NACFB Magazine - June 2017 by NACFB

Issue 47 June 2017

The magazine for the National Association of Commercial Finance Brokers

Uncharted territory

Where is financial regulation heading next?

In this issue

Supply shortage drives market

The new focus points

What defines a challenger bank?

Examining transaction volumes against house price growth in the UK

Emerging key terms in comparing commercial property lending criteria

The expanding specialist sector, key players and disruptors

Welcome | NACFB

Development redeveloped Development finance from 6.5% pa

This is my first chance to write a welcome for the NACFB Magazine. I’ve watched for the past three years as the magazine went from four issues per year to a monthly publication. It has grown into a really good way to bring our Members a lot of information, and testimony to how active our Patrons are is that there are always new products and information to share with you. Some of you will be picking up this issue for the first time at our Commercial Finance Expo, in which case the scale of the venue will already have primed you for the number of lenders who support our Association. Other readers will have been with us for many years. Membership criteria have not changed; what has changed is the number of additional benefits and opportunities we offer to Members. Are we offering the right services? The magazine is one of the ways in which we get in touch with you, but our doors are always open to your opinions.

sales@octopusproperty.com 0800 294 6850 www.octopusproperty.com Octopus Property is the trading name of Bridgeco Ltd (Reg No 6629989), Fern Trading Ltd (Reg No 6447318), Nino Ltd (Reg No 9015082), Rednel Ltd (Reg No 7531926) and Octopus Co-Lend Limited (Reg No 8913299), Registered Office: 33 Holborn, London EC1N 2HT, registered in England and Wales and Dragonfly Finance S.ar.l. (Reg No B189290) Registered Office: Parc d’Activité Syrdall, 6 Rue Gabriel Lippmann, L-5365, Munsbach, Luxembourg registered in Luxembourg. Rednel Ltd and Octopus Co-Lend Limited are authorised and regulated by the Financial Conduct Authority.

Look out for our annual survey in the near future. We really do want to hear from you and value your participation. Every request, opinion and vote is a brick in the bridge we’re continuing to build between brokers and funders. Best regards, Norman Chambers MD, NACFB

Norman Chambers MD NACFB

In this June issue NACFB News 4 6-7 8

In the news Meet the Experts Notes from our sponsor

Commercial Finance 10-11 Essential news bites

Top Story 12

Gener8 to become integral part of new commercial finance division

Introducing 14

Aldermore launches innovative addition to brokers’ portfolios

Case Studies 16-17 Lenders collaborate to support business acquisition 18 Landmark pub changes use for complex family business 20 How to approach a £30m planning gain proposal 22 Confidential invoice discounting solution replaces bank line

Cover Story 24-27 Uncharted territory - Where is financial regulation heading next?

Patron Profile 28-29 Pan European Asset Company

Ask the Expert 30

Rob Straathof

Spotlight 32-34 FUTURE: PropTech

Special Features 36

Bringing intangible assets to the foreground 38-40 Supply shortage drives market growth 42-43 The benefits of a self-funded lender 44-46 What defines a challenger bank?

Industry Guides 48

The new focus points of commercial property lending 50-52 Making the right choices with selective invoice finance 54 Insurance-backed funding

Debate 56-57 What is the future of officeto-resi development?

Opinion & Commentary 58

Limited company BTL is adapting to changes 60-61 No guarantees when it comes to exits 62 P2P sector can benefit immensely from the battle for scale

For further information Robin Skuse, press officer t. 020 7101 0359 Hamilton House, 1 Temple Avenue London EC4Y 0HA Email: admin@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

Welcome | NACFB

Development redeveloped Development finance from 6.5% pa

Norman Chambers MD NACFB

In this June issue NACFB News 4 6-7 8

In the news Meet the Experts Notes from our sponsor

Commercial Finance 10-11 Essential news bites

Top Story 12

Gener8 to become integral part of new commercial finance division

Introducing 14

Aldermore launches innovative addition to brokers’ portfolios

Cover Story 24-27 Uncharted territory - Where is financial regulation heading next?

Patron Profile 28-29 Pan European Asset Company

Ask the Expert 30

Rob Straathof

Spotlight 32-34 FUTURE: PropTech

Special Features 36

Bringing intangible assets to the foreground 38-40 Supply shortage drives market growth 42-43 The benefits of a self-funded lender 44-46 What defines a challenger bank?

Industry Guides 48

The new focus points of commercial property lending 50-52 Making the right choices with selective invoice finance 54 Insurance-backed funding

Debate 56-57 What is the future of officeto-resi development?

Opinion & Commentary 58

Limited company BTL is adapting to changes 60-61 No guarantees when it comes to exits 62 P2P sector can benefit immensely from the battle for scale

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 June 2017

The Association’s new MD

orman Chambers has been made managing director of the NACFB. This position, part of a larger shake-up aimed at further accelerating the speed at which the Association can work, is in addition to the positions of secretary and deputy CEO, a role Norman will continue to fulfil in the temporary absence of a CEO.

Unlock the opportunities with a new lender.

Norman has recently joined the FCA’s Stakeholder Expert Group on Service Information. This group, meeting every two months, looks specifically at how service information affects SMEs.

Auction Finance Bridging Finance Refurbishment

On May 9th the NACFB’S MD attended the Lloyds Bank Business Development Professional Awards ceremony and, on May 10th, he was invited to the Asset Based Finance Association’s (ABFA) annual conference. Here the ABFA shared news of the digital trade chain, highlighted key Brexit issues and discussed SMEs’ awareness of their funding options.

Pre-construction Development Finance Development Exit

Connecting with our Members

e’d be delighted if we could increase our reach among NACFB Members.

Sign up through any of our social media channels: we are on Twitter (@NACFB), Facebook (@NACommercialFinanceBrokers), and LinkedIn (NACFB).

Award-winning property finance, made to measure.

Following us on any of these platforms only takes a moment to set up, and really helps promote awareness of what the NACFB does.

Updating our road map

Accelerate your next case today. Call 020 7118 1133 or visit intermediaries.lendinvest.com, your dedicated lending resource.

full update on our road map is being carried out as we are now three-quarters of the way through the period covered in our calendar of commitments.

In the press

he Sunday Times, Reuters, the Daily Mail, Business Standard, AM Online, Car Dealer, Business Advice and the Telegraph have all namechecked and featured content from the NACFB during the period of mid-April to mid-May. .

LendInvest is registered at 8 Mortimer Street, London W1T 3JJ (Company No.08146929), and is authorised and regulated by the FCA, no FSCS. Your property may be repossessed if you do not keep up repayments on your mortgage. For intermediaries only.

4 | NACFB Magazine

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

The Association’s new MD

Unlock the opportunities with a new lender.

Norman has recently joined the FCA’s Stakeholder Expert Group on Service Information. This group, meeting every two months, looks specifically at how service information affects SMEs.

Auction Finance Bridging Finance Refurbishment

Pre-construction Development Finance Development Exit

Connecting with our Members

e’d be delighted if we could increase our reach among NACFB Members.

Sign up through any of our social media channels: we are on Twitter (@NACFB), Facebook (@NACommercialFinanceBrokers), and LinkedIn (NACFB).

Award-winning property finance, made to measure.

Following us on any of these platforms only takes a moment to set up, and really helps promote awareness of what the NACFB does.

Updating our road map

Accelerate your next case today. Call 020 7118 1133 or visit intermediaries.lendinvest.com, your dedicated lending resource.

full update on our road map is being carried out as we are now three-quarters of the way through the period covered in our calendar of commitments.

In the press

4 | NACFB Magazine

NACFB NEWS

Meet the Experts again in 2017

fter the success of last year’s Meet the Experts seminar theatre, we’re returning for a second year with a full schedule of educational and informative talks from individual experts. We have chosen a diverse range of individuals and businesses to ensure that there is something of interest for everyone. There is the opportunity to hear from government agencies, from those with unique lending products and our own training platform, MyNACFB. Whether you manage to get one of the seats available or just lean over the wall and listen to part or all of the presentation, a visit to the Meet the Experts stage is certainly worthwhile. Peer-to-peer lender Kuflink is sponsoring this year’s Meet the Experts, and will be opening the seminar programme on the day. 11.40-12.00PM

12.10-12.30PM

1.30-1.50PM

2.00-2.20PM

2.30-2.50PM

Peer-to-peer lending

Working with intermediaries

CPD and beyond

Brexit risks to development funding

Exporting is GREAT

Kuflink, the award-winning peer-topeer company, introduces you to our unique offering.

The British Business Bank will give a broad outline of how we work to unlock finance for smaller businesses, specifically with a focus on our Enterprise Finance Guarantee and Enable programmes.

An interactive session designed to enable you to see how we are continuing to develop the MyNACFB platform to ensure you are kept up-todate with the latest developments, can study for qualifications, have facts and figures at your fingertips and instantly update yourself on what is going on in your marketplace. But we don’t just want to talk at you – instead, we want to hear your views and would be delighted if you would take this opportunity to tell us what else you would like to see on your very own CPD platform, so that we can work together to ensure MyNACFB provides you with all you need to develop today and in the future.

With Brexit comes uncertainty as the honeymoon for some and mourning for others passes. So what are the challenges that face our industry and property development clients?

The UK needs new exporters. They are vital for the success of the economy and boosting exports is crucial to strengthening the UK’s trade performance. ‘Exporting is GREAT’ aims to inspire and support more exporters in the UK. This session will introduce you to the campaign, how it can help your customers grow their business and how UK Export Finance supports that growth.

Kuflink – Tarlochan Garcha

British Business Bank – Bernie Skivington

Don’t forget

we’re in a new venue:

Hall 3a, NEC, Birmingham Doors open at 9.30am

My NACFB – Adrian Crowley

Mark, CEO of Go Develop and Ultimate Capital, with extensive commercial interests and significant shareholdings across some 20 companies in different finance and property sectors, gives an insight into the impact of wholesale, hedge and private equity funding challenges and the opportunities of a government strategy of turbo-charging infrastructure spend as a consequence of Brexit. He will also address the 20-year chronic housing shortage, the demographic time bomb of aging and downsizers’ needs, and the very positive impact for our industry if we embrace Brexit.

Department for International Trade – Patrick McCarron

3.00-3.20PM Royalty finance - innovative and non–dilutive permanent capital funding Capital Step’s non-dilutive, noncontrol solution provides an innovative, permanent capital alternative to SMEs seeking funding of £500,000 to £5m. The product is specifically designed to be more flexible than debt and cheaper than equity, with revenue-based returns linked to the performance of your business. The Capital Step investment process is quick, transparent and entrepreneur-friendly, with focus on creating long-term shareholder value. Capital Step – Jonathan Schneider

Go Develop – Mark Holden

6 | NACFB Magazine

NACFB Magazine | 7

NACFB NEWS

Meet the Experts again in 2017

12.10-12.30PM

1.30-1.50PM

2.00-2.20PM

2.30-2.50PM

Peer-to-peer lending

Working with intermediaries

CPD and beyond

Brexit risks to development funding

Exporting is GREAT

Kuflink, the award-winning peer-topeer company, introduces you to our unique offering.

The British Business Bank will give a broad outline of how we work to unlock finance for smaller businesses, specifically with a focus on our Enterprise Finance Guarantee and Enable programmes.

With Brexit comes uncertainty as the honeymoon for some and mourning for others passes. So what are the challenges that face our industry and property development clients?

Kuflink – Tarlochan Garcha

British Business Bank – Bernie Skivington

Don’t forget

we’re in a new venue:

Hall 3a, NEC, Birmingham Doors open at 9.30am

My NACFB – Adrian Crowley

Department for International Trade – Patrick McCarron

Go Develop – Mark Holden

6 | NACFB Magazine

NACFB Magazine | 7

NACFB NEWS

Notes from our sponsor Karen Bennett Managing director of commercial mortgages Shawbrook Bank

s we near the halfway point of 2017, it makes sense to look back at some of the key events that shaped our market in the first six months of this year. Lenders, intermediaries and customers alike were presented with a range of challenges to overcome – so how did we all do? January began with new rules around affordability which, when looked at in the broader context of a shifting tax regime, continue to have a sizeable impact on borrowers’ investment strategies. As a result, the average investor has a greater responsibility to grow their portfolios more cautiously than ever before, with yield and the interest rate horizon both primary areas of concern. Although this was a significant market change, Shawbrook has always adopted stringent criteria with regards to affordability, so with this new (and more level) playing field, the ability to deliver on service is now more important than ever. The above trends were echoed by the findings of our Q1 Client Barometer, a research piece that quizzes brokers’ clients on their property portfolios and thoughts on the year ahead. Promisingly, 81% felt confident that their property portfolios would perform well over the course of 2017. This feeling of confidence extends to property professionals looking to invest in BTL property, with two-thirds (66%) stating they plan to acquire an additional BTL during the first half of this year. Moreover, just under a third (32%) planned to set up a limited company for their properties – further demonstrating the attractiveness of special purchase vehicles going forward. We have already seen this trend and one of the main reasons for this increase has to be the mortgage interest tax changes which many see as the most penal of the recent interventions. Since interest costs will

8 | NACFB Magazine

no longer be deducted for tax purposes, many private investors will see their tax bills increase substantially, but as limited companies will not be affected by this change, many landlords are looking at incorporation. Specialist tax advice is the obvious route for borrowers, but we will be working with our broker partners to drive awareness in this area throughout the remainder of 2017. The NACFB appreciates the importance of education in the market, with over 135 lender Patrons loyally supporting intermediaries with thousands of different lending products and services. It is essential that we all maintain our commitment to the best interests of the customer, enabling positive outcomes while championing the role of the intermediary market. This approach will ensure growth opportunities for lenders, intermediaries and their clients alike. It is a positive yet realistic way of thinking and one that we can all benefit from in the long term.

