of the salient points, it became clear the case was one that Charterbank could assist with.

Another lender had already been approached and the introducer was left to compare terms and establish an overall cost for comparison. Our rate at 1.65% proved the higher of the two, but ultimately there was little difference.

We were the more expensive option, but rate was essentially the secondary concern for the introducer; knowing

22 | NACFB Magazine

how time-sensitive the matter was, there was no room for a false start.

Our ability to provide a single point of contact, someone that was to be the in-house valuer, decision maker and underwriter, provided the absolute surety the case demanded.

No detailed accounts or trading figures were readily available.

Furthermore, the figures that were known were that of a fledgling business, therefore, of no value. A commonsense approach was required, together with a sound assessment of the bricks and mortar value, and ultimately the applicants’ likely ability to repay the loan at the end of the proposed term. Once the legal work was underway our valuation inspection was booked, which included the requirement for a faceto-face meeting with the borrowers.

This meeting allowed us to assess credibility and make a commonsense approach to lending. From our meeting it was clear they were capable and that trading was on its way up.

The 12-month term (which came with

pre-determined options to extend) would – when combined with the period of the forgoing ownership – provide sufficient trading history to refinance, with the benefit of time to procure the best long-term product.

The case completed ahead of the court order, resulting in a very happy borrower and introducer who commented: “With a client in an urgent situation requiring temporary financing for his business, Charterbank swiftly provided a clear indication of their ability to lend and began to assist within a matter of days, which provided great reassurance. Other lenders required a ‘life story’ before even engaging in potential terms.

“Charterbank clearly showed experience and understanding of bridging finance and client situations, and used this to provide clear guidance while managing the case smoothly from start to finish. I would certainly recommend them in the future.”

Business-boosting loans up to £500,000 Fixed rate loans with no set up fees or early repayment charges Security may be required. Product fees may apply.

Over 18s only. Business turnover of up to £2 million.

Excludes refinance and Commercial Real Estate Finance.

Email us at brokerteam@natwest.com ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER DEBT SECURED ON IT.

case studies

Clearing the way for Newcastle high rise Simon Chapman Relationship director Amicus

W

hen Olympius Developments approached Amicus Property Finance to fund a site purchase in Newcastle, what looked like a straightforward case on the surface turned out to be anything but simple. Instead, it was a challenging and rewarding road to success, both for the team and all stakeholders involved.

The development company was among a number of parties interested in acquiring a derelict site fronting Rutherford Street, overlooking St James’ Boulevard in Newcastle.

Olympius planned to demolish the derelict structure on the site and get permission for a high-rise development comprising 162 luxury one- and two-bed apartments – an impressive structure which, once completed, would be the tallest building in Newcastle.

The client applied to Amicus for a loan to cover the site purchase, and intended to put the development finance out to tender once planning was in place. By July 2017, their offer had been accepted and a schedule of tranche payments had been agreed.

The client had fulfilled the first of these with their own funds, and Amicus was approached when the deadline for the next tranche was on the horizon. This pre-arranged payment schedule was the first of a few hurdles and constraints that had to be overcome in this case: each challenging us to match appetite to lend with resourcefulness and quick turnaround against the clock.

It was one of the early deals in a fledgling relationship with broker Osman Rankin (Kinnison Limited).

The second hurdle was apparent almost immediately: Olympius had a complex corporate structure. This in itself might have caused other lenders to walk away because of the ensuing legal complications.

The client’s profile as an established developer – with plenty of experience and good credentials – provided the comfort we needed to look at the case. At Amicus, we take pride in our ability to see a way through a complex deal, and that is exactly what happened on this occasion.

We took legal advice from experts on our panel (Brecher) and carried out due diligence on all relevant parties involved. In the process, we identified a single director to be the beneficiary of the loan. We structured a facility with the special condition that the company’s corporate structure be simplified to reflect the details of the loan. The client obliged, but it was a drawn-out process to get everything in order.

Next, working with the surveyor, we found that amendments had been made to the plans. In spite of the fact no works were to take place during the term of the loan, these affected the potential value at exit. We decided to seek further valuation advice, so we could be confident in arriving at a realistic gross development value.

With all this settled, another challenge delayed completion. When we conducted our routine last-minute Land Registry search, we found a problem. On 11th October – fewer than 48 hours before we were hoping to release funds – the Land Registry had changed the wording of the property’s address. The paperwork Amicus had ready – deed of priority, charge and report on title – named the property “land and buildings on the south side of Rutherford Street”.

The Land Registry changed it to “land on the south side of Rutherford

Street”. All the documentation had to be updated as a matter of urgency.

With the corporate structure almost agreed, the value clarified and the name of the property reconfirmed, the client requested a loan increase. This was probably the most straightforward of all the changes and challenges that had been experienced so far in the transaction.

The documentation was completed in late October, funds requested on 31st October and the deal completed on 1st November. What was a loan of £3.3m became one for £4.12m at an LTV of 66.66%, with a net advance of 58.8%.

The Olympius case was a complex, but rewarding one for underwriter Gareth Ward and the team at Amicus. At 15 weeks to completion, it wasn’t the quickest turnaround.

Nevertheless, it would not have happened at all without the commitment to finding a way forward for this broker and his client, even in the face of a complex starting point and arbitrary intervention from external bureaucratic forces.

The client is relieved to have the rest of the payment schedule covered, and Osman was thrilled.

“Thank you for the confirmation, excellent news. Thank you also for all your great work in getting this deal completed, very much appreciated,” said Osman.

Gareth added: “This was a challenging and rewarding case to work on – I’m delighted we were able to get the right result for the client by working closely with all the stakeholders involved. We deal with the complex and challenging each day and are always pleased when a case successfully completes”.

The deal would not have happened without the commitment to finding a way forward, even in the face of a complex starting point and arbitrary intervention

24 | NACFB Magazine

Review

Bursting bubbles How have the trends of 2017 fared against expectations?

Vera Sugar Editor NACFB Magazine

review

For the commercial finance sector, 2017 seemed a troubled year. After the Brexit referendum in 2016, 2017 was ripe for new worries as the effects of the vote began to unfold – not to mention two Budgets and the PRA changes, which came into effect throughout the year.

W

e saw several areas of the industry heat up and receive increased attention, not always in a good way. With rumours of bubbles about to burst and new crises on the horizon, perhaps the year didn’t turn out as negative as expected. But were the doomsayers entirely wrong, or was it only the timing that was off? With the new year rolling in, we take a look at the industry’s main worries from 2016/17, and examine where they might be heading next.

