NACFB Magazine - August 2018 by NACFB

Issue 61 August 2018

The magazine for the National Association of Commercial Finance Brokers

Mending the gap How can we solve the ÂŁ57bn productivity shortfall?

In this issue

Asset finance trends

How is the sector influenced by reality TV?

Open Banking

The initiative that could change the marketâ&#x20AC;&#x2122;s approach to finance

Millennials

Where is the younger generation investing?

Welcome | NACFB Bank rates, non-bank speeds We’re not a bank, which allows us to deploy discretionary capital at the speed of a specialist lender. Speed, certainty and flexibility; it’s what we do best.

he England football team may not have been able to bring it home last month, but the NACFB team is settling well in ours. This summer has felt like a summer to remember with continued Brexit uncertainty, a President Trump visit and, as I write this, I wonder if it will ever rain again. This summer will be memorable for other reasons too. The impact of the NACFB Commercial Finance Expo continues to reverberate and echo into Q3. Our chairman, Paul Goodman, reflects on the event and offers his advice on how to maximise the opportunities our flagship Expo presents. You can read Paul’s tips and advice on page 7. As the sun continues to shine we are looking ahead to our autumn events programme. Our new events manager, Claire Luckhurst (more on page 4), has been brought on board to raise the bar for all NACFB events and to ensure an increased training and education focus on the areas where our membership want them most.

Commercial term product • Loans from £0.5m • 1.0x interest cover • Interest only • No ERCs after 24 months • Up to 65% • 2 to 5 year terms

0800 294 6850 | sales@octopusproperty.com | octopusproperty.com For use by mortgage intermediaries only

We have also issued a joint statement with the Finance & Leasing Association, outlining a unified interpretation of how the broking process is impacted by GDPR. The statement confirms a consistent and allied interpretation of the regulation. You can read the full joint statement on page 6. Norman’s cover feature on solving the productivity puzzle (more on page 10) follows excellent research into the area by NACFB Patron NatWest. The feature examines how SMEs could add up to £57bn a year – more than the cost of Brexit – to the UK economy if we could solve our productivity problem. I believe brokers have a part to play in helping to plug this gap. There are a lot of exciting initiatives taking place at the NACFB at the moment, from our signing up to the Women in Finance Charter to the launch of our research project. We’ll be sharing the fruits of our labours with you, our Members, in the coming weeks and months. Graham Toy, CEO, NACFB

Graham Toy CEO NACFB

In this August issue NACFB News 4-6 7

In the news Maximising