Dates for your diary Commercial Finance Expo When: 21st June Where: Hall 3A, NEC Birmingham NACFB and Barcadia Commercial Finance Roadshows When: 17-20th October Where: East, various locations – to be confirmed

Award-winning short-term finance for property professionals Loans from £30,000 to £1,000,000 Rates from as little as 1%* 1st, 2nd and 3rd Charge Bridging Loans Our average turnaround is just 10 DAYS! Nationwide lending

AGM at the Park Plaza When: 30th November Where: Park Plaza Westminster Bridge, London Gala Dinner and Industry Awards When: 30th November Where: Park Plaza Westminster Bridge, London Business Product Innovation of the Year

kuflink.co.uk | 01474 33 44 88 *Rate subject to underwriting criteria. Your property may be repossessed if you do not keep up with repayments. This advert is for intermediary use only and not intended for consumers. Kuflink Bridging Ltd is fully authorised and regulated by the Financial Conduct Authority (723495).

NACFB NEWS

Notes from our sponsor Karen Bennett Managing director of commercial mortgages Shawbrook Bank

8 | NACFB Magazine

73% of SMEs put off by funding application procedure

Smaller businesses continue to face barriers to finance after 73% stated they found the funding application process overly long and painful. The results from SME lender Ashley Finance’s recent survey directly correlate to figures from the British Bankers’ Association, which showed a dip of £1.6bn in business borrowing from banks in February 2017.

Commercial Finance | news

CYBG to lend £6bn to SMEs Orca launches P2P comparison site

A new platform aimed at helping advisers and investors compare opportunities within the P2P market has been introduced. Orca – a data, research and analysis provider to the UK P2P lending market – created the platform to offer unique, standardised metrics to compare P2P investments. It also allows for due diligence on investments and benchmarking capabilities.

CYBG PLC is to make a minimum of £6bn available from 2017 to 2019 to help boost UK SME growth. The owner of Clydesdale and Yorkshire Banks will make significant amounts available through 2017, including £1bn to support day-to-day SME financial needs, £350m for growing medium-sized businesses, £200m for SMEs in agriculture and £650m to other key sectors that provide lending for major property purchases.

10 | NACFB Magazine

Members of the Peer-to-Peer Finance Association (P2PFA) have exceeded £8bn of cumulative lending following a strong first quarter of 2017. P2PFA platforms facilitated the origination of more than £1bn during Q1, with more than 180,000 investors and 420,095 borrowers participating by the end of the period.

17% rise in new SMEs

Hampshire Trust Bank has revealed that there has been a 17% increase in the number of new SMEs entering the market since 2010. Research conducted alongside the Centre for Economics and Business Research (CEBR) found that the biggest rise in new SMEs came in the technical and professional sector.

British Business Bank announces merger The Financial Services Compensation Scheme (FSCS) has announced its final levy for 2017/18 will be £363m, £15m less than it forecast in its Plan and Budget 2017/18 in January. The levy included management expenses of £69.2m, while the total amount is £26m higher than the figure for 2016/17 (£337m).

FSCS will levy firms £363m this year

P2P market breaks £8bn barrier

Lendy launches property market tracking tool

P2P platform Lendy has introduced a new tool for tracking key drivers of the UK residential property market. The Lendy Property Pulse will provide a snapshot of five indicators that influence the market, including expectations for interest rate changes and the gap between the planned government housebuilding target and the actual number that have started construction.

NatWest launches three-minute business loan applications

NatWest has announced the launch of a new online lending platform, allowing small businessess to fill out loan applications in around three minutes. Businesses will be able to borrow up to £35,000 and receive the money within 24 hours. The platform, to be rolled out this summer, will immediately show customers how much they can borrow after logging in.

Kuflink has received full authorisation from the FCA for its P2P platform. Part of the Kuflink Group, the platform is the sister company of Kuflink Bridging, the vehicle through which investors in Kuflink’s P2P platform will lend their money. Kuflink has been working with the FCA since 2016 to secure authorisation.

Gross bridging lending activity during Q1 fell by 5.5% compared with Q4 2016, according to the latest Bridging Trends data. Bridging Trends found that gross lending in the first quarter of 2017 reached £118.79m (Q4 2016: £125.66m). The Q1 result was also 5.23% down on the Q1 2016 gross lending figure (£125.35m).

Business lender receives £15m credit line

Boost Capital has secured a new £15m credit line from American investment firm Atalaya Capital Management. The facility will allow the lender to increase its funding to UK SMEs after helping thousands achieve their growth ambitions. Boost has expanded by 100% in the last two years and has recently moved to a bigger head office.

SME lender Fleximize has announced plans for expansion after successfully closing a new £16.3m financing facility. The funding – provided by Hadrian’s Wall Secured Investments Limited – will allow Fleximize to substantially increase its lending capacity amid plans to provide over £100m to SMEs by 2019. The lender also plans to further develop and diversify its product offering.

FCA grants lender’s P2P platform full authorisation

Gross bridging lending activity declines in Q1

The British Business Bank has announced a merger with government-backed lender the Start Up Loans Company. Both organisations will now collaborate to support micro-businesses and deliver the government’s manifesto pledge to provide 75,000 start-up loans by 2020. The merger follows news that the Start Up Loans Company had surpassed £300m of lending to businesses since launching in 2012.

SME lender secures £16.3m financing facility

Hackney Council to protect industrial spaces from PD

Hackney Council has introduced an Article 4 direction to protect buildings in the borough from permitted development (PD). Start-up light industrial spaces, including small breweries and design studios, will be protected from PD as developers will need planning permission before converting business premises to private housing. Lambeth, Wandsworth and Southwark Councils have all recently introduced new measures to protect buildings from PD.

Over half of SMEs not prepared for inflation changes

Council approves £30m investment in newly licensed bank

More than half (59%) of UK SMEs are not prepared to manage fluctuations in inflation despite recent rises. Basic costs for UK SMEs have risen by 3.2% over the last year compared with 1.1% in February 2016, according to Barclays’ Small Business Cost Index. The index found almost two-thirds (63%) of businesses would increase their prices if inflation rises again.

Warrington Borough Council has agreed to a £30m investment in Redwood Bank after the SME lender secured its banking licence from the FCA and PRA. The council also acquired a 33% shareholding in the bank’s owner, Redwood Financial Partners, in what the lender claimed is the first time a borough council has entered a partnership of this kind.

Together, powering UK businesses to grow With award winning service and over 30 years of expertise, Hitachi Capital Business Finance provides a flexible range of asset finance solutions – powering businesses of all sizes, across sectors and specialities. Asset Finance Block Discounting Stocking Invoice Finance

To power your business call us today

01784 227322

hitachicapital.co.uk/business-finance

NACFB Magazine | 11

73% of SMEs put off by funding application procedure

Commercial Finance | news

CYBG to lend £6bn to SMEs Orca launches P2P comparison site

10 | NACFB Magazine

17% rise in new SMEs

FSCS will levy firms £363m this year

P2P market breaks £8bn barrier

Lendy launches property market tracking tool

NatWest launches three-minute business loan applications

Business lender receives £15m credit line

FCA grants lender’s P2P platform full authorisation

Gross bridging lending activity declines in Q1

SME lender secures £16.3m financing facility

Hackney Council to protect industrial spaces from PD

Over half of SMEs not prepared for inflation changes

Council approves £30m investment in newly licensed bank

To power your business call us today

01784 227322

hitachicapital.co.uk/business-finance

NACFB Magazine | 11

Top | story Our pick of the latest Patron news

Gener8 to become integral part of new commercial finance division Oxfordshire-based invoice finance lender Gener8 Finance has announced the sale of its invoice finance services to AIM listed asset finance specialist 1pm Plc. The acquisition of the lender comes after 1pm exchanged contracts to acquire Tracx Finance Limited, including its whollyowned subsidiary, Gener8 Finance, with completion set for 7th June. Gener8 expects significant growth of its business with the backing of the larger specialist group, as well as increased product offering and access to funding. The lender also hopes to play a key part in 1pm’s new commercial finance offering. Joining 1pm Group, with its existing asset finance and loan product offering is an exciting move for Gener8, enabling the lender to deliver a far broader range of commercial finance solutions to both new and existing clients. We want to give greater choice, flexibility and value to business owners and believe we will offer a very attractive proposition in the competitive commercial finance marketplace. Despite the take-over, Gener8 reiterated to both its existing broker panel and clients that the change of ownership will have no impact on the day-to-day running of the business, stating it will be “business as usual” with the same levels of service and communication delivered to all which has helped establish Gener8 as one of the leading

12 | NACFB Magazine

independent providers of confidential invoice finance in the UK today. The broker community will remain a vital part of the lender’s new business strategy, with the ability to deliver packaged finance solutions, giving brokers and their clients greater flexibility and choice. Following completion of the acquisition, Edward Rimmer will head up Gener8 and the new commercial finance division, as it looks to expand with further acquisitions. 1pm launched a fundraising initiative of up to £13m in mid-May to fund the purchase of Gener8, with remaining net proceeds used to strengthen the company’s balance sheet, as well as to finance a further possible acquisition of an additional invoice finance business (with targeted completion in June 2017). Ian Smith, CEO of 1pm, said: “The successful fundraising to fund both the acquisition of Tracx Finance and the possible second acquisition, and the establishment of our new commercial

finance division together represent an important milestone in the ongoing development of the group and demonstrates the implementation of a key element of the group’s stated strategic plan. This is to continue to expand our offering to UK SMEs by adding adjacent financial products and services which are complementary to our existing asset finance and business loans portfolios”. Edward said: “1pm is well established and respected within the SME asset finance industry and I am relishing the opportunity to build the new commercial finance division. The division will help significantly expand the group’s business both by pursuing a wider range of new customers with a more diversified suite of products and by maximising cross-selling opportunities across the group’s other two divisions.” Paul Stokes Director Gener8 Finance Ltd

Top | story Our pick of the latest Patron news

12 | NACFB Magazine

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

Telling Architectural

Aldermore launches innovative addition to brokers’ portfolios

pecialist bank Aldermore has announced the launch of contract finance, a new offering for SMEs that provide services under complex contracts. The product is directed at businesses with an annual turnover above £250,000, allowing them to release working capital by advancing funds against their contractual billing. It offers a solution for cash flow problems or delayed payments to help avoid disruptions in the business. The offering comes at a time when an increasing number of businesses are outsourcing their supply chain services, such as IT or marketing – and offers a safety net against unexpected delays. Our new contract finance product offers a flexible working capital solution to businesses that provide services under complex contracts where staged or milestone billing is a feature. As any introducer who works with such businesses will know, these businesses can struggle to access finance because staged billing is often subject to future performance clauses – something that many lenders are not comfortable with.

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Our introducers, many of whom are NACFB Members, are already reacting positively to the launch of the product as it provides them with another means to help their clients free up the working capital they require to grow their businesses.

existing lender was not able to offer the financial support we needed to maintain our recent strong growth so we were introduced to Aldermore by one of our independent consultants. It was immediately clear that the bank would be the ideal partner.

Late payment is one of the biggest issues in the sector today, with over half of SMEs in the UK owed over £44bn in late payments and approximately one in five businesses owed over £25,000, according to the Zurich SME Risk Index.

“The team at Aldermore has demonstrated a strong desire to deliver a bespoke funding solution in a very short space of time and we found them extremely easy to work with throughout the deal. The specialist support from the bank has also supported our smooth transition to new premises, and we look forward to making 2017 the most successful year yet for Telling.”

Aldermore’s product allows SMEs to avoid waiting for customers’ payments, reducing delays in taking on new projects or providing payments to staff or suppliers. Funding is usually advanced within 24 hours, providing fast and timely access to cash. Contract finance has already proven successful for West-Midlands-based developer Telling Architectural, who agreed a finance facility worth £1m with the bank, which will allow them to meet their target of doubling their turnover of £5m in 2016 by next year. Mike Wood, managing director at Telling Architectural, said: “Our

News of the product comes after Aldermore announced changes to its commercial finance range in April and hiring chief risk officer Christine Palmer in mid-May.

Andrew Dixon Commercial director of specialist finance Aldermore

Residential development finance from £1m to £50m. At Zorin Finance we lend up to 90% LTC and 70% LTGDV. Far more than banks will, allowing you to work your capital harder. We’re fast and flexible too, with funds typically drawn within 4 to 6 weeks, ensuring you don’t miss out on a great deal. And with backing from leading financial institutions and over 150 years of combined workforce experience, you can rely on us to meet your funding requirements and understand your needs. To find out more about how we can help finance your next development, visit: www.zorinfinance.com or call 020 7650 1800.

Zorin Finance

A lender like no other

Zorin Finance is a provider of unregulated loans to corporate entities and private individuals. All loans to private individuals comply with the exemptions set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Zorin Finance is registered with the Information Commissioner’s Office, registration reference: ZA142270

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

Telling Architectural

Aldermore launches innovative addition to brokers’ portfolios

14 | NACFB Magazine

News of the product comes after Aldermore announced changes to its commercial finance range in April and hiring chief risk officer Christine Palmer in mid-May.