Bridging ‘rate war’ We opened 2017 with a storm of news on bridging rates. What was often termed a ‘rate war’ occupied much of the headlines, with many lenders reducing their rates in quick succession to never before seen lows.

28 | NACFB Magazine

As early as January, we saw bridging rates dropping to below 0.5% from lenders such as United Trust Bank and Masthaven. In Q4 2016, average bridging rates stood at 0.78% according to Bridging Trends which, interestingly, showed a slight increase in Q1 2017 (0.83%), despite record low rates being offered on the market. “The great service vs rates debate rolls on,” claimed Michael Perry, bridging finance broker at Enness Private Clients, at the time.

Roll on they did, and in July InterBay entered the bridging market with a market-leading rate of 0.44%, later matched by Roma Finance in November.

However, in its November meeting, the Monetary Policy Committee finally

decided to raise interest rates, prompting speculations that the price of borrowing will go up, which could mean a halt to the bridging rate war – especially with further increases expected in the new year.

Jonathan Sealey, CEO at Hope Capital, claimed the market will inevitably see prices dropping early on in the year.

“Some lenders will always rush to publish the lowest rates, especially if they work on a high volume, low margin model and more lenders in the market will exacerbate this by increasing competition,” he said.

“Last year, by the end of the first quarter, there was a bit of a backlash from brokers however, claiming that many of the

review

low rates were just a marketing ploy as the rates never seemed to be available when they came to place the business.

“There also seemed to be a growing incidence of lenders reneging on deals at the last minute as Hope Capital received a rush of enquiries from brokers whose clients had been let down.

“Ultimately, while low rates can be good, surety of decision, speed of turnaround and knowing that ‘yes’ really does mean ‘yes’, can be a lot more important.”

Vehicle finance In 2017 the FCA increasingly turned its attention towards the vehicle finance market, and has announced it was conducting a review into this sector in April 2017. Although there is less noise about the review at the moment, the regulator said it would publish an update on its work in Q1 2018.

Besides responsible lending, the FCA is also looking at PCP agreements, which form part of the Bank of England’s worry about rising consumer household debt.

According to the British Vehicle Rental and Leasing Association’s Industry Outlook 2018, “PCP will remain under the spotlight amid concerns about the way the product is sold and the impact of any sharp downturn in the economy or residual values”.

The mainstream and industry press has also picked up on the interest around PCP agreements in 2017, calling it the next ‘bubble’ or mis-selling scandal. However, industry experts have claimed that much of the media storm was exaggerated.

Julian Rose, director at Asset Finance Policy Ltd, in a piece for Asset Finance International, wrote: “The overall increase in car finance across all consumer credit products isn’t reported and is difficult to estimate, but it is safe to say that car finance is far less of a contributor to any growing credit bubble in the UK than the analysis in the media has suggested.”

Graham Hill, vehicle finance director at the NACFB, said: “The uncertainty of a

What is the FCA focusing on in its motor finance market review? firms taking the right steps to • Are ensure that they lend responsibly, in particular by appropriately assessing whether potential customers can afford the product in question? there conflicts of interest arising • Are from commission arrangements between lenders and dealers, and if so are these appropriately managed to avoid harm to consumers? the information provided to • Ispotential customers by firms sufficiently clear and transparent, so that they can understand the risks involved and make informed decisions? firms managing the risk that • Are asset valuations could fall and ensuring that they are adequately pricing risk?

free trade agreement that could affect the value of end-of-lease car values in three or four years’ time has led to a great deal of head-scratching when setting PCP rates.

Manufacturers, at the moment, appear to be turning their attention to the rest of Europe, but they can’t avoid the UK, which makes up a large proportion of their new car sales.

“The FCA report on the selling of vehicle finance, due out next spring, has caused a stir among dealers although, while I can see a few wrists being slapped, they will be only too aware of the dangers of hitting dealerships hard and potentially destroying the motor industry and putting jobs at risk with the removal of FCA permissions and heavy fines.

“Fears now expressed by consumers with regard to PCP, whipped up by the press, has moved consumers away from new cars to used, but I see this situation changing next year with a rapid increase

NACFB Magazine | 29

review

It is possible that the effects of last year’s changes will only materialise in the new year, changing the size and appearance of the buy-to-let market

in the take-up of personal contract hire - the cheapest of all products.”

In 2016, the Finance & Leasing Association (FLA) acquired government approval to develop a new training option for the motor finance market by way of a motor finance specialist apprenticeship standard.

The FLA said it is currently working with a group of employers, the London Institute for Banking & Finance and the Institute of the Motor Industry on the development.

Adrian Dally, head of motor finance at the FLA, said: “The FLA’s plans to boost skills and professionalism in the motor finance sector have been discussed with the FCA. We have explained to the regulator our aim of providing a training option for all levels of expertise. As part of this suite, we look forward to the launch of the motor finance specialist apprenticeship standard in the coming months. In the meantime, we are working closely with the FCA as they continue their exploration of the motor finance sector.”

Buy-to-let With 2017 over, the buy-to-let sector might be able to take a deep breath before plunging into the new year.

Starting as early as January 2017, lenders had to begin coming to terms with stricter affordability tests. In April, new mortgage interest tax relief changes were introduced for landlords, further weakening the sector, as well as Stamp Duty changes; and, in September, new portfolio landlord application requirements meant that many were deterred from expanding their portfolio, and we saw several exits from the market too. The Autumn Budget also held some changes

30 | NACFB Magazine

for investors operating portfolios via limited companies, with higher taxes in the pipeline for those looking to sell.

The numerous changes were backed by a bid from the government to increase first-time buyers’ chances of acquiring properties, thus helping to solve the UK housing crisis. However, despite new conditions, the drop in buy-to-let investment was much lower than expected, and for now at least it seems it hasn’t deterred new brokers and lenders from entering the sector.

A significant sign of confidence came from LendInvest in November 2017 when it announced its entry into the market.

Ian Boden, sales director, said: “Our BTL product has been created to counter the complaints and concerns we hear from brokers about the quality and accessibility of BTL loans currently on offer.”

However, according to S&P Global, it is possible that the effects of last year’s changes will only materialise in the new year, changing the size and appearance of the buy-to-let market.

S&P’s recent report claimed that the most immediate effect of the PRA changes will be a drop in loan origination volumes, citing three reasons for this: 1. Lenders are still adapting to the new origination process and its challenges, and this will continue in 2018.