Andrew Dixon Commercial director of specialist finance Aldermore

Zorin Finance

A lender like no other

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

Lenders collaborate to support business acquisition As an independent invoice finance lender, we have a reputation for providing flexible cash flow solutions, helping businesses across the country grow and prosper. However, sometimes we come across situations where we have to think more creatively in order to meet our clients’ needs.

Paul Stokes Director Gener8 Finance Ltd

imilar to many other independent lenders, we do not have the range of traditional banking products that are at the disposal of a high street clearer. So, sometimes, we have to think laterally, collaborating with other independent lenders to achieve the desired outcome for our clients. The result of this approach is a complete win for the client who receives a bespoke, tailored solution that takes advantage of the best that the independent commercial finance marketplace has to offer. Gone are the days when the first port of call for most

16 | NACFB Magazine

business owners was the high street bank manager.

ne of our confidential invoice finance clients was looking to acquire a complementary business to deliver a step change in growth. Our client operates in the digital sector – an area in which we have particular

expertise. Because we understand the dynamics and challenges of this niche, we could generate a good level of cash from the combined sales ledgers to support the acquisition and fund the ongoing working capital requirements of the enlarged operation. However, the deal also needed an injection of £100,000 of term debt, something

… Our client received the funding required to make the acquisition, but also benefited from the collective expertise of two lenders that took the time to understand the business

that we as a non-bank, independent invoice finance lender needed to bring to the party.

that took the time to understand the business and worked together to deliver a tailored solution.

Working with a commercial finance broker, we sourced an appropriate P2P lender to deliver an injection of term debt. Working closely with the lender, we agreed a suitable security structure that gave us both the collateral that we needed. One of the major benefits to the directors of this collaborative approach was that they didn’t have to put up their houses or other freehold properties as security for the loan – something that one may expect from a more traditional lending source.

And, of course, the role of the commercial finance broker was invaluable in finding the right fit for this collaboration in the form of a P2P lender.

As a result of this approach, our client received the funding required to make the acquisition, but also benefited from the collective expertise of two lenders

owever, that wasn’t the end of it. As is the case with many strategic acquisitions, things don’t always go exactly to plan and we were able to provide a top-up advance to our invoice finance facility approximately six months after the deal completed, to enable the business to get through an unexpected cash flow shortfall.

more flexible, progressive and dynamic commercial finance sector in this country. At Gener8, we know our core strengths, but we are also happy to work with other independent lenders to deliver bespoke, tailored solutions for our clients. Integral to this whole process is the role of the commercial finance broker, working with lenders and businesses to create outcomes that would have been unheard of just a few short years ago.

With the credit crunch now a fading memory, one of its legacies has been a

NACFB Magazine | 17

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

Paul Stokes Director Gener8 Finance Ltd

16 | NACFB Magazine

business owners was the high street bank manager.

… Our client received the funding required to make the acquisition, but also benefited from the collective expertise of two lenders that took the time to understand the business

that we as a non-bank, independent invoice finance lender needed to bring to the party.

that took the time to understand the business and worked together to deliver a tailored solution.

And, of course, the role of the commercial finance broker was invaluable in finding the right fit for this collaboration in the form of a P2P lender.

As a result of this approach, our client received the funding required to make the acquisition, but also benefited from the collective expertise of two lenders

With the credit crunch now a fading memory, one of its legacies has been a

NACFB Magazine | 17

CASE STUDIES

It’s often the case that mainstream lenders can’t fund complex change of use or unmortgageable property projects

BUSINESS FINANCE

BUY-TO-LET

With over 30 years’ experience in asset finance, you can rest assured that our team will always be on hand to help drive your business forward.

Delivering buy-to-let solutions designed for professional landlords with complex requirements.

www.paragonbank.co.uk

www.paragon-mortgages.co.uk

CAR FINANCE

DEVELOPMENT FINANCE

We are specialists in motor finance providing products for cars, light commercial vehicles and motorhomes.

We offer competitive property development finance up to the value of £10 million in London, the South East and the Midlands.

www.paragoncarfinance.co.uk

www.paragonbank.co.uk

Landmark pub changes use for complex family business Simon Micklethwaite Business development manager Roma Finance

e cannot overstate the importance of speedy and efficient service when it comes to bridging finance. As awareness of this sector increases, we see a growing need for this from the customer side too. In one of our recent cases, Roma Finance, as a specialist bridging finance lender, moved quickly to provide funding for a family to purchase a landmark pub in West Yorkshire, from where they planned to operate their family business. The pub was to undergo a change of use, as the family found it to be the ideal property to run their complex business: a bathroom and interior design company, and tea room.

s in many cases Roma deals with, time was of the essence as the property needed a quick completion. Meeting with the customer forms a crucial part of Roma’s service. We do this to fully understand the transaction and to be able to structure the finance for the best possible outcome for all parties involved. The customer was

appointed a dedicated BDM who, after visiting them to understand their business plan, saw this as a viable project, even though the timescale was short to deliver the funds. With the customer being new to bridging finance, Roma helped them every step of the way to ensure they fully understood the transaction and to move all the required documentation along as quickly as possible. The BDM also explained how the bridging facility would work, and all the key points in relation to the loan. As the business plan depended on the property undergoing a change of use, the relevant planning permissions and building works were also taken into account. The customer needed the money quickly to ensure they didn’t miss out on this particular property, and Roma was able to provide the £200,000 bridging facility in just 14 days. The loan term was set at nine months, with the exit strategy being a refinance facility with their existing bank. Working with a customer who was a first-time bridging finance user, I was their dedicated point of contact for their requirements in order to facilitate a fast turnaround. The Yorkshire pub

was a very viable change of use project, and was just what the customer wanted to run their family business. The customer was delighted with the speed at which the finance was delivered and they were pleased with the high level of service myself and the team at Roma provided at each stage of the process.

e are seeing more cases like this in 2017 as the awareness of the many uses of bridging finance increases. It’s often the case that mainstream lenders can’t fund complex change of use or unmortgageable property projects and that’s where a specialist lender, such as Roma, is in a great position to help. When a good opportunity comes along, a fast turnaround is usually needed and, with Roma, cases can be funded very quickly with our slick processes and panel of valuers and solicitors on standby to act quickly when needed. With a flexible and professional approach, we work closely with introducers and their borrowers to provide solutions to help realise a property’s full potential. We are often referred to as a ‘broker’s lender’ because we get under the skin of every case to try to find a lending solution.

BPBF14282 (05/2017)

18 | NACFB Magazine

CASE STUDIES

It’s often the case that mainstream lenders can’t fund complex change of use or unmortgageable property projects

BUSINESS FINANCE

BUY-TO-LET

With over 30 years’ experience in asset finance, you can rest assured that our team will always be on hand to help drive your business forward.

Delivering buy-to-let solutions designed for professional landlords with complex requirements.

www.paragonbank.co.uk

www.paragon-mortgages.co.uk

CAR FINANCE

DEVELOPMENT FINANCE

We are specialists in motor finance providing products for cars, light commercial vehicles and motorhomes.

We offer competitive property development finance up to the value of £10 million in London, the South East and the Midlands.

www.paragoncarfinance.co.uk

www.paragonbank.co.uk

Landmark pub changes use for complex family business Simon Micklethwaite Business development manager Roma Finance

BPBF14282 (05/2017)

18 | NACFB Magazine

CASE STUDIES

How to approach a £30m planning gain proposal

A FS GROU P

ometimes the traditional path to identifying the right funding isn’t the best fit. Complex cases require a deeper understanding and more tailoring, and at United Trust Bank, this task falls on our structured finance team. They are the ones responsible for coming up with the right solutions for complex funding projects and taking a fresh approach to more intricate requirements. Gerard Morgan Jackson Head of structured finance United Trust Bank The team was approached by a broker representing an experienced property developer with an extensive portfolio of residential and commercial assets. The developer owned several commercial properties in west London which had the potential to be redeveloped into a scheme of six luxury town houses in a gated community with an estimated GDV of £30m. The commercial properties – now vacant – were previously used as a car showroom, garages, warehouse and offices. Although the developer had carried out considerable due diligence and planning work – including extensive communication with the local authority – he did not yet have the all-important permission for the proposed redevelopment to proceed. As it stood, the site was worth a fraction of what it would be should planning be obtained. Having committed a considerable amount of his own capital to the acquisition and planning costs – which included paying planning consultants, architects’ fees, valuations and other associated costs – the developer wished to be partially reimbursed for these expenses and in addition raise capital for a future acquisition. However, he did not wish to be restricted to using the funds to purchase a particular property, preferring instead to have liquid funds available for when the right opportunity arose. 20 | NACFB Magazine

ue to the lack of planning for the commercial properties, the structured finance team leveraged the client’s other assets. The proposed additional security properties comprised two BTL houses converted into flats. The developer had mortgages on both properties with the same lender, but the lender would not consent to a second charge being secured on them. As the mortgages were on advantageous terms, the developer was reluctant to refinance the facility, so UTB utilised an equitable charge on the properties to release the tied-up equity. Several meetings were held between the developer and members of the structured finance team, including me visiting the development site in west

Having committed a considerable amount of his own capital to the acquisition and planning costs … the developer wished to be partially reimbursed for these expenses and in addition raise capital for a future acquisition

London. After careful consideration, the bank agreed to make a £2.5m facility available in two tranches over 24 months: the first for reimbursement of planning expenses and the second once a suitable project property became available. The exit would be the subsequent arrangement of development finance potential funded by UTB, once planning permission had been achieved on the west London property. If planning was refused, the property would be sold to settle the loan.

e’re increasingly dealing with customers who have extremely competitive mortgages on their BTL properties and lenders who will not allow second charges to release equity. This is happening even in cases where the equity is considerably more than the security required. Their intransigence is almost certainly designed to encourage the borrowers to refinance and repay their entire loans because they would rather have their funds back than continue to lend to them at very low or even negative margins. Having recognised this trend, we have structured facilities where we take an equitable charge over a mortgaged security property or properties, a solution which is not reliant on the first charge lender’s permission. This is another example of the bank’s willingness to put together innovative and flexible funding for customers with complex portfolios, but straightforward requirements.

brokerinabox.finance WE’VE GOT YOU COVERED

STRONGER TOGETHER

visit brokerinabox.finance for more information Asset Finance Solutions (UK) Ltd and Synergy Commercial Finance Limited are an Appointed Representative of AFS Compliance Ltd, which is Authorised and Regulated by the Financial Conduct Authority under number 625035.

CASE STUDIES

How to approach a £30m planning gain proposal

A FS GROU P

brokerinabox.finance WE’VE GOT YOU COVERED

STRONGER TOGETHER

CASE STUDIES

Confidential invoice discounting solution replaces bank line

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Phil Chesham Sales & marketing director Positive Cashflow Finance

ositive Cashflow Finance was established almost 10 years ago. Over the years we have expanded our standard offering of invoice finance facilities of up to £1m to include the Positive Plus advance, which has enabled us to leverage additional funding over and above the client’s invoice finance facility when growth opportunities arise or, equally importantly, when times are hard.

It’s easy to lend money when all is well – the acid test for any funder, though, is how they handle the difficult situations. Our four founding directors have over 100 years of industry experience and those skills are evident when we are structuring these types of deals. Sudden uncertainty One of the larger deals we approved last year was to support a secondgeneration family business that manufactured office furniture. The broker-led introduction came to us after the client had been advised by their bank that, following a poor year’s trading, they were planning to withdraw the £250,000 overdraft facility – this despite a longstanding relationship spanning over 20 years.

We faced three specific challenges: 1.While the programme of redundancies and reduction in overheads had started to reflect the lower sales that were being achieved, the results would take time to filter through to the bottom line. As a result, the company was still loss making. 2.Nervous with their bank’s stance, the directors wanted to move the CID facility to an alternative provider, but needed to replace the overdraft at the same time. 3.With the turnaround programme in its infancy, cash was still tight, so the option of a loan to replace the overdraft with set monthly repayments was a concern to the directors. Filling the gap of the bank Recognising that it was a longstanding and fundamentally sound business, we agreed an £800,000 CID facility to replace the existing bank line and

also injected a £300,000 Positive Plus advance, secured on the company premises, which were valued at £500,000. This replaced the bank overdraft and provided a further £50,000 to ease cash flow and create headroom. The Positive Plus advance was agreed on an open-ended term, whereby the company only had to cover interest and a monthly fee for the first 12 months, at which point we agreed to sit down and review the position. Capital repayments from cash flow or the option to take out a long-term mortgage on the property would be a simpler proposition once profitability was restored. This approach helped relieve the immediate monthly cash pressure and enable the directors to spend more time concentrating on the turnaround programme. By establishing a sound understanding of how a business operates – warts and all – and equally importantly, the skills and experience of the people running the company, there are plenty of opportunities to support businesses in good times and bad.

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The same bank had also been providing an £800,000 confidential invoice discounting (CID) facility for over eight years – but while this ran well, the family had understandably become nervous following the bank’s unexpected decision to withdraw the overdraft.

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Association of Bridging Professionals 22 | NACFB Magazine

CASE STUDIES

Confidential invoice discounting solution replaces bank line

Market Financial Solutions Bridging with Finesse

WITH EVEN MORE FUNDING AVAILABLE, JOIN ONE OF THE UK’S FASTEST GROWING INDEPENDENT LENDERS

Phil Chesham Sales & marketing director Positive Cashflow Finance

INDUSTRY LEADERS IN COMPLEX LOANS

CMY

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RATES FROM AS LOW AS 0.75% PER MONTH TAILORED AND PERSONAL SERVICE

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Association of Bridging Professionals 22 | NACFB Magazine

COVER STORY

Uncharted territory Where is financial regulation heading next?