2. The new affordability requirements mean that fewer propositions will be accepted by lenders, and these loans will most likely be lower in balance on average.

3. Due to increased stamp duty, acquiring buy-to-let properties for investment has become more expensive, leading to fewer purchases and investors entering the market.

D’mitri Zaprzala, head of sales at Octopus Property, agreed it is too early to be able to judge what the full impact of last year’s changes will be on the market, and what the knock-on effects might be. However, he outlined some changes that the market is already seeing, and which will most likely continue in 2018: “The traditional purchase of a one- [or] two-bed flat in the commuter belt of London is no longer the obvious choice for investors.

“We have seen record levels of applications from those landlords wanting to buy houses in multiple occupation (HMOs) or buy homes and turn them into HMOs. Yields are typically higher for these properties, as is the opportunity for capital appreciation. Investors are also increasingly looking outside of London and the South East, with the North West, Midlands and South West especially popular.

“The changing landscape of the UK property market means that there are still opportunities, just not where they were previously.”

SPEED MEETS FLEXIBILITY 020 7655 3388

FAST PROPERTY FINANCE At Commercial Acceptances speed alone is not enough.

Speak straight to decision makers: a quick & personal service. No arrangement fees, no extension fees and no end fees.

Interest charged from only 0.75% per calendar month.

Your property may be repossessed if you do not keep up on your mortgage repayments or any other debt secured on it. A rate from 0.75% will be chargeable on the amount borrowed every calendar month. However rates are subject to change and will increase or decrease in line with movements in 3m LIBOR (The London Inter-Bank Offered Rate For Three Month Sterling Deposits). Rates will be adjusted on each calendar month anniversary of the facility. The overall cost for comparison is 10.6% APR.

Patron | profile

Downing LLP invests in the future’s industries Working with experienced developers and operators, Downing LLP offers both finance and property expertise. Because we know that no two projects are the same, we work to understand the unique features of each project and to offer a bespoke solution.

32 | NACFB Magazine

P

roviding support for small- and medium-sized UK businesses is at the core of everything we do at Downing. As part of our commitment to maintaining transparency for our investors, we like them to get a clear sense of exactly where their money is going. Investing in local businesses where investors can see an impact on either their local, regional or wider UK economy is absolutely key to this.

Businesses outside the South East have been finding it harder to access funding, with 41% of firms based outside of London and the South East area expressing concerns about the availability of finance.

But at Downing we are finding no shortage of opportunities to support businesses right across the UK. Our funding for a hydro power station on the River Lochy in Argyll, Scotland, brought with it a positive ripple effect to the surrounding

economy through sustainable energy supply, as well as helping to meet UK renewable energy targets.

There is also a series of investments we’ve made, providing funding to Urban Creation to purchase seven separate sites that were redeveloped and launched as student accommodation. These included new-build studio apartments in Southampton and sites in Bristol ranging from 20- to 60-bed developments. Banks are typically happy to lend on student accommodation, but only once they are built and let. Our experience of funding construction projects meant we were able to support these projects that otherwise might not have happened.

Our work with data centres also reveals signs of a more positive outlook for infrastructure

development, despite some initial concerns from the wider business community about a stall in investment. In fact, earlier this year we completed a deal to provide the debt funding to a £33m development at KAO Data Centre located on the London-Stansted-Cambridge corridor.

In the leisure sector, Downing’s funding deals with Oakman Inns have helped to create a series of exciting pub restaurants at the heart of market towns and villages across the South East, each of which we believe contribute to the sustainability efforts of their local community.

Perhaps most exciting is that by supporting these types of domestic UK businesses, we’re also investing in sectors that we believe will take the UK into the future. Whether it be through the sustainable future offered by renewable projects or the

growing prominence of technology and data in our everyday lives, we believe the UK economy looks set to become increasingly reliant on these industries in years to come.

Investment opportunities abound in certain areas of UK business, with exciting potential for reliable returns and long-term growth. At Downing, we are well positioned to benefit from these longer-term prospects by forming longstanding partnerships with our investee companies. Each year, over half the money we invest is in follow-on investments for growing businesses, as we aim to achieve continued success, over and over.

Jonathan Boss Head of lending Downing LLP

NACFB Magazine | 33

Ask | the expert Your questions answered by the most knowledgeable industry insiders

Time to think ahead Donna Bathgate, COO of the Equity Release Council, on why now is a good time for advisers to expand their portfolios to cover equity release and later life lending

Q A

Why is equity release a growing market?

There are as many challenges as there are positive planning options facing the populace at present, including interest-only plans coming to the end of their term for many customers, some of whom are retirees with no means of repayment. Equity release is certainly a solution not to be ignored.

With traditional pensions and personal savings generally insufficient to cover the shortfall, it’s essential for those in the retirement planning phase to look to other avenues to protect the comfortable later life they worked hard to achieve.

There can also be a desire to support their families entering the property market, or even to buy a second home.

It’s no wonder then that a lifetime mortgage is increasingly appealing to the over 55s.

With a growing number of choices, it can be tailored to individual customer needs, and offers the peace of mind of a no negative equity guarantee for all products approved by the Equity Release Council. There’s never been a better time for advisers to engage.

Q A

What are the challenges?

One of the biggest challenges lies in educating advisers on the mechanisms and benefits of equity release, encouraging and enabling them to

34 | NACFB Magazine

become active in the market. Our ‘Adviser Guide to Equity Release’, created and sponsored by Pure Retirement, provides step-by-step support for advisers on the end-to-end advice process, with a wealth of additional tools and resources available to those with council membership.

with new online portals from Retirement Advantage and Pure Retirement; events and roadshows; educational webinars, such as Key Retirement; learning zones on many adviser-facing websites; and even bespoke support with marketing activities from the likes of Aviva and Just.

Product innovation is another area, and for this we need the capital requirements imposed on the funders by the PRA to be proportionate. Marketing to a much wider audience collectively or at a high-street level through banks and building societies will also help deliver the message of just how useful these products are today. The recent market entry of Nationwide has certainly marked the way for others to follow their lead.

It’s also very encouraging to see more IFAs and their associated principals review their business models and look to supplement their portfolios with an equity release option.

Q A

What support is available for advisers?

As well as our own guide, many of the clubs and providers offer a wealth of resources designed specifically for advisers entering the market, and help build their day-to-day businesses.

The range is wide, from educational newsletters, such as ‘Lifetime Mortgage Insight’ from the Premier Equity Release Club, and the FS and SMP magazines to which we contribute regularly, to our partnership with the accredited programme run by the Later Life Academy. Providers, too, are working to simplify the day-to-day processes,

Q A

What does the future hold?