Since the introduction of the Consumer Credit Act (CCA) in 1974, commercial finance brokers have seen changes in regulation unfold year-on-year. With the increasingly complex web of regulation brokers deal with on a daily basis, now itâ&#x20AC;&#x2122;s more relevant than ever to look back at the past journey of the regulatory field and try to decipher what the future may hold.

COVER STORY

Uncharted territory Where is financial regulation heading next?

COVER STORY

Compliance still a challenge Compliance with regulation remains one of the main issues for commercial finance brokers today. Many companies had to familiarise themselves with increased regulation, as the number of firms regulated by the FCA rose from 27,000 to more than 70,000 at its launch. Complaints weren’t uncommon, due to lack of clarity on the type of permission brokers needed to operate. In 2014, a spokesperson for the FCA pointed out that “it is ultimately up to firms to decide what permissions they need to carry out their business as they are the ones who know what activities they will be undertaking”. Many were therefore left to their own devices to navigate the regulatory field.

The Office of Fair Trading (OFT) was formed in 1973 and set out to protect consumer interests throughout the UK. Similar to the FCA today, it issued licences to lenders carrying out regulated activity and, until April 2014, was responsible for overseeing compliance with CCA requirements.

Vera Sugar Editor NACFB Magazine

26 | NACFB Magazine

dditionally, in order to provide protection to consumers, it had the power to revoke companies’ licences if they had been deemed to treat customers unfairly or carried out a breach of the terms of the act. One such incident included the revoking of the licence of personal loan brokers Yes Loans in 2012 after it was deemed to have engaged in unfair business practices. In their 2013 report on regulating consumer credit, the Public Accounts Committee claimed the OFT had not been an effective regulator, relying on consumer complaints rather than taking a proactive approach to tackling malpractice. Margaret Hodge, chair of the committee, said the OFT had been “ineffective and timid in the extreme”, lacked proactivity and that it “doesn’t understand the market”. The new order Following three detailed consultations in 2010/11, the government published its Financial Services Bill in January 2012. This led to the creation of several new regulatory bodies, including the Financial Policy Committee at the Bank of England, the Prudential Regulation Authority and the new independent regulator the FCA. Soon after its take over from the OFT, it became clear the FCA would take a much more hands-on approach to regulation. Between April 2014 and April 2016, the FCA had determined over 30,000

To this end, an increased amount of existing consultancies and new companies made compliance with FCA regulation their sole focus after 2014. Bodies like the Association of Professional Compliance Consultants and the NACFB became increasingly relevant in helping keep the consumer credit sector as diverse and stable as it had been historically. applications for authorisation, including over 8,000 firms which were new to the consumer credit market. Over 1,400 firms had either been refused authorisation or decided to withdraw their application. In January 2017, the FCA took criminal action against an unlicensed consumer credit lender for the first time. The FCA also created the Consumer Credit Sourcebook (CONC), which includes old OFT and new FCA standards and guidance. The CONC touches on topics such as conduct of business, financial promotion, responsible lending and more. On the reception to date and the future of the FCA as a regulator, Roger Deane, managing director of compliance services at the NACFB, said: “The FCA has completed the authorisation process and will now move into the supervisory phase. Until we see some outcomes from this activity, it will be difficult to understand how well FCA regulation has landed within the sector across both brokers and funders.” A spokesperson from the Council of Mortgage Lenders commented: “The openness of the FCA to collaborative dialogue and positive engagement with lenders has been important in the smooth transition to new regulatory landscapes the past few years. For this, the industry is grateful. We hope the next five years will not have such a strong regulatory theme so the market can breathe, compete and innovate.”

Karteek Patel, CEO of Crowdstacker, noted that compliance is still an issue as it is subject to constant update and development: ”The key is for the industry to work in unison with the regulator, to anticipate regulatory needs and devise frameworks which are practical.”

Looking ahead With the FCA’s authorisation process completed, there remains the question of where the regulator might turn next and what its main focus will be in the years to come. Reflecting on potential future focuses for the FCA, Roger said: “A key area will be the way introduction of business to lenders is controlled and monitored in order to ensure the business introducer has the correct permissions and authorities to do so. Additionally, [another potential focus area is] the way in which suitability is handled. We might expect further direction to deliver … clarity in the areas of ‘regulated’ and ‘unregulated’ activities.” The Council of Mortgage lenders has said

Who can brokers turn to? In June 2014 the NACFB launched its compliance services to Members to provide help with the application process. Today, its renewed compliance division focuses on continued support for Members to remain in line with regulation. The NACFB is currently conducting compliance visits, providing one-to-one guidance on how compliant their Members’ businesses are at the moment and how they could improve still. The visit is based on the Association’s minimum standards that form part of its code of practice, and uses a scorecard to measure a firm’s compliance against these standards. Roger said: “It is important to note that the visit outcomes are designed to highlight areas requiring support and development, and to help broking firms understand how well they have adapted to FCA regulation.” Some of the NACFB’s Patrons also made significant contributions to assisting their broker partners, such as Hitachi Capital Business Finance, who launched their free comprehensive compliance service in May 2014, and Alternative Bridging Corporation’s broker seminars and roadshows, which it runs on a regular basis. Gavin Wraith-Carter, managing director at Hitachi, said: “Hitachi … have been proactive from the launch of the new regulations in training and offering support to [our] entire broker network. Support doesn’t stop when brokers receive their full permission. We it was hoping for the FCA to continue its dive into the study of competition: “… Working towards finding how borrowers can get the best deal is a worthy venture and correct future direction. Broad strokes are important for a successful market and we hope the study does not become too granular. Sticking to big themes and acting only where palpable detriment is identified will be the most constructive way forward.” Karteek pointed to transparency as a key focus, as well as advertising: “We know there are a few areas of P2P lending that the FCA is particularly focused on right now. For example, transparency is one of the key facets that makes our industry different, so the FCA is looking closely at disclosure.” “We’d like to see more discussion about consideration of marketing materials at a holistic level,” he added. According to Allan Kay, chief operating officer at Alternative, Brexit may

What areas are reviewed during the NACFB’s compliance visits? The Member and business Authorisation Data protection Trading arrangements Customer documentation Products and recommendations Broker culture Training and competence have held separate training events to look at ongoing reporting requirements and how brokers deal with the day-to-day impact of being a regulated finance provider.” He added: “We were the first and only funder to offer complimentary membership of the NACFB to our broker partners and have supported all efforts for their closer integration. We have continued this financial support to ensure brokers can continue to access and benefit from the extensive knowledge held and we look forward to a long and prosperous relationship with all.“

divert the attention of the regulator, at least temporarily: “With Brexit on the way, the government is likely to be otherwise engaged to further implement regulatory requirements.” Gavin, however, argued the FCA’s remit is already large enough: “… Taking on new areas and sectors could be challenging in the short term. The subject of commission disclosure within asset finance, in a similar vein to the insurance and mortgage industry, can’t be dismissed. However, providing our broker market remains fully focused on delivering good value and can evidence that they are working with the true spirit of treating customers fairly, our regulator may continue to feel there are much larger issues to tackle.” On the NACFB’s continued support, Gavin added: “We would very much hope that the NACFB continually assesses the needs of its Members and Patrons and its own collaboration and position in an industry that is vital to supporting UK SMEs.”

NACFB Magazine | 27

COVER STORY

Vera Sugar Editor NACFB Magazine

26 | NACFB Magazine

NACFB Magazine | 27

Patron | profile

Pan European Asset Company: dedicated to our broker partners By Mick Barber & Paul Bowden – Broker directors

Launched in January 2016, Pan European Asset Company (PEAC) may appear to be a relatively new company in the UK asset finance market, but it is built on strong foundations.

PEAC is now investing and accelerating to grow its presence in both the hard and soft asset broker market. PEAC combines fast, efficient soft asset finance expertise with an experienced and growing hard asset team. The company positions itself as a forwardlooking, flexible, modern asset finance provider without the constraints of a large bank owner slowing things down. Historically, in its former guise as CIT Vendor Finance, the company was well-known as a funder specialising in funding IT hardware, software and telecommunications equipment. The new owners, alternative investment management firm Highbridge Principal Strategies, have raised considerable capital and are focused on growing the business. A wider mindset has been adopted both in terms of asset classes and customer types. Broker specialisation – soft assets Aside from the traditional soft assets, the portfolio has diversified to include items such as office furniture, fit-

28 | NACFB Magazine

outs, catering, vending, security and audio-visual equipment. During this expansion the company has aligned with different broker partners to serve a wider range of customer profiles. Maintaining a first-class service offering has remained our core value, providing quick credit decisions through our online portal, same day payment and consistency in underwriting. The company has invested in Alfa Systems as a front, middle and back-office system and took this live on 1st May 2017. The enhancements Alfa will bring compared to the legacy systems will only see the broker service improve as the business grows. In 2016, the business funded over £100m but is still looking to expand the base of broker partners. While a new system can help manage the deals, this is also matched by additional staffing in sales and sales support based out of our Bracknell office. The soft asset broker team is managed by Mick Barber who carries a wealth of experience in this sector.

The business is well-placed to handle small to mid-ticket deals with an effective scorecard, bringing quick, clear decisions to the broker. Broker specialisation - hard assets As PEAC stands for Pan European Asset Company, it was essential for the business to finance both soft and hard assets. Paul Bowden joined PEAC in 2016, having successfully developed broker businesses for other asset finance houses. The company has and continues to hire specialist sales, underwriting and sales support staff to maintain a service level while acknowledging the different characteristics of the hard asset market and broker requirements. Initially focusing on the construction, transport and moveable hard asset sectors, PEAC will widen its market offering as the portfolio grows. Typical deals range from £10,000 up to £250,000 and both

regulated leasing and non-regulated business can be considered. In 2017, asset management capabilities will be enhanced and further sales resources put in place to fully utilise the capabilities of the new Alfa system and the capital available to the business. Real broker partnership Having invested in a new system, it was essential that this should enhance the introducer experience and provide a seamless transition from proposal processing through deal pay-out and portfolio management. Broker partners can operate on the same interface as our extranet tool – PEAC Partner – which ensures both broker and PEAC staff are speaking the same language when it comes to a deal. Behind the Bracknell sales and front office team sits an experienced, fastmoving service centre in Dublin which delivers a great service to clients, dealers and brokers once a deal is live.

PEAC Profile B2B asset finance and leasing provider Funding both hard and soft assets with dedicated sales and risk resources Committed to grow in the broker market following a 111% increase in 2016 Experienced teams at every step of the transaction process Flexible credit underwriting PEAC strives to deliver a fast, consistent, quality service with great communication and highly motivated staff. We want the broker experience with PEAC to be something different to the abundance of other funders in the market.

NACFB Magazine | 29

Patron | profile

Pan European Asset Company: dedicated to our broker partners By Mick Barber & Paul Bowden – Broker directors

Launched in January 2016, Pan European Asset Company (PEAC) may appear to be a relatively new company in the UK asset finance market, but it is built on strong foundations.

28 | NACFB Magazine

NACFB Magazine | 29

Ask | the expert Answers and help from among the most knowledgeable of NACFB associates

Responsible commercial finance lending Rob Straathof, CEO at Liberis, gives an overview on lenders’ and borrowers’ roles in creating a transparent marketplace

Q A

What does responsible lending mean for lenders?

For lenders, responsible lending means being actively conscious of the interests of both you and your customers. It’s as simple as that. And, ultimately, ensuring that the financial transactions you engage in are honest and sustainable for you both. At Liberis, responsible lending is something we are truly passionate about. When we’re underwriting business cash advance applications, we act responsibly by making certain the customer can afford to make sustainable repayments that won’t put their financial health at risk. We do this by speaking to them directly, and working hard to understand the needs of their business, beyond what we find written on paper. Really, a lot of responsible lending is just down to communication, and being as transparent as possible with our customer contact.

Q A

What does transparency include?

Transparency is all about clear communication, and ensuring that both the lender and the customer are well informed when making financial decisions. We do this by removing the barriers of unnecessary jargon and complicated constructs in our communications, and by being readily available to answer any questions our customers may have. The clarity here is a more responsible way to lend, as there is no risk of dealing with misleading information.

30 | NACFB Magazine

What does responsible lending mean for business owners looking for funding?

We would encourage all borrowers to make a genuine assessment of their business when making an application, because we’re doing the exact same thing. Of course, we’ll be checking the numbers but, as business owners, they’ve got to have confidence in the future of their company, too. Do they foresee any upcoming changes in the industry? Any new competitors? How will this affect their business? Most importantly, how do they plan to tackle these challenges?

Q A

What should borrowers do if they are faced with a ‘no’?

A huge part of being responsible when lending is knowing when to say no; and if we do so, it’s because we believe it’s the best decision for both parties. Finding the right lender can be tricky and being aware of available options and differences is important. This is often where commercial finance brokers can bring expertise to business owners. They have the information that business owners need to make sure they consider the pattern in which their business earns throughout the year, and their headroom for making the necessary repayments. Often, declines come from information held by credit agencies on both the business and the applicant themselves. Our underwriters use a variety of sources to make responsible, informed decisions, including commercial and consumer credit bureau searches. We

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.

research how the business is performing online in reviews, social media etc, as well as card terminal transaction history (as our repayments are in line with cash flow). We suggest reviewing all potential lenders before applying for multiple, different funding options as this can negatively impact your credit file. We have put together a free guide for businesses applying for credit, which can be found on our website, and we also provide several business credit resources which are freely accessible.

Q A

Do you see responsible lending growing as a practice in the industry?

With the right support from fellow finance providers, we would certainly hope so. Earlier this year, we did in fact begin to extend our best practice in responsible lending beyond Liberis, as a founding partner in the launch of the Association of Alternative Business Finance. This is an organisation, brought together by seven leaders in UK alternative finance, who share a common belief in adhering to best industry practice. Together we want to shape the development of the alternative finance sector in the coming years, and promote not only responsibility in lending, but transparency, fairness and security too.

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.

Ask | the expert Answers and help from among the most knowledgeable of NACFB associates

Responsible commercial finance lending Rob Straathof, CEO at Liberis, gives an overview on lenders’ and borrowers’ roles in creating a transparent marketplace

Q A

What does responsible lending mean for lenders?

Q A

What does transparency include?

30 | NACFB Magazine

What does responsible lending mean for business owners looking for funding?

Q A

What should borrowers do if they are faced with a ‘no’?

Q A

Do you see responsible lending growing as a practice in the industry?

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.

Spotlight Unmissable industry coverage

Good funding gets you equipment quickly Simon Saint, Nicole Bremmer, Barry Jessup and Lucian Smithers

FUTURE: PropTech

The multi-billion-pound industry of ‘digital transformation’

n 4th May the annual FUTURE: PropTech conference took place at Victoria House in London. All those in the know - including specialist proptech companies, solicitors, agents, traditional real estate companies, technology developers and many more - were invited to come together to listen and exchange views on what is an ever-changing and constantly developing sector. Held for the third time and attracting a record number of over 800 attendees, the conference’s agenda was ‘Corporate Innovation & Digital Transformation in Real Estate’, which touched on a wide range of topics

32 | NACFB Magazine

closely connected to the sector. These included commercial real estate, customer service, crowdfunding, internal processes and much more. With $2.6bn (approximately £2bn) invested into proptech only last year, the sector has demonstrated resilience and continuous growth so far. The overall theme of the event, however, seemed focused on the sector’s future, with lack of understanding and resistance to change highlighted as the main issues connected to the sector today. The first panel of the day – ‘Proptech: what you need to know’ – included

representatives from Knight Frank and FTI Consulting, as well as Christian Faes, co-founder and CEO of LendInvest, among others. This introduced the audience to some of the key discussions surrounding the sector today. Talking points included sustainability of growth, challenges to traditional real estate, as well as reception and uptake. “Steady momentum” and “upward trend” were both recurring terms throughout the discussion, and Christian praised a more gradual approach, calling for “evolution rather than disruption”. He added: “There are many years to go and this is just the early beginning.”

Ultimate Finance provides funding that’s fast, flexible and full of options. That includes our Asset Finance – which allows your clients to quickly get the equipment they need without paying the big upfront costs. And that does the world of good for British businesses.

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Spotlight Unmissable industry coverage

Good funding gets you equipment quickly Simon Saint, Nicole Bremmer, Barry Jessup and Lucian Smithers

FUTURE: PropTech

The multi-billion-pound industry of ‘digital transformation’

32 | NACFB Magazine

ultimatefinance.co.uk The world of good

SPOTLIGHT

Brokers Frustrated by Poor Lender Communication Proptech must be a mix of technology, processes and applications to best serve the sector today

Research has confirmed that commercial brokers’ major frustration with lenders is poor communication that leads to delays in getting their clients over the finishing line. Just Cash Flow PLC’s broker survey revealed that 46% of respondents felt extremely frustrated with not being kept informed of case progress, closely followed by 38% who felt equally frustrated by the inability to talk directly to lenders and experienced emails and calls not being answered. Just Cashflow director John Davies explained: “We don’t really need a survey to highlight the importance of good communication, but it is important to understand brokers’ frustrations. We are constantly looking to improve communication through the use of technology and good old-fashioned common sense.

Besides keynote speakers and panels, the conference hosted a wide range of proptech companies who had a chance to demonstrate their offerings – from virtual viewings to property management platforms.

T T

ransparency was another key topic – an area where proptech could be universally beneficial. Transparency around pricing and for borrowers to understand exactly what they’re signing up for were cited as major elements on the consumer side, especially in terms of the current housing crisis. On the business side, these included accelerated processes and better decision making. Additionally, panellists claimed technology could help support collaboration between businesses in order to facilitate better communication and keeping in sync with the market.

technological innovation – while Barry Jessup, director at developer and investor First Base, argued the real estate sector in itself was “archaic and ripe for intervention”, adding that the end of a development project is often sub-standard due to a race to the top, whether the project is residential or commercial.

Another panel discussion, centred on technology and development, pointed to the planning process as one of the pillars in need of

“Technology can help weigh the debate to those who need housing, not those who already have housing,” he claimed.

34 | NACFB Magazine

The panel also praised crowdfunding as an FCA-regulated way to raise capital for development. Lucian Smithers, sales and marketing director at Pocket Living, praised innovative approaches to involving a broader cross-section of society.

hroughout the day, an interactive channel was opened to invite audience participation, facilitating the submission of questions to the panellists. Audience questions grasped at the heart of the issues with recurring questions on crowdfunding, transparency and on the uptake of proptech today and in the future. Speakers and participants both seemed to agree that, as of yet, there isn’t a single best solution; so proptech must be a mix of technology, processes and applications to best serve the sector today. Collaboration, then, is a key requirement to reap the benefits of technology, and appetite for innovation and a willingness to take risks will be the driving force behind the future success of proptech.

We have invested in a broker portal so cases can be tracked and brokers can see exactly what stage an application is at. However, common sense kicks in if we can see that a client hasn’t responded to our request for information. We realise that time-starved businesses have a lot on their plate and rather than wait for a response, we contact the broker and ask them to give their client a nudge as this will really help save time and help get the deal over the finishing line.” Just Cashflow constantly checks back with their customers to track this and are delighted to report that 99% of their customers say they would recommend them to a colleague or another business associate. Their customers rated them Very Good / Excellent on the following service indicators.

96%

PRODUCT EXPLANATION

98%

COST TRANSPARENCY

99%

TEAM KNOWLEDGE

95%

SPEED OF SERVICE

Very Good/Excellent

The Just Cashflow team know it is important to provide their customers with a fast and flexible service and they work hard to make sure they get things right.

Unlock more deals for your clients 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 Cash Fund 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 you unlock even more deals for your clients.

Just call us now Vera Sugar Editor NACFB Magazine

0121 418 5037 Alternatively, find out more

justcashflow.com/partner

Trade Finance Excellence Awards

2017

TradeFinance.Global

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

SPOTLIGHT

Brokers Frustrated by Poor Lender Communication Proptech must be a mix of technology, processes and applications to best serve the sector today

T T

Another panel discussion, centred on technology and development, pointed to the planning process as one of the pillars in need of

“Technology can help weigh the debate to those who need housing, not those who already have housing,” he claimed.

34 | NACFB Magazine

96%

PRODUCT EXPLANATION

98%

COST TRANSPARENCY

99%

TEAM KNOWLEDGE

95%

SPEED OF SERVICE

Very Good/Excellent

The Just Cashflow team know it is important to provide their customers with a fast and flexible service and they work hard to make sure they get things right.

Just call us now Vera Sugar Editor NACFB Magazine

0121 418 5037 Alternatively, find out more

justcashflow.com/partner

Trade Finance Excellence Awards

2017

TradeFinance.Global

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

Special | features

THE TEAM FOR COMMERCIAL LOANS

An up-to-date insight into the industry

Bringing intangible assets to the foreground Lending against intangible assets is a less well-known form of asset finance – one that tends to benefit specific types of SMEs more than others. Adam Tavener Chairman Clifton Asset Management Plc

irst, one needs to look at what is meant by intangible assets. Strictly speaking, anything that you can’t touch is intangible which, for many businesses, means that their intangibles far outweigh their tangibles. Some of these are more obvious, such as debtor book receivables, and financing against these is already well understood and offered by a huge number of funders today. So, moving past the obvious, what are we left with? First in line would probably be trademarks or patents. Equally, however, many databases have significant value, as does expert knowledge or processes, relationships and so on.

here are many scenarios where a business would benefit from looking at their intangibles as a source of funding. The

first and most obvious is where there are no tangibles to leverage in the first place. Many service and technology businesses have invested heavily in ideas-based assets, which may well be core to their revenue-generating activity. But, to a traditional lender, they would be of limited interest as security, since there is no immediately available secondary market through which a distressed sale could be realised. It doesn’t stop there, however. Many businesses do have tangible assets, such as property, plant and machinery or a debtor book. But where there is bank support in place, such as an overdraft or loan facility, these assets will almost certainly be subject to a general debenture limiting their further usefulness as a financing tool, since the lender in question will be unlikely to release their charge without a repayment of their facility. Thus, a specialist intangible lender, such as one providing pension-led funding, would be eminently suitable in such circumstances. They are almost always more relaxed about

Most small businesses start with some sort of an idea and a desire to differentiate themselves, which suggests that one of the very first things they acquire are some intangible assets

36 | NACFB Magazine

ideas-based assets such as domain names or web content, trademarks (as mentioned above) and a host of other useful goodies. Thus, a funder such as ourselves can apply to have these assets released from the general debenture and used as a further source of funding.

n common with pretty much all sorts of SME finance facilities, certain constants remain. Financing against an intangible will still have to be commercially sound and the business’s ability to service the debt will be tested. With pension-led funding, the borrower will need to satisfy us that their pension will make a profit from the transaction and – in the event that extra security is available – we will suggest that it is taken. Many more firms have intangible assets than is commonly understood. The Intellectual Property Office, among others, is very keen to promote awareness of this and is actively encouraging lenders to develop schemes that allow this to be leveraged. Currently, outside of equity investment, pension-led funding is probably the only serious player in this space, although that may well change over the coming year or two. This is to be welcomed since most small businesses start with some sort of an idea and a desire to differentiate themselves, which suggests that one of the very first things they acquire are some intangible assets. Given the relatively poor level of understanding around this by business owners it is obvious that brokers have a huge part to play in educating their clients as to the options and possibilities in this exciting space. That is both right and proper, and a real opportunity.

WE C

COMMERCIAL

RETAIL

INDUSTRIAL

SHOPS

AST’S

INVESTMENT

RESIDENTIAL

HOTELS

OFFICES

FACTORIES

OWNER OCCUPIERS

INVESTORS

ALL!

CMY

WE’RE AT THE NACFB SHOW ON 21ST JUNE ON STAND E19

Let’s Talk! COM M ERCIAL

•

020 8349 5190 finance@alternativebridging.co.uk @ABC_Bridging RESIDENT I AL

•

A PRINCIPAL LENDER

DEVELOP ME N T

Special | features

THE TEAM FOR COMMERCIAL LOANS

An up-to-date insight into the industry

here are many scenarios where a business would benefit from looking at their intangibles as a source of funding. The

Most small businesses start with some sort of an idea and a desire to differentiate themselves, which suggests that one of the very first things they acquire are some intangible assets

36 | NACFB Magazine

WE C

COMMERCIAL

RETAIL

INDUSTRIAL

SHOPS

AST’S

INVESTMENT

RESIDENTIAL

HOTELS

OFFICES

FACTORIES

OWNER OCCUPIERS

INVESTORS

ALL!

CMY

WE’RE AT THE NACFB SHOW ON 21ST JUNE ON STAND E19

Let’s Talk! COM M ERCIAL

•

020 8349 5190 finance@alternativebridging.co.uk @ABC_Bridging RESIDENT I AL

•

A PRINCIPAL LENDER

DEVELOP ME N T

SPECIAL FEATURES

Supply shortage drives market growth

Change in sale volumes

Percentage Intervals -60.0 % - -30.0 %

In this world of information overload, the mix of conflicting headlines on the current state of the housing market has certainly been confusing. But at Maslow Capital we recognise one key issue relating to growth in the housing market, and that is the chronic supply shortage in large parts of the country. Rebecca Shafran Research economist Maslow Capital LLP

ast year, sales activity in the UK housing market slowed to its lowest level in three years (see chart 1). The increase in stamp duty for buy-to-let investors was cited as the primary reason for this. A spike in transactions in March, prior to when the changes were officially introduced, was followed by a sharp deterioration in activity. This was exacerbated by uncertainty caused by the outcome of the EU referendum and continued in the first few months of 2017. The Royal Institution of Chartered Surveyors reported a market slowdown with agents commenting on low levels of stock on their books and noting few new instructions.

-19.9 % - -10.0 % -9.99 % - 0.00 % 0.01 % - 10.0 % 10.1 % - 20.0 %

Â¨

England region topped the table, recording the highest value increases over 2016, and continued to see a pick-up in the pace of price growth in early 2017. At the other end of the scale were London, the North East and Wales, where the pace of market growth remained lethargic (see chart 2). However, transaction volumes fell 15% over 2016 in the East of England. In fact, transaction volumes fell nationwide, yet house prices have continued to rise. For example, in cities such as Liverpool, Leeds and Coventry, house price growth had been gaining momentum at the start of this year, but all recorded a double-digit drop in transactional activity in 2016. This trend of lower transaction volumes looks set to remain a feature of the market in 2017. Gross mortgage lending statistics from the Council of Mortgage Lenders continued to report a slowdown in activity in Q1 2017.