Equity release is already playing a key role in addressing the challenges faced today, and it’s a very real solution for many of the socio-economic trends becoming ever more prevalent. Greater understanding is still required by advisers and customers alike, and the combination of awareness-raising and education will certainly continue to provide clear and accessible options to many.

The market itself will continue to expand ahead of the growth we’ve seen over the last 12 months, driven by existing lenders and distributors and continued recognition from the regulators. New entrants to the market, new advisers becoming engaged, new funders and lenders entering the space and product innovation filtering through will open up even more opportunity for growth and solutions for the retirees of the future.

When we say commercial, we mean commercial!

Interest rates from 0.65% pcm R E TA I L

OFFICE

INDUSTRIAL

Loans from £250,000 up to £10m

Let’s Talk!

020 8349 5190 @ABC_Bridging sayhello@alternativebridging.co.uk alternativebridging.co.uk

Special | features An up-to-date insight into the industry

Sowing the seeds of growth British farmers will be able to pick up the slack if food imports from the EU drop following Brexit, minister Chris Grayling said in mid-October 2017, before outlining that the UK could cope with a no-deal departure from the EU by simply growing more here.

T

he secretary of state for transport said that if Britain crashed out of the EU without securing a trade deal, British farmers would have to produce more.

Speaking on the BBC’s Andrew Marr Show, he was asked to comment on claims by the head of Sainsbury’s that there would be a 22% increase in food prices if there was no deal with the EU. With research showing that confidence levels across SMEs in the agricultural sector are more than double what they were in 2016, do Mr Grayling’s ministerial proclamations align with the sector’s ambitions?

The UK agricultural sector is used to experiencing tough times with bad harvests. Indeed, Q3 2016 saw only 17% of small agricultural businesses feeling confident about their future. Q3 2017 saw a more promising 27%, according to research from Hitachi Capital. Despite being faced with further hurdles when the UK eventually leaves the EU, such as the subsidiary shortages and a loss of labour, Hitachi’s research shows that the sector remains optimistic about opportunities that the separation will bring.

New ways of farming that increase the financial yield per acre can bring other benefits, such as being more eco-friendly and sustainable. Currently, British farmers are struggling to compete with the Netherlands, which is the world’s second largest global exporter of food

36 | NACFB Magazine

after the US. However, while US food exports are almost twice the value of that of the Netherlands, the Dutch produce this from 0.4% of the land area of the US. With investment in the right technologies, British farmers can evolve their practices to increase efficiency and yield, mirroring their Dutch counterparts.

Rob Suss, co-founder of UK Agricultural Finance, is well placed to assess lending conditions within the sector. He echoed wider sentiments, believing that “British farmers have a great opportunity to increase production of more food for domestic consumption by adopting and leveraging the world’s most efficient agricultural technologies”.

“By thinking differently and exploring cost-effective ways of increasing yields, British farmers could emulate the Dutch,” continued Rob. With the funders in place and the desire to support greater farm diversification, British farmers have the finance opportunities available to them to produce more costeffective and environmentally friendly food.

Gavin Wraith-Carter, managing director at Hitachi Capital Business Finance, said: “Our research shows that small business owners in the agricultural sector are thriving under the anticipation of separating from the European Union. Confidence levels among agricultural SMEs took a dip around the time of the Brexit vote. However, levels

have now bounced back to higher than those of a year ago with British farmers looking ahead to a fruitful harvest.

“In this case, 52% of agricultural SMEs are able to see the positives in the current climate, be it the weaker pound or a potential reduction of red tape, which are no doubt contributing factors to current levels of confidence.”

Such insight from NACFB Patrons depicts a sector on the cusp of great change and at the start of a sizeable technological revolution. Such supportive funding can reignite an industry clearly growing in confidence while helping increase Britain’s export targets and levels of self-sufficiency.

Commercial financers across the UK can support producers and empower farmers to be more competitive globally through innovation and the adoption of new technologies. Agricultural SMEs can adapt quickly when required and through the development of precision farming methods, backed by funding tailored to the sector, we could see agriculture become the benchmark for a new type of Brexit-resistant British business.

Norman Chambers Managing director NACFB

NACFB Magazine | 37

special features

New products, closer relationships Is your business ready for 2018?

W

elcome to 2018 – a year full of new opportunities. Have you had time yet to assess your business’s performance and explore new industry trends? Staying up to date can help you remain competitive and ensure your clients come back for more.

For example, many asset-based lenders have started offering unsecured loans either as a stand-alone product, or in combination with a secured option. With a fully unsecured loan, businesses don’t need to provide a security and – more importantly – no personal or director’s guarantee.

From a business lending perspective, we anticipate several trends to take off this year: diversification of brokers’ product portfolios, new and faster technology innovations and, at the same time, the growing importance of human interaction and interpersonal relationships.

Many businesses ask for a fully unsecured loan to comply with short-term business needs, such as buying new stock, bridging a cash flow gap or upgrading business technology. SMEs can apply for a shortterm, fully unsecured loan, even if they already have a longer-term secured loan in place. This is possible because there are no asset claims and the loan is complementary, giving the business more flexibility.

Brokers will diversify their offering...

Financial intermediaries work in a fastpaced and ever-changing environment – gone are the days where it was sufficient to offer only one service or product. Businesses nowadays expect their brokers to help them with all sorts of financing needs. As a result, many brokers have started to diversify with new financing options which, traditionally, weren’t part of their product portfolio.

38 | NACFB Magazine

Another way brokers can add value is by re-evaluating their clients’ loan portfolios on a regular basis. This way, they can ensure that existing loans are still offering the best market rates and, if not, suggest relevant refinancing options. This can save SMEs valuable money and position the broker as a trusted partner, with the

client being more likely to return to the broker with new business opportunities. ...and technology will further automate tasks...

Technology innovations have helped automate certain manual and more laborious tasks over the last years.

This has freed up valuable time, made employees more productive and business decisions more exact.

For example, many lenders are now using self-learning algorithms, credit score technology and other software solutions to automate part of the credit decision-making process. This, in turn, helps credit underwriters to determine the level of risk and make a credit decision much faster than in the past, sometimes even within one business day.

Going forward, we expect to see further innovation with more and more lenders, brokers and SMEs using technology to streamline business processes – exciting times are ahead.

special features

Three areas to focus on in 2008 ...to leave time for relationships But despite the general belief, the rise of technology will put an increased value and appreciation on human interaction and personal relationships – something which cannot be replaced by a computer.

Face-to-face meetings and phone calls will form an important part and help further interpersonal relationships between lenders, brokers and their clients.

At Spotcap, we believe that building trustworthy relationships is based on the combination of technological progress with human interaction, which will become an important differentiator. And those brokers who are able to master this balancing act will have the most success.

In short, regular evaluation of your business offering, that of your clients and the overall industry is paramount. Only then can you spot trends and innovations and use them to your and your clients’ advantage, futureproofing your business for 2018 and beyond.

Niels Turfboer Managing director UK & Benelux Spotcap

Spotcap and Tower Leasing Spotcap has established a global partner network consisting of more than 10,000 intermediaries, including financial advisers, accountants and corporate finance brokers. Strong relationships are crucial and we all work closely together to find the right financing for UK SMEs.

clients. The company, a furniture wholesaler operating out of Birmingham, needed the additional capital to purchase garden and household furniture. As a result of the investment, the firm benefited from increased margins and turnover.

One of those important partners is Tower Leasing, a leading independent finance brokerage and lender, based out of Bracknell, south-east England, and with a regional office in Tamworth, Midlands.

The company has traded since 1989 and has supported the growth of more than 30,000 SMEs across the UK.

Kerry Howells, managing director of Tower Leasing, said: “Diversification is key and for us it’s crucial to continuously re-evaluate our business to ensure that our clients are served to the highest standard. We partnered with Spotcap as it enhances our offering when it comes to fully unsecured loans. Our partnership has already helped several SMEs with their financing needs.”

Traditionally focusing on leasing options only, Tower Leasing has started to expand its product range to reflect the rapidly changing landscape of business lending.

The relationship with new lenders such as Spotcap is seen as an important part of that shift.

In collaboration with Spotcap, Tower Leasing recently completed a £200,000 unsecured loan for one of its existing

NACFB Magazine | 39

special features

Fintech forecast Things to try in 2018

40 | NACFB Magazine

Vera Sugar Editor NACFB Magazine

special features

2017 was a year filled with innovation. From introducing digital elements in the traditional borrowing process to an outright refresh of the way applications are handled, we have seen it all.

B

ut there was also a clear rise in the uptake of fintech within the wider financial sector, as demonstrated by new solutions such as conveyancing and surveying technologies, partnerships and integrations.

Fintech supports accessibility, speed and efficiency and, as we have seen in 2017, it’s not here to disrupt the way the industry works. Rather, we’ve observed a gradual integration whereby traditional methods can be sped up and made more seamless, while also keeping the human element as their core.

The government is also keenly aware of the rise of fintech, which can prove useful in supporting small businesses and help improve productivity. In the Autumn Budget of 2017, the chancellor Philip Hammond announced a range of funds for tech services, including artificial intelligence and self-driving cars.

Fintech is worth keeping an eye on at all times – blink and you’ve missed the latest.

In this feature, we round up some of our favourite fintech solutions from 2017 and take a look at what we can expect in 2018.

Streamlining In March, P2P lender Lending Works announced its partnership with fintech app Revolut in order to launch its threeminute loans. Revolut customers are now able to apply for between £500-5,000 in credit in two minutes and receive funds on their contactless card almost instantly.

October saw HSBC announce the launch of a new test and learn mobile banking platform in preparation for open banking, which allows customers to view all their accounts on one screen, regardless of who they bank with.

Bank of Ireland UK introduced a new broker portal in November, allowing brokers to view and download mortgage offers online, rather than having to wait for a paper copy.

Brokers also receive an email notification when the offer is available for view.

Meanwhile, TSB introduced facial recognition technology to allow customers to instantly unlock their mobile banking app and make payments.

Partnerships In February, the FCA entered into a cooperation agreement with the Ontario Securities Commission, and in May with the Securities and Futures Commission in Hong Kong, enabling the organisations within the agreement to share information and referrals of innovative/fintech firms seeking to enter each other’s respective markets.

June saw card-based finance provider Liberis announce integration with accounting software system Xero. The collaboration allows customers to choose to advance their credit or debit card takings through Liberis’ business cash advance product, and then align the details of their business finance with their Xero account, meaning easier reconciliation of bank accounts and liabilities.

In September, criteria searching system Knowledge Bank announced its partnership with Connect for Intermediaries, following the former’s official launch a few weeks prior. Advisers using Connect can now search more than 18,000 different criteria across more than 43 lenders at the touch of a button.

In October, RateSetter announced a partnership with credit rating agency Experian, providing credit reference data and analytical services to support the lender’s speed of service, while helping it make good credit decisions.

Innovation May saw Barclays opening the doors to Rise London, which it claimed is Europe’s largest co-working space dedicated to fintech. The site has been bringing together fintech start-ups from around

the world ever since, along with Barclays’ corporate clients and other experts to help create the future of financial services.

In addition, Think Business Loans launched its new TheThinkApp in November, a cloud-based CRM, tendering platform and matching app, allowing intermediaries to contact, match and process applications directly, with the ability to compare clients against the criteria and prequalification of over 200 lenders.

Tech to try in 2018 There are several changes coming into effect in 2018 which will affect the way financial services approach and use fintech.

One of these is the open banking initiative, taking effect from January, which is already heavily influencing the latest improvements and collaborations. We can no doubt expect to hear a lot more of how firms are working to create more open and secure flow of data, and of how this will enable small businesses to source the most suitable loans or business accounts for them.

Another influencing factor will be the GDPR, coming into effect in May. This will see focus shift towards data protection and increased security measures to protect sensitive and personal customer information. The GDPR also places emphasis on customer consent for companies to hold their details, and making sure that customers are fully aware of what data they are providing.

Following a tech-focused Autumn Budget, we may also hear more on the topic of artificial intelligence, and how this technology could potentially support the commercial finance industry.

In addition, with blockchain technology slowly making its way into the banking and financial ecosystem in 2017, it is likely we will be hearing of new methods and practices based on this innovative solution in the new year too.

NACFB Magazine | 41

Industry | guides Insider tips from the Association’s Patrons and Members

Purchase finance: to the rescue of perishables Anthony Persse Director of strategy Ultimate Finance

T

rade finance has long been an attractive product to brokers and their clients, enabling businesses to purchase the stock they need without having to find the funds to pay suppliers upfront.

But one thing that has always seemed like an anomaly to me is the absence of purchase financing options for perishable goods, such as food. Typically, businesses are not able to secure funding to support the purchase of perishable goods or raw materials without collateral for security.