While the national statistics at the back end of last year highlighted that the fall in investor demand had significantly impacted activity in the housing market, national averages hid the bigger picture. This may have been a driving force in London, where the buy-to-let market played an important role; however, in other parts of the country, falling sales volumes have mostly been determined by a shortage of supply. This is especially true in cities and towns where the supply pipeline is not matching up to demand, and this is underpinning house prices in some locations. This presents an opportunity for developers.

The key drivers While historically low interest rates have been a key driver of market growth, unequivocally this is the consequence of an undersupplied housing market in a fundamentally strong economy. Every ounce of demand for housing is having an impact on sector performance. This had led to average asking prices reaching historical highs and has further stretched the affordability gap for first-time buyers. It is a well-recognised view that to restore some balance in the housing market, new supply at affordable price points will be key.

Geographical divide Following a slow end to 2016, and a sluggish start to the current year, almost every region of the UK saw house price growth pick up pace over Q1 2017. The East of

That is why Maslow Capital continues to provide development finance to experienced developers who are delivering sensiblypriced residential schemes across cities in the UK.

38 | NACFB Magazine

-29.9 %- -20.0 %

37.5

150 Miles

Map source: HM Land Registry, Maslow Capital

Chart 1: UK residential sales volumes 1,600

Sales volumes (000s)

1,400

Average (2005 - 2016) Source: HM Land Registry

1,200 1,000 800 600 400 200 0 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2016

NACFB Magazine | 39

SPECIAL FEATURES

Supply shortage drives market growth

Change in sale volumes

Percentage Intervals -60.0 % - -30.0 %

-19.9 % - -10.0 % -9.99 % - 0.00 % 0.01 % - 10.0 % 10.1 % - 20.0 %

Â¨

Geographical divide Following a slow end to 2016, and a sluggish start to the current year, almost every region of the UK saw house price growth pick up pace over Q1 2017. The East of

That is why Maslow Capital continues to provide development finance to experienced developers who are delivering sensiblypriced residential schemes across cities in the UK.

38 | NACFB Magazine

-29.9 %- -20.0 %

37.5

150 Miles

Map source: HM Land Registry, Maslow Capital

Chart 1: UK residential sales volumes 1,600

Sales volumes (000s)

1,400

Average (2005 - 2016) Source: HM Land Registry

1,200 1,000 800 600 400 200 0 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2016

NACFB Magazine | 39

SPECIAL FEATURES

House price growth Feb-17 (%pa)

-10.0 % - 0.00 % 0.01 % - 10.0 % 10.01 % - 20.0 % 20.01 % - 30.0 %

Â¨ 0

37.5

150 Miles

FRONT RUNNERS IN SME ASSET FINANCE Chart 2: House price growth (% pa)

Asset Advantage is an award winning, privately owned, finance business specialising in providing asset finance and loans to SME businesses throughout the UK via a premium panel of introducers.

11 10 9

Our finance products utilise a combination of experience, expertise and uncompromising business processes to deliver the perfect solution to our clients.

8 7

To find out more about joining our select panel of introducers and our award winning SME finance solutions please call Tracy Millsom on:

6 5 4

01256 316 200

or visit our website on:

www.assetadvantage.co.uk

1 0 East of England

East Midlands

West Midlands

North West

Dec-16

South West

United Kingdom

South East

Jan-17

Yorkshire & London the Humber

Feb-17

Scotland North East

Wales

Efficient Finance is our Advantage Third Floor, Matrix House, Basing View, Basingstoke, Hampshire, RG21 4DZ

Source: HM Land Registry Follow the Asset Advantage Carrera Cup team @AARaceTeam

40 | NACFB Magazine

SPECIAL FEATURES

House price growth Feb-17 (%pa)

-10.0 % - 0.00 % 0.01 % - 10.0 % 10.01 % - 20.0 % 20.01 % - 30.0 %

Â¨ 0

37.5

150 Miles

FRONT RUNNERS IN SME ASSET FINANCE Chart 2: House price growth (% pa)

Asset Advantage is an award winning, privately owned, finance business specialising in providing asset finance and loans to SME businesses throughout the UK via a premium panel of introducers.

11 10 9

Our finance products utilise a combination of experience, expertise and uncompromising business processes to deliver the perfect solution to our clients.

8 7

To find out more about joining our select panel of introducers and our award winning SME finance solutions please call Tracy Millsom on:

6 5 4

01256 316 200

or visit our website on:

www.assetadvantage.co.uk

1 0 East of England

East Midlands

West Midlands

North West

Dec-16

South West

United Kingdom

South East

Jan-17

Yorkshire & London the Humber

Feb-17

Scotland North East

Wales

Efficient Finance is our Advantage Third Floor, Matrix House, Basing View, Basingstoke, Hampshire, RG21 4DZ

Source: HM Land Registry Follow the Asset Advantage Carrera Cup team @AARaceTeam

40 | NACFB Magazine

SPECIAL FEATURES

The benefits of a self-funded lender Considering the pros and cons Adam Turner Director LSC Finance

Recent diversification of specialist lenders has made choosing the right lender even more difficult than before.

from a really quick answer. All handled within a close-knit circle, it’s not unusual to get a decision within 24 hours, rather than waiting weeks for a bank.

Lenders’ funding lines make a significant difference too, especially with regards to building customer trust. Funding sources in today’s market are extremely numerous, from banks to private investors - a selffunded lender is another option.

Self-funded lenders often offer money on a relatively short-term basis – typically up to 12 or 24 months – which also means repayment terms are shorter. Additionally, it has to be considered that this shorter term pushes up the amount of the monthly repayment, which can put pressure on a company’s cash flow. A business needs to ensure that it can afford the quicker, potentially higher repayments.

boost in offering is of course a positive for the sector, with countless niche markets to suit almost any funding requirement, but that’s not the only differentiator when it comes to making an informed decision.

Shorter term, shorter repayment Every business transaction is unique and every company needs money for a different reason. The difference in the approach of a self-funded from a traditional lender is in its flexibility. Underwriting decisions are made in-house, which means in each case a company’s specific circumstances are carefully examined, rather than operating through a tick-box mentality.

Personal approach The approach to dealing with clients is generally more relationship-based than with traditional money lenders. This means self-funded lenders can offer a much more personal service. By building up a relationship with clients they can better understand the business which, in turn, enables them to make fully informed lending decisions.

Not only does this mean that often they can think outside the box and consider more unusual requests, but as there is no bank controlling the decision-making process, clients can often benefit Assessing risk If a client is looking to agree a deal for a large sum, there could also be a situation where a lender may simply not have enough funds to complete a deal, while banks have huge reserves of cash to access. On rare occasions, self-funded lenders have been seen to pull out of deals if they do not have enough funds available.

42 | NACFB Magazine

Therefore it is vital to have those discussions with the chosen lender, with the help of a professional broker, to ensure expectations are met on both sides.

Where can lenders gain funding?

You and your clients can normally talk to a decision-maker at any time and your client will benefit from a bespoke solution specifically tailored to their business, rather than an off-the-shelf product.

Banking lines

The personal approach also means a caseby-case analysis for rates, and self-funded lending can sometimes be more expensive as a result. The rate of interest that they offer will be based on an analysis of an individual proposal and the applicant’s credit history. The higher the risk of default, the higher the interest rate that will be paid.

High-net-worth individuals

Hedge funds Family offices/smaller firms

Private investors Principal/self-funded Peer-to-peer

NACFB Magazine | 43

SPECIAL FEATURES

The benefits of a self-funded lender Considering the pros and cons Adam Turner Director LSC Finance

Recent diversification of specialist lenders has made choosing the right lender even more difficult than before.

from a really quick answer. All handled within a close-knit circle, it’s not unusual to get a decision within 24 hours, rather than waiting weeks for a bank.

42 | NACFB Magazine

Therefore it is vital to have those discussions with the chosen lender, with the help of a professional broker, to ensure expectations are met on both sides.

Where can lenders gain funding?

Banking lines

High-net-worth individuals

Hedge funds Family offices/smaller firms

Private investors Principal/self-funded Peer-to-peer

NACFB Magazine | 43

SPECIAL FEATURES

In a sector previously dominated by lumbering giants, nimbler players are moving quickly to fill the areas perhaps deemed too niche or risky for traditional lenders.

lthough many consider these new banks to be ‘challengers’ to the incumbents, some have taken umbrage with the suggestion that they simply aim to replace their high street competitors. “We see ourselves as a disruptor, rather than a challenger – the last thing the UK

What defines

a challenger bank?

no desire to simply become a better version of HSBC or Barclays.

“This is all very different in comparison to the incumbent banks, where cost pressures have meant that small business customers in particular are increasingly being pushed towards telephone and online, rather than what works best for them,” added Ian.

“We provide products and services which in general cater for customers who require something more than just an off-the-shelf solution with a tick-box approach to service and delivery.”

By definition, a challenger is something or someone which wishes to take on the incumbent. We have no desire to simply become a better version of HSBC or Barclays

needs is another ‘me too’ bank,” explained Ian Walters, managing director of business banking at Metro Bank. Unlike many traditional institutions, Metro Bank branches – or ‘stores’ – are open seven days a week, 362 days a year and from early in the morning to late at night. This accessibility is accompanied by a greater emphasis on the human element,

44 | NACFB Magazine

with each business customer assigned their own local relationship manager.

What’s in a name? Jo Edwards, business development and marketing director at United Trust Bank, favoured the term “specialist”, citing the contrast in target markets as evidence that they were not simply an imitation of existing businesses. “By definition, a challenger is something or someone which wishes to take on the incumbent. We have

Although Masthaven transitioned from a specialist to a retail bank in November, managing director Jon Hall said its size was what differentiated it from existing competitors. “New banking licences are being granted because the industry urgently needs modernising. “Smaller banks can challenge the status quo by offering swift decisions and marketleading products to compete with big banks. “The number of customers moving to challenger banks … speaks volumes about how people want to bank today.” David vs Goliath In May, BACS revealed that the Current Account Switch Service had been used over 947,000 times between 1st April 2016 and 31st March this year. With many newer banks now appealing to younger customers by offering a fully digital experience, such as Atom or Starling,

NACFB Magazine | 45

SPECIAL FEATURES

In a sector previously dominated by lumbering giants, nimbler players are moving quickly to fill the areas perhaps deemed too niche or risky for traditional lenders.

What defines

a challenger bank?

no desire to simply become a better version of HSBC or Barclays.

“We provide products and services which in general cater for customers who require something more than just an off-the-shelf solution with a tick-box approach to service and delivery.”

By definition, a challenger is something or someone which wishes to take on the incumbent. We have no desire to simply become a better version of HSBC or Barclays

44 | NACFB Magazine

with each business customer assigned their own local relationship manager.

NACFB Magazine | 45

SPECIAL FEATURES

We see ourselves as a disruptor, rather than a challenger – the last thing the UK needs is another ‘me too’ bank

Specialist finance. By specialists Amicus group provides outstanding solutions for specialist markets. Working with us means you work with real people: talented teams with the drive, experience and insight to make

one may assume that a large proportion of switches were due to these streamlined offerings. However, Jo warned that attracting new customers could be easier said than done for new banks.

Vehicle and asset finance specialist Private & Commercial Finance is one of a number of companies now eyeing a bank launch, having secured its banking licence in December 2016.

“The challengers’ toughest battle to take volume may be with customer apathy.

Disruption With challengers now too abundant to ignore, traditional banks have begun to take notice of their growing competition.

“Consumers have tended to keep the same current account for many years, if not for life, so it’s going to be very difficult to tempt masses of customers away from their existing banks.” And this battle for market share may have only just begun. In March, a report from PricewaterhouseCoopers (PwC) stated that it was working with 15 companies who were considering entry to the banking sector. On top of this, it claimed there were at least eight banking licence applications being processed as of January 2017.

Some high street lenders have moved to enhance their own digital offering in an apparent attempt to prevent an exodus of younger customers. Last month, NatWest announced the launch of a new online lending platform that would allow small businesses to fill out loan applications in around three minutes. Meanwhile, Lloyds Banking Group said it would collaborate with Microsoft to test biometric authentication for customers.

With challengers now too abundant to ignore, traditional banks have begun to take notice of their growing competition

46 | NACFB Magazine

However, with many challengers actually prioritising flexibility, products and customer service over their technological offerings, Mark Sismey-Durrant, chief executive officer at Hampshire Trust Bank, said the gap between specialist banks and the big five would continue to grow. Ian also dismissed concerns that larger banks could simply adjust their operating models to accommodate shifting demand, admitting: “We do see examples of the big banks copying some of what we do on a localised basis, but this tends to be shortlived.” But with Metro Bank continuing to open new branches across the UK, it may be too soon to assume there is no longer value in ‘outdated’ forms of banking. As Ian noted: “Traditional banking should not be underestimated.”

things happen.

property finance

commercial finance

asset finance

Bespoke short-term lending

Flexible invoice discounting

Specialist asset ﬁnance

Discover more at amicusplc.co.uk

Alex Lynn Reporter Bridging & Commercial

Amicus is a trading name of Amicus Finance PLC. Registered in England & Wales, no. 06994954. egistered o ce ir treet, ondon 1 5 .

Helping Fund UK Business

SPECIAL FEATURES

We see ourselves as a disruptor, rather than a challenger – the last thing the UK needs is another ‘me too’ bank

one may assume that a large proportion of switches were due to these streamlined offerings. However, Jo warned that attracting new customers could be easier said than done for new banks.

Vehicle and asset finance specialist Private & Commercial Finance is one of a number of companies now eyeing a bank launch, having secured its banking licence in December 2016.