This is a challenge that has had particular impact on the food and agriculture sectors, which have already been hit with a range of challenges such as a weak pound, steep competition and increasing costs of distribution.

We have recently launched a unique new product, purchase finance, designed to address this gap in the market. It will enable small business owners to fund the purchase of goods – including perishables and raw materials – to support their supply chain and cashflow.

This new funding product is completely unsecured; we do not even seek any personal guarantees, which many similar solutions would

42 | NACFB Magazine

demand. Instead, we will consider the financial strength of that business.

The product no longer needs to be accompanied by invoice finance, and it covers any type of stock purchase, including work-inprogress as well as raw materials and perishables, which is not the norm. It can also support retailers.

Some key points that brokers need to know when sourcing this type of finance: sual funding amounts can range • ufrom £25,000 up to £2m, with rates

Supermarkets and large retailers have long held the strings in the food supply chain. Small food producers frequently have to battle with unpredictable payment terms from debtors and margin pressure from large retailers.

While the big players benefit from cash and have the power to squeeze supplier prices, small producers and farmers can often operate handto-mouth, without access to better terms. Purchase finance addresses this by enabling businesses to pay their suppliers directly, using a funding line from Ultimate Finance.

starting from 1.5% per month here are no set-up fees and, with • tpre-authorised limit approval, funding can usually be in place within a week epayment terms are at an agreed • rdate, up to 90 days.

The reason behind the launch of this product is that – quite simply – the food and agriculture industries are tough markets even for the best players, and especially for smaller businesses.

According to data from the Office for National Statistics, food businesses accounted for 12% of business ‘deaths’ in the past year. With over 6,000 food and drink manufacturing SMEs in the UK, such a failure rate costs potentially thousands of jobs as well as significantly denting economic productivity.

It has never made sense to me that small businesses dealing in perishables and raw materials – such as food – haven’t been able to access funding to grow. We all need food; it’s fundamental to life, and yet those producing grocery items are being stifled by oldfashioned finance models offered by traditional lenders and so-called ‘alternative finance’ providers.

In an age of big data and nextgeneration risk software, there is no longer a reason why financiers can’t offer good funding solutions to any thriving business. We have already seen the positive impact that purchase finance can have on an operation during our product pilot, and know that there is huge potential for businesses of all shapes and sizes to benefit from fast, flexible and fair access to funding.

The loan for one project that provides funds for the next Our new refurbishment bridging product is ideal for investors who want to purchase a property, carry out light refurbishments* and then release their investment quickly to move onto the next project.

• Loans from £26,000 to £5,000,000 • LTV up to 75% • Flexible terms For more information call 0161 933 7103 or visit togethermoney.com/intermedaries

This advertisement is intended for professional intermediary use only and must not be distributed to potential clients. * Light refurbishment includes the replacement or refurbishment of kitchens and bathrooms, rewriring, decorative attention or internal re-configuration. It does not include anything that requires planning permission or structural changes.

guides

Unfair practices in the leasing market Peter Williams Director Oxford Funding Company

I

believe some lease finance funders are going to come unstuck with the FCA on their end of lease practices. Current practice involving secondary rentals and equipment sale is – in many cases – now contravening the FCA requirement to treat customers fairly (despite what the law might allow them to do).

Lease finance is a welldefined product. It is an ideal vehicle for lenders and for borrowers.

However, some lenders (lessors) seek to unfairly make extra profit from their customers (lessees) at the end of the lease, which is legal, but unexpected and unforeseen by the lessee.

When leasing started, it was the norm for the asset leased to have a foreseeable and agreed residual value. As such, secondary rentals and agreed residual values were fine. They were expected by both sides – they were built into the figures.

44 | NACFB Magazine

Now the norm is changing.

More and more assets have little residual value to the lessor. The norm now is for the lessor to look for their capital and their required return back through just the primary rentals, so there is no reliance on secondary rentals or the asset’s residual value to make the required return. This is now more commonly the position of the lessor and is the understanding of the lessee.

The norm now is for the lessee to agree the primary rentals and then to expect the lessor to sell the equipment at the end of the primary period, for a minimal fee, to a third party nominated by the lessee. Alternatively, to sell the equipment at its market value and for the bulk of the sale proceeds to be rebated back to the lessee as a rebate of rentals.

What is wrong and contravenes treating customers fairly (TCF) policy is when – having

agreed the primary rentals and having no reliance on secondary rentals or residual value – the lessor tries to extort further, unforeseen income from the lessee by taking secondary rentals or by seeking to place a value on the equipment at the end of the primary rentals – and looking to make the lessee, therefore, pay more than they expected or agreed.

The lessor is operating within the law and terms of the lease, but they are not treating the customer fairly.

What we need is for lessors to stick to the terms of the lease, but to also put more effort into making sure they are working in the best interest of their customers.

Secondary rentals Lessors must stop unfair secondary rental practice such as: equiring the lessee to • Rgive impractical notice they don’t want to go into secondary rentals.

For example, saying notice has to be in some

unreasonable form and has to be served in some unreasonable fashion, rejecting emails as unacceptable, rejecting letters that are too soon/ too late/don’t have the right wording etc. These are done to specifically enable the lender to charge one or more secondary rentals. putting • Atheutomatically lessee into secondary rentals even if the lessee said at the start of the lease they wouldn’t be taking that option at the end of the primary rentals. quiet about • Ktheeeping end of the primary lease period, hoping the lessee doesn’t notice the secondary rentals going out.

Sale of the equipment The law here has to be followed. This requires that the equipment at the end of the lease has to be sold to a third party, not the lessee, and at the market value of the equipment.

guides

Keeping score So what have lenders got to do to avoid a claim of unfair practice?

However, the lessor will again be in contravention of the TCF policy where: is placed on the • Akitvalue by the lender, not based on what it could be sold for, but on the inconvenience to the customer and indeed where the lessee quite rightly understood the lessor would place no value on the kit at the end of the primary rentals.

So a telephone system could be valued by the lessor at a high figure, whereas in reality, if it was removed and sold, it would have no value. here the kit does have • Wa genuine value. When sold to realise that value, the proceeds should go back to the lessee as a rebate of rentals. Lenders sometimes do not offer this and even when it is in the terms of the lease, they occasionally do not inform the client that they are entitled to the rebate.

What contravenes treating customers fairly policy is when the lessor tries to extort further, unforeseen income from the lessee

need to wake up • Ttohey their real position, which is that they are entitled to their return from the primary rentals, but nothing else – any residual value in the equipment has to go back to the lessee (unless specifically agreed that there will be residual value and/ or secondary rentals). should get from • Ltheessors lessee their specific instruction as to what they want to do at the end of the primary rentals – don’t leave it to the lessee to tell them.

If necessary, have this in the original lease so it is plain from the start what was agreed.

the default action • Monake the lease the transfer of title at the end of the primary rentals at a nominal fee – unless specifically agreed with the lessee otherwise.

As brokers, we find that not only will our clients refuse to take finance from those lenders who treat them unfairly, but good lenders suffer with the bad ones. We have clients who won’t use lease finance because they think they will be turned over by the funder at the end of the primary lease term. It’s a shame as we lose business, funders lose business and our clients miss out on such an excellent way of funding their needs.

the emphasis back • Ponutthe lessor to act in the customer’s best interest at all times.

NACFB Magazine | 45

Opinion | & commentary Thought leadership from our Patrons and Members

Average bridging term? Perhaps not all it seems Jonathan Sealey CEO Hope Capital

A

recent report claimed the average bridging term has been getting longer over the past few months.

According to the report from Bridging Trends, the average duration of a bridging loan is now 12 months. This is more surprising when we consider that the classification of a bridging loan has for many years been a short-term loan of up to 12 months. So while it is entirely feasible that terms are getting longer, the figure of 12 months must depend very much on the sample of lenders contributing to the survey and is unlikely to apply to the bridging market as a whole.

There are a number of things that are likely to be contributing to this apparent extension in time, however. We are, of course, in a constantly changing market with a growing number of bridging lenders competing for space. Such a dynamic market naturally attracts entrepreneurs, which contributes to the evolution of the market as both new entrants and existing lenders look for that next niche to branch into.

One of the innovations rising from that has meant a growing number of lenders offering bridging loan terms for up to 48

46 | NACFB Magazine

months rather than the more traditional six to 12. Therefore, at its most basic level, the apparent increase in bridging terms may not be due to all lenders extending their term; in fact, most bridging lenders may still offer terms below 12 months. Rather, a few lenders now offering 48-month loans will increase the overall average if included in the mix.

six months. This gives them more time to achieve their exit and help prevent them going into default. If they do manage to sell or refinance in a shorter period of time, they can always pay their bridging loan off sooner, but a slower market and more cautious long-term lenders are both contributing to slightly longer terms – if only to six months, not to 12.

Averages can show an interesting picture – after all, the average house price across the country is skewed by the London area having prices of almost four times the average without London included, and let’s not forget that we only need one person with fewer than two legs for the result that, on average, the human race has fewer than two legs.

Another factor may be lenders’ discretion.

Whatever a lender’s stated terms, they may well go outside of their usual parameters for an experienced borrower who they know well. This can be on LTVs, but may also mean a longer term if the project warrants it and the lender’s permissions and tax position allow it.

There are, of course, other factors that contribute to the term of a loan which may result in a longer loan period. The key element of any bridging loan is the exit route. Any sensible lender only wants to lend against a property or a project with a realistic exit, achieved in a realistic period of time.

The market is tighter at the moment, so both a sale and refinancing is taking longer. If any borrower comes to us at Hope Capital now and says that they will sell or achieve a refinance in three months, we will usually advise them that this is unlikely and it is usually in their interest to take their loan out for a longer period of time. Usually, we would recommend

Then there are the other, more nebulous factors, which mean that term length will differ for different borrowers – things like LTV, credit status of the borrower, whether there are any further advances on the loan as well as the experience of the borrower.

All of these things will affect not only the pricing, but the term of the loan too. For example, a more experienced borrower may be able to turn a project around much more quickly than an inexperienced one, and is likely to provide more realistic timings.

Ultimately, it is unsurprising that the average bridging loan term may be getting slightly longer, but it would be interesting to see the figures for the whole market to see if the average bridging term is indeed a year.

Finance for the Future If you are active in the market, you’ll know that the financial needs of your clients has changed in line with market forces. Everything is much faster and decision making has become equally as fast to keep pace with the opportunities that ambitious businesses are faced with every day.

need it. This means brokers can prearrange the level of funding required to complete a deal, without interest charges to the client until they actually need the funds.

This can make all the difference, if an unexpected cost comes in, say for example a property deal, where the valuation changes or there are surprise cost such as reparation fees, extra VAT, stamp duties or legal and agency fees.

Rather than lose the deal, brokers can now arrange a top up fund through Just Cashflow.

The legacy systems of the traditional banks often mean that they cannot be as responsive and deals are lost through inertia or red tape. That’s why clients turn to brokers to help them navigate the ever increasing array of alternative funding sources. Today we look at Just Cashflow as one of those.

John Davies, Director at Just Cashflow says “Our approach means that on average funds can be released to a client in around 3 days and this can make all the difference when closing a deal, especially when an unaccounted cost suddenly appears at the close.

With our personalised support we can help brokers get more business, which

Set up to provide growing UK businesses with fast flexible funding, Just Cashflow offers what they call a “Revolving Credit Facility” (RCF).

Ranging from £10,000 up to £500,000, you only pay for your fund if you draw it down and only for as long as you

in turn can only help their clients do the same.”

There are a number of ways clients can access their funds, either by having it paid directly into their existing bank account or made available on a pre-paid Just Cashflow Business Plus Mastercard® Card for all those day to day expenses.

The speed and flexibility of the Just Cashflow Revolving Credit Facility really does set them apart and gives us all confidence about finance for the future.

To find out more about Just Cashflow and how, by partnering with them, they can support the business growth of your clients in the longer term, why not talk to Wayne direct on 0121 2276450.

He will be more than happy to help you get more deals across the finishing line.

Get your clients across the finishing line As a professional broker or intermediary you’ll be used to seeking fast and flexible funding for your clients.

Just Cashflow knows that every business is different and we are able to offer you tailored financial solutions to meet the requirements of your clients.

Our Revolving Credit Facility gives you access to funds from £10,000 to £500,000, for ambitious businesses, to support their continued growth.

You will find the application process really simple and straightforward and our underwriting team will support you, to help ensure you get even more clients across the finishing line.

Just call us now

0121 418 5037

Alternatively, find out more

justcashflow.com/partner

Patron Member FS668057

BCMS668054

Just Cash Flow PLC is registered at 1 Charterhouse Mews, Farringdon, London EC1M 6BB under Company number 08508165 © Just Cash Flow PLC 2017

opinion & commentary

ten years on Celebrating the 10th anniversary of Key Commercial Finance, director Tony Newham shares 10 lessons he learnt throughout the years of building and managing his business.