“The challengers’ toughest battle to take volume may be with customer apathy.

Disruption With challengers now too abundant to ignore, traditional banks have begun to take notice of their growing competition.

With challengers now too abundant to ignore, traditional banks have begun to take notice of their growing competition

46 | NACFB Magazine

things happen.

property finance

commercial finance

asset finance

Bespoke short-term lending

Flexible invoice discounting

Specialist asset ﬁnance

Discover more at amicusplc.co.uk

Alex Lynn Reporter Bridging & Commercial

Amicus is a trading name of Amicus Finance PLC. Registered in England & Wales, no. 06994954. egistered o ce ir treet, ondon 1 5 .

Helping Fund UK Business

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

“The decision on the choice of lender in the commercial property space is now based on a myriad of factors, including certainty of delivery and ease of doing business”

The new focus points of commercial property lending Phil Green Head of commercial lending Norwich & Peterborough Building Society

he philosopher George Santayana once wrote: “Those who cannot remember the past are condemned to repeat it.” As I sit writing this article against the backdrop of the ongoing Brexit negotiations and Theresa May’s decision to call a snap general election, it is an opportune time to take a look at the shifting focus of commercial property lending. All markets are cyclical by nature, and the commercial property market is clearly no exception. The commercial property market boom, years prior to the collapse of Lehman Brothers, was typically characterised by borrowing decisions driven by leverage (LTV) and pricing (margin). When I talk to commercial property investors and SMEs, I find that while margin and leverage can be determinants, this is becoming less important. The decision on the choice of lender in the commercial property space is now based on a myriad of factors, including certainty of delivery and ease of doing business. The 48 | NACFB Magazine

commercial key terms that recur more often as influencers today are loan term, amortisation profile and financial covenants (eg LTV and interest coverage ratio). Loan term The available loan term is likely to be determined by a mixture of lender policy and the remaining length of the leases. The latter is often referred to by the acronym WAULT (weighted average unexpired lease term). Other factors include the age of the borrower and the physical condition of the property. However, lenders are now more focused on EPC rating and obsolescence risk. Loan term is sometimes negotiable, but some lenders may restrict to five years, or offer longer terms, but with lender breaks every five years. This exposes investors to the risk that the facility is not extended, due to lenders making a strategic decision to exit from commercial property lending. Amortisation The market has seen a contraction in both prime and secondary yields. Amortisation impacts what surplus cash is available for dividends, capital expenditure and acquisitions. Amortisation profiles tend to be negotiable, but the lender will be

influenced on their assessment of lease profile, financial strength of tenant(s), re-letting prospects for the property, location and physical condition. Lenders are becoming increasingly conscious of exit risk, ie residual debt at loan maturity against forecast yield/rent. Financial covenants Typical covenants are LTV and interest cover. Lenders typically have minimum levels that they will require these to be set at, but beyond this they are now usually negotiable. Interest cover will be based on sustainability of cash flow by assessing lease profile. Ensuring a sensible degree of headroom in covenants can protect a borrower from the risk of future renegotiation of terms, caused by minor breaches. The ability within the loan agreement to ‘cure’ a breach of covenants by paying down the debt is usually negotiable. Our approach at Norwich & Peterborough is to offer long-term property loans which are tailored to investors’ requirements, alongside a straightforward approach to documentation and deal execution, backed by a highly experienced team of lending managers.

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

“The decision on the choice of lender in the commercial property space is now based on a myriad of factors, including certainty of delivery and ease of doing business”

The new focus points of commercial property lending Phil Green Head of commercial lending Norwich & Peterborough Building Society

GUIDES

Your client is taking on larger customers As your client’s business grows, they’re likely to be taking on bigger contracts from larger organisations and that generally means longer payment terms. For businesses that are used to getting paid more quickly, this can soon cause cash flow issues.

We often see this with businesses that supply goods or services to large retailers, who can generally demand better credit terms – in some cases up to 90 or even 120 days. But that doesn’t mean your client must wait for the cash.

MarketInvoice total value of invoices funded £411.2 £304.5 £210.5

£3.4 2011

£32.6 2012

Millions (£)

£67.5

2013

2014

2015

2016

Source: Marketinvoice Data Science Team 2017

By funding the invoices with longer terms, without having to finance the whole sales ledger, they gain flexibility to keep growing their business and to serve larger customers without worrying about cash flow.

By funding the invoices with longer terms, without having to finance the whole sales ledger, [clients] gain flexibility to keep growing their business and to serve larger customers without worrying about cash flow Anil Stocker Co-founder & CEO MarketInvoice

Making the right choices with selective invoice finance While it has been common in the past for traditional factoring providers to only provide funding against a business’s whole sales ledger, selective invoice finance – on a payas-you-go basis – is becoming more popular.

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Because of the flexibility and accessibility of selective invoice finance, we’ve seen a huge growth in demand for the service over the past few years, having funded over 70,000 invoices worth £1.3bn since MarketInvoice was founded in 2011, covering over 52% of the market need for this service. On average, customers who use our selective invoice finance service will trade 11 times per year, making it an excellent way of managing ongoing cash flow needs. Traditionally, factoring was a wholeturnover only, which meant most

traditional lenders required clients to factor their entire sales ledger. In the long run, this didn’t prove to be the most cost-effective solution. Selective invoice finance enables businesses to choose which invoices to finance, allowing for individual invoices to be sold to a third party, which is a cheaper option for SMEs and allows them to keep control of their own sales ledger. There are a number of situations where a selective invoice finance facility might be the perfect solution for your client.

Your client’s business is seasonal or has unpredictable cash flow Selective invoice finance is a great option if your client needs funding to get through a particularly busy time of year.

For example, in the run-up to the Christmas rush, a business may have to pay out for production, stock and distribution, as well as extra staff to cover the busier time. Their own invoices to retailers, however, might not be paid until well into the new year, and this is often a point of friction. Selective invoice finance can provide more seasonal businesses with the cash they need upfront, enabling them to get through their busiest time without worrying about cash flow or adding additional debt to their business with a loan. Plus, because they only pay for the funding they use over the short term, invoice finance is often a far more cost-effective method of funding for seasonal businesses.

Asset-based finance by product, 2016 Source: ABFA

20%

80% (£17.9bn)

Invoice finance Asset-based lending

NACFB Magazine | 51

GUIDES

MarketInvoice total value of invoices funded £411.2 £304.5 £210.5

£3.4 2011

£32.6 2012

Millions (£)

£67.5

2013

2014

2015

2016

Source: Marketinvoice Data Science Team 2017

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Your client’s business is seasonal or has unpredictable cash flow Selective invoice finance is a great option if your client needs funding to get through a particularly busy time of year.

Asset-based finance by product, 2016 Source: ABFA

20%

80% (£17.9bn)

Invoice finance Asset-based lending

NACFB Magazine | 51

GUIDES

The product of your client’s business is ideas or expertise It can be difficult for businesses to secure traditional funding if their product is knowledge or expertise, as lending tends to be primarily focused on tangible business assets. Agencies, professional services firms or onlineonly companies can fall into this bracket.

When funding against intangible assets isn’t available, selective invoice finance works really well for this type of business as the underlying asset is the invoice for work completed. It also benefits asset-light businesses because it can often be a long time before the work is invoiced – as in the case of design agencies or architects – so the cycle from starting a project to being paid is even longer. By choosing to finance their larger invoices, these businesses can continue to pay their staff and take on projects without their cash flow taking a hit.

With invoice finance, your client is more likely to be able to fund their overseas invoices and a selective facility gives them the freedom to choose which ones Your client’s business deals with overseas customers Many financial institutions are reluctant to provide funding to businesses with a high proportion of overseas customers. With invoice finance, your client is more likely to be able to fund their overseas invoices and a selective facility gives them the freedom to choose which ones.

Another aspect of working with overseas customers is that attitudes towards payment terms can differ from country to country. If your client works in countries with a more relaxed attitude to adhering to payment terms, late payment can soon become an issue. Since MarketInvoice started, we’ve provided funding against invoices to 82 countries worldwide, helping many of our customers continue to expand their businesses overseas.

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GUIDES

52 | NACFB Magazine

SPEED MEETS CLARITY 020 7655 3388

GUIDES

Insurance-backed funding: a balanced source of working capital Luke Redman Head of business development Pay4 (UK) Limited

n the ever changing world of business finance, flexible and cost-effective products that are not assets-backed are far more readily available than you may think. Insurance-backed finance is one of these products and may be ideal for many of your clients. Insurance-backed finance doesn’t require customer invoices or any other assets to be raised beforehand and used as security. In fact, it doesn’t involve your clients’ customers at all – making it a powerful complementary finance product for clients who already secure borrowing against their company assets. Reduced risk, greater control Asset-based lending is a popular source of capital for businesses that are experiencing working capital gaps. It can work as part of a smart, flexible working capital strategy and can promote growth. If, as an adviser, you’re recommending borrowing against company assets to a client, you will likely point out how easy it is to maintain control over. Clients cannot stretch themselves beyond the value of their assets, so if

the business continues to succeed, the risk of the debt can be managed. With an insurance-backed facility, the risk is even lower. The key to this reduced risk is that with insurance-backed lending, the risk assessment procedure is rigorous. Eligible businesses are generally successful and robust, and lenders work with their customers to encourage growth and stability. A complementary solution Many businesses that make use of asset-based lending use customer invoices as collateral. This can be ideal for funding orders or purchases once those orders have been secured and invoices raised. However, many opportunities require funding before this stage, such as stock optimisation, which often requires supplier payment well in advance of sale. It’s here that insurance-backed lending can be the optimal solution. With credit secured before customer orders are completed and invoices are raised, cash becomes available early in the working capital cycle. It then can be used to pay suppliers early to secure preferential terms, helping clients maximise competitiveness and potential for profit.

most other forms of finance as a complementary solution. Additionally, as it does not rely on customer invoices, it can be used by clients that sell to consumers as well as other businesses. A balanced choice Asset-based lending can be a sensible choice for clients with the right asset structure and risk profile. Insurancebacked lending offers a cost-effective option if they lack physical assets, the assets are already tied up as security against other loans or they are looking for a low-risk solution to ease their working capital pressures. Thanks to rigorous risk-assessment processes, insurance-backed lenders such as Pay4 can offer credit to eligible clients at extremely competitive rates. The facility can work either as a standalone solution or alongside your clients’ asset-backed arrangements to provide a balanced source of working capital. Application is normally quite straightforward too, consisting only of a simple enrolment process and risk assessment procedure. If a client uses asset-based funding primarily because their credit rating or revenue forecast isn’t as strong as other lenders would like, then insurancebacked lending is unlikely to be suitable for them. However, for those enjoying good growth and looking to cement their success, insurance-backed lending can become part of a lowerrisk, more flexible financial strategy. Offering insurance-backed lending provides clients with the opportunity to create a balanced working capital package that best matches their needs.

Because insurance-backed lending doesn’t rely on business assets as security, it can be used alongside

Yes. It’s never a maybe with our bridging finance decisions When we say yes, we mean yes Once we agree a bridging loan, assuming nothing changes, it’s set in concrete. Final, done, dusted. We won’t change our minds or try to re-negotiate. We’ll just get on with making the background process as quick and simple as possible, so you can get on with what you set out to do.

For more information about our bridging products please contact us on 020 7036 2000 or email enquiries@masthaven.co.uk

Case Study In 2016, we opened a £100,000 revolving credit facility for a highend, designer fashion retailer. In their sector, supply chain pressure can easily occur. The usual solution for cash flow gaps is invoice finance – however, this doesn’t work well in retail, since there are generally no customer invoices.

The revolving credit facility can be used to pay any supplier in the UK or globally, with an additional 120 days to pay for stock. Our customer uses our insurancebacked solution to improve three key areas: increasing efficiency through bulk discounts, spreading out invoicing to manage the

peaks and troughs of seasonal demand and stocking key items early in the season. Our product has smoothed out the retailer’s cash flow and eased their supply chain pressure.

masthaven.co.uk Your property, provided as security for the loan, may be repossessed if you do not keep up with payments. 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.

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GUIDES

Insurance-backed funding: a balanced source of working capital Luke Redman Head of business development Pay4 (UK) Limited

Because insurance-backed lending doesn’t rely on business assets as security, it can be used alongside

For more information about our bridging products please contact us on 020 7036 2000 or email enquiries@masthaven.co.uk

peaks and troughs of seasonal demand and stocking key items early in the season. Our product has smoothed out the retailer’s cash flow and eased their supply chain pressure.