I

t’s August 2007. Queues are forming outside Northern Rock. The first signs of the financial chaos – which would knock the world sideways over the years to come – are taking shape. And after 28 years with HSBC, Tony takes the plunge to leave the bank and set up his own commercial finance business.

At the time, Tony was a local head of commercial banking in the £1m-30m

48 | NACFB Magazine

segment with responsibility for £400m of assets. Tony saw the gap in the market for a professional, knowledgeable and ethical firm to fill the space that was then already starting to emerge in the provision of commercial and property finance.

want to end up like many colleagues – counting the days down to retirement, while under increasing pressure and stress at the bank”. It was to be the start of a second career, using his skill and experience acquired since entering the bank at the age 18.

With no redundancy package and still on good terms with the bank, Tony left HSBC. Why? Because “he didn’t

Initially starting from home in October 2007, Tony acquired offices after only six months.

opinion & commentary

Look professional, behave professionally and people are more likely to buy you, and buy from you. Simple as that. The team at Key are all trained to behave and project ourselves in a manner associated with the bank managers of old. A smart office was an integral part of this.

In October 2008, Lehman Brothers had just filed for bankruptcy. The financial crisis was nearing its peak. And after only one year, Tony took on his first member of staff, Helen.

Good timing? Tony knew Helen well, having worked together previously at the bank. She could be completely trusted, and behaved in a way consistent with the standards and requirements of the business.

Take on the best staff that you can afford. Indeed, take on people that are better than you in many regards. Do not take on clones of yourself if you want your team to be well balanced.

In 2009, following the failure of Lehman Brothers, the world seemed to spin more slowly.

Enquiries dropped, and the banks stopped lending. And Key had more overheads as well.

Fortunately, in his early days, Tony had built up some cash, enough to cover his costs for more than six months without income. While it was a worry, Tony was able to trade through that difficult year.

Always keep a good financial buffer – don’t rely on overdrafts. When the going gets tough, many lenders may withdraw that overdraft. To this day, our policy is to keep enough cash in the business so as to cover several months overhead to help guard against the unexpected.

NACFB Magazine | 49

opinion & commentary

January 2010 was as if the tap had been turned on again – at least a little. Tony recalls January that year, when more enquiries started coming, and the business felt like it had turned a corner. More bridging lenders were arising as people sought higher returns on their savings. This continued into 2011 with more lenders and more enquiries. The worst seemed to be past, and the market was undersupplied with good brokers as many had ceased trading during the recession.

Within a short time Tony recruited a further manager. He amended the dreaded employment contract to make it more userfriendly, and that was really the start of an expansion which has steadily continued to the present day. The same year he also took on his first “licensee” – a manager dedicated to the business but treated as self-employed.

By late 2012 the small offices were starting to feel a little constrained. The business purchased its own building near the centre of Huddersfield. This provided enough space for the present, and for some time in the future (or so Tony thought).

We have attempted to expand the business into new products and services over the years. We collaborated with a well-known card processing provider to cross-sell their services. We would hasten to add that this was not just making introductions, but actually doing a lot of the work towards setting up facilities so a great deal of learning was required, some of which we paid to for.

The reality is, again, that the vast world of commercial finance and business is enough for most people. Trying to actively promote card processing services as well (as opposed to simply referring existing commercial finance clients) was a step too far and took one’s eye off the core business.

Take opportunities when they arise.

The prudence that got me through 2008 and 2009 probably played against me in later years.

Business continued to improve and Tony was busy. He recruited a new staff member, whom he knew from the bank, and who seemed keen to work for Key. A solicitor was employed for drafting the contract. After three weeks in the business, it turned out the new staff member had consulted a lawyer of his own to review it, who pulled it to pieces.

Our lawyer, however, held firm with her views on employment contract requirements.

Don’t let lawyers effectively take over your negotiations with anyone; it will cost you much money and time. The new employee left the business – a “lose-lose” outcome I think is the saying.

Don’t let failure knock you back. Work on being resilient. Resilience is often cited as one of the most important qualities of people in business and I wholeheartedly agree.

50 | NACFB Magazine

If you can do so, always buy rather than rent, even if it stretches you financially. Paying rent is money down the drain.

The business has continued to grow and revenues increased. The team expanded to 14 through the next few years. In our haste to grow, we experimented with team members who did not have a solid commercial finance background, but were keen. The world of commercial finance is massively diverse and complex, and those who do not have a track record and experience in it often struggle to gain traction. We took on a couple of people over the years with insufficient experience who have since left. They wrote little business, and were probably not credible to their clients and other introducers with consequent potential impacts on the reputation of the business.

Training and experience is essential to succeed in commercial finance broking, preferably via time spent in a professional environment such as a bank. One can expend huge amounts of time and effort in supporting those who have insufficient experience and knowledge and still not succeed with them.

Stick to what you are good at. Avoid the temptation to try and be all things to all people. You will never be an expert at any one of the services you offer if you try to offer too many.

This is the big one, and takes us back to the start of this piece. If you are unhappy or can see an opportunity, take it. Life is too short to toil and labour at something which is stressful or not for you.

Tony wanted to have a second lease of life and do something exciting. There must be a mix of prudence however. Tony says he planned his new enterprise over the course of a year or so, considering options, studying the competition and saving money to provide a financial cushion. So – do what you want to do, but plan carefully for it. Leaving a good salary job is like jumping off a cliff into the unknown. But with good planning and preparation you can put a big bouncy cushion at the bottom of it, so you land softly and quickly rebound.

Portfolios without the heavy lifting Here at Precise Mortgages we’ve kept our portfolio process simple to save you time.

No system changes, apply in minutes Online calculator gives an indicative assessment of whether a portfolio meets our criteria Our three simple forms make it easy to capture additional portfolio information, but we accept this in any format Dedicated Portfolio Team to key all additional information into the system on your behalf

Contact your local BDM 0800 116 4385 precisemortgages.co.uk

FOR INTERMEDIARY USE ONLY.

Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549).

Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.

01848 (1)

Get in touch

The portfolio assessment is valid for 6 months to make subsequent applications easier (where the information is still up to date)

Specialist banking with a bright perspective

Asset Finance I Bridging Finance I Development Finance I Professional Lending I Specialised Mortgages I Structured Finance

Call us today 020 7190 5555 www.utbank.co.uk

we understand specialist banking