54 | NACFB Magazine

Debate | the burning issues Two Patrons discuss the hot topics affecting the industry

What is the future of officeto-resi development? It’s vendors we need to work with Nick Oakley Director of structured finance Castle Trust

he Town and Country Planning (General Permitted Development) Order of 2013 introduced temporary permitted development rights (PDR) enabling offices to be converted to residential property without the need to apply for planning permission, although prior approval of works must still be sought. The right, which was derived from parliament rather than the local planning authority, was originally due to expire in May 2016, but was made permanent three months prior to this date. However, figures from the Department for Communities and Local Government show that officeto-residential conversions fell by 19% from 2,942 in 2014/15 to 2,388 in 2015/16. So, what is holding back office-to-residential conversions, and should the government be doing even more to encourage this type of development? The catch There are some limitations to PDR. For example, if the property is listed or was not used as an office building prior to May 2013 the right does not apply. Prior local authority approval is also needed in respect of transport and highway impacts, noise, flood and contamination risks. And, if external

56 | NACFB Magazine

development work is required, then planning permission still needs to be obtained. Similarly, PDR does not permit the demolition of offices to be rebuilt as residential schemes. But these limitations are not the dominant reason why the number of conversions is falling short of expectation. The primary limitation to the growth of officeto-residential developments is currently down to the expectations of the vendors themselves, whose asking prices for office buildings are often based on assumptions of what a completed development could achieve in the future, rather than current values. These inflated prices provide a significant stumbling block for developers,

With this in mind, any further government intervention to encourage residential development would be more fruitfully targeted at encouraging vendors to sell their buildings rather than simply further relaxing planning restrictions. For example, more punitive charges for properties left vacant could provide a stick to encourage a faster sale – although there would need to be measures in place to protect building owners who were genuinely trying to let the property. Alternatively, more vendors may consider developing their own properties as a way of achieving the return they are looking for. This may be problematic for some developers as many lenders will

Any further government intervention ... would be more fruitfully targeted at encouraging vendors to sell their buildings who will not be able to borrow against projected market value. When considering a scheme, a lender will assess the end value of the development on current valuations based on the Royal Institution of Chartered Surveyors’ red book standards. If a developer is purchasing a block at a price which includes a project uplift, they will be working off incomparable figures to the lender. Vendors’ views There is currently little sign that vendors are softening in their expectations for the price they can achieve for their property and, consequently, there are many office blocks which may be ripe for development that are standing empty.

be reluctant to lend to somebody with potentially no experience in residential developments. However, there are lenders that will take a different view – particularly given that an office-to-residential conversion is more akin to a heavyduty refurbishment rather than a ground-up development – provided a novice developer comes from a position of financial strength and structures a strong professional team with whom to work.

Complete restart may be a better solution Ashley Ilsen Head of lending and CMO Regentsmead

epending on from what side of the fence you are looking at it, permitted development rights (PDR) schemes have been a success. We have unlocked good housing schemes that would have otherwise been lost in the planning process and as a result, we have

which ultimately enhances their profit. It’s important to note that there are a handful of areas around the UK that are protected from PD, including some major city centres and Ashford in Kent, for some reason (answers on a postcard). But are we staring down the barrel of a complete lack of office buildings around the UK? PD and confusion In 2016, we saw a 27% increase in councils issuing Article 4 directions, which essentially means they can remove some PDR and force them into the planning merry-go-round. This leads to a result that is lucrative for the council, but not ideal for developers. One of the main issues with PDR is the almost deliberately vague legislation surrounding it and

We recently attended separate consultations with the Department for Communities and Local Governments, as well as the Department for Business, Innovations and Skills, to discuss various new ideas to ease the demand for housing in the UK. Some of the topics covered included a complete overhaul of the planning process and while some of the ideas suggested were naively unrealistic, I don’t think a full-on refurbishment of the current system would be a bad idea. I would like to see more experienced development lenders included in the ongoing discussions within the government on how to solve the housing crisis.

I find it concerning that the legislation surrounding PD is loose, because this will at some point catch out those who are funding such schemes if they don’t have a complete knowledge of the details started to fill the desperate need for more housing in the UK. However, there are question marks over the continued use of PDR with some areas now seeing a shortage of commercial property and in particular office space in town centres. In truth, the original legislation for PDR was first conceived under John Major’s government in the 1990s. However, it was only in 2013 that this was cleverly transformed to allow for B1 offices to be turned into C3 residential, sparking a huge wave of town-centre transformations, plenty of which have been funded by Regentsmead. Today, some 22% of our loan book is being constructed under PDR, allowing for a quick turnaround from the developer’s point of view,

this has allowed councils in some areas to challenge and repeal. Interestingly, at Regentsmead we have seen an increase in the number of schemes that are using a blend of PDR and planning on the same scheme. In Q1 of 2017 we have seen 8,032 applications for prior approval in the UK, which is down 10% on the year before. Better to be in the know For development lenders the trick is to keep our fingers on the pulse. I find it concerning that the legislation surrounding PDR is loose, because this will at some point catch out those who are funding such schemes if they don’t have a complete knowledge of the details.

NACFB Magazine | 57

Debate | the burning issues Two Patrons discuss the hot topics affecting the industry

What is the future of officeto-resi development? It’s vendors we need to work with Nick Oakley Director of structured finance Castle Trust

56 | NACFB Magazine

Complete restart may be a better solution Ashley Ilsen Head of lending and CMO Regentsmead

NACFB Magazine | 57

Opinion | & commentary Thought leadership from our Patrons and Members

Limited company BTL is adapting to changes Marc Goldberg Commercial CEO Together

roperty investors have responded in different ways to the government’s crackdown on the buy-to-let sector, which has included a raft of changes, such as the increase in stamp duty for additional properties and cuts to mortgage tax relief for landlords.

Some have moved away from residential to commercial or semi-commercial property, or shifted their geographical focus to look at up-and-coming areas instead of the more traditional hotspots, while others have set up limited companies to purchase their properties.

You can now get a quote in under 60 seconds and an offer in 2 minutes.

It is impossible to predict whether a new government will make further changes to the housing market, although the Conservatives - who, at the time of writing, are ahead in the polls - have shown little appetite for further tightening up of the market in the past.

be given adequate notice. For example, the cuts to mortgage tax relief were announced in 2015 and came into effect this April, but there is a four-year phasingin period, which means there will be a steady reduction by 25 percentage points a year until it is cut to zero in 2020.

Secure for the short term In some circumstances, buying a property as a limited company may result in savings, but this is not the case for all landlords. It depends on personal circumstances, income and the number of properties owned, so each case is different and investors should take advice on whether or not this is the best option for them.

The rise in the numbers buying through limited companies may well propel this sector into the spotlight, and there is a possibility that this will bring with it more scrutiny and regulation. However, given the amount of changes the buyto-let market is currently adapting to – not just the stamp duty hike and the tax relief cuts, but also the PRA guidelines on interest coverage ratios and the ban on lettings fees for landlords – it seems unlikely that there would be any further imminent changes.

At present, however, the buy-to-let market remains resilient, despite the challenges it faces, and with the continuing shortage of housing in the UK and a growing rental market, many long-term investors still see property as an enticing prospect and will continue to adapt and evolve their business models as needed.

However, the question of whether there could be further regulation introduced for this sector remains open.

‘No rush’ approach It’s also worth noting that if there were changes, in all likelihood investors would

In fact, recent industry figures indicate that up to a fifth of landlords are now buying property through limited companies. The proportion of homes to rent in the UK owned by a company landlord reached 20% in the first quarter of 2017 – the highest number since records began in 2010.

58 | NACFB Magazine

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Opinion | & commentary Thought leadership from our Patrons and Members

Limited company BTL is adapting to changes Marc Goldberg Commercial CEO Together

You can now get a quote in under 60 seconds and an offer in 2 minutes.

However, the question of whether there could be further regulation introduced for this sector remains open.

‘No rush’ approach It’s also worth noting that if there were changes, in all likelihood investors would

58 | NACFB Magazine

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OPINION & COMMENTARY

No guarantees when it comes to exits

Lending money is one thing, but making sure you get it back is fundamental.

he key to knowing if an exit route is likely to happen is both knowing the market and being realistic. Lenders need to know if what the borrower is proposing is viable. If it isn’t, it can be foolish to agree to lend. Sale or refinance? The two key exit routes from a bridging loan are either to sell the property or to refinance on to a longer-term deal. If a borrower’s exit route is to sell the property, the bridging lender needs to know the market; they need to know if the property will be worth what the borrower thinks, and if they are likely to achieve the expected amount at sale in that geographic area. Carrying out a detailed valuation and proper due diligence is crucial in helping to establish this. If the exit route is to refinance, then it is essential to know if the products are there for the borrower to use. Are they refinancing for a two- to three-year deal or a longterm 20-year deal, for example? If they are refinancing, the bridging lender needs to know what other products are available to establish whether the borrower’s aspirations are realistic. For the lender, it is essential we know what longer-term lenders offer as we need to make sure that both the LTV we offer and the valuation are not only correct, but at a level that another lender will lend on, so the borrower can achieve their refinance. There is no point pushing your own deal just to find that – six months down the line – no one else will match it.

If the plan is to refinance the property after a six-month bridging term, then a good broker will be working on the long-term deal as soon as the bridging loan completes. Things can change over the six- to 12-month period that the borrower has their bridging loan, so we like the broker to stay involved. In fact, we will talk to the broker right from the start to seek their opinion on who would take on the loan at the end of the bridging period. Even if the exit route is a sale, we like the broker to stay involved because things change. If the market suddenly drops and the borrower won’t be able to sell the property for as much as they thought they would, then there has to be a plan B – and often the broker will be the most crucial person in helping to develop this.

Things can change over the six- to 12-month period that the borrower has their bridging loan, so we like the broker to stay involved

months in with the intention to sell it, but they haven’t even started to market the property, then it may well be unlikely that they will achieve their aim. At this point, we, as the lender, can advise them of alternative scenarios for exiting their bridging loan, but it is usually the broker who will be the most persuasive and who can provide them with the concrete options. This is where a good broker comes into their own. Arguably, a successful bridging loan could not operate without them.

If a property cannot be sold for the desired amount, for example, then either the price needs to be dropped, the property will need to be refinanced or it may be let out under a buy-to-let. At Hope Capital, we will always carry out a midterm inspection of the property to see how any work is going and how realistic the exit route is. If a borrower is three

Finally, everyone also has to have a plan B. The value of a good broker The key to all of this is brokers. A good broker is absolutely essential to a successful exit route.

60 | NACFB Magazine

Jonathan Sealey CEO Hope Capital

NACFB Magazine | 61

OPINION & COMMENTARY

No guarantees when it comes to exits

Lending money is one thing, but making sure you get it back is fundamental.

Things can change over the six- to 12-month period that the borrower has their bridging loan, so we like the broker to stay involved

Finally, everyone also has to have a plan B. The value of a good broker The key to all of this is brokers. A good broker is absolutely essential to a successful exit route.

60 | NACFB Magazine

Jonathan Sealey CEO Hope Capital

NACFB Magazine | 61

BRIDGING FINANCE OPINION & COMMENTARY

P2P sector can benefit immensely from the battle for scale The P2P sector has come a long way in the past decade. In 2007, a crisis in the sub-prime mortgage market would precipitate a global economic downturn, which would lead to many high street banks slamming the brakes on lending.

Liam Brooke Co-founder Lendy

ack in 2007, P2P lending was virtually unheard of, with just one or two new players placing their toes tentatively on the edge of the banks’ lawn. Today, however, it is looking and behaving more mainstream, with some tanks parked firmly on the traditional lenders’ front gardens.

However, with more than 200 new launches globally each year, according to market researcher Crowdsurfer, the number of operators in the marketplace – many of whom are unprofitable – is starting to look increasingly unsustainable. Against this backdrop, consolidation may be inevitable as smaller players struggle to attract viable numbers of investors, and platforms seek to build critical mass through mergers and acquisitions. At this stage in the P2P evolution, scale is vital. Sites are

platforms to demonstrate their commitment to quality intensifies. The pipeline of new start-ups may start to slow – today, it’s getting harder to break into the market, with costs increasing as a result of the sector’s growing success. The regulatory regime is tightening, which is good news on the whole, as it ensures that every platform adheres to the highest possible standards. Platforms are also placing more and more emphasis on becoming fully authorised so that they can

Short term financing to bridge the gap We have a product for that Our bridging finance could help your customer get a quick solution to their short term borrowing needs. Regulated and Property Investor bridging products available AVMs (Automated Valuation Model) save time and money 0% facility fee products

Competition may decrease, but competitiveness will not: innovation and quality will be the twin focus

also using acquisitions as an entry route to expand abroad. For now, P2P M&A is likely to be the key driver, rather than acquisitions by larger corporates such as investment management firms, which may yet be some way off.

Mergers on the horizon From my point of view, the appeal of P2P shows no signs of slowing down. According to AltFi, the sector has topped £10bn in funds in 2017, and is worth well over £100bn globally. The number of players keeps expanding – investors in the UK can currently choose from 189 different platforms, including sites offering equity and lending, as well as other finance-raising models.

Less is more Fewer sites would clearly mean less competition, but the benefits could outweigh the disadvantages if overall quality is increased, with those remaining offering better opportunities and more robust business models. Investors could benefit from easier scrutiny of available deals and they will be better able to flag companies that failed to raise funds on other platforms. As online P2P communities grow and become much more connected, the onus on

62 | NACFB Magazine

offer new, regulated products such as the Innovative Finance Isa. Indeed, such taxefficient savings and investment products could provide fintech P2Ps with their route into the mass market. Consolidation may be on the horizon, but this should yield a stronger P2P sector. Competition may decrease, but competitiveness will not: innovation and quality will be the twin focus. Most of the big players are already leading the way, putting in place very stringent measures to mitigate risk, implementing robust credit checking and even introducing discretionary insurance plans. As they grow, smaller platforms will have to keep pace. This is good news for the UK marketplace now that the sector is coming of age.

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As in any maturing market, widespread acceptance and strong growth bring opportunities and challenges. So, what does that mean for the sector? Is a wave of consolidation imminent, and what impact might that have on competition?

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BRIDGING FINANCE OPINION & COMMENTARY

Liam Brooke Co-founder Lendy

Competition may decrease, but competitiveness will not: innovation and quality will be the twin focus

62 | NACFB Magazine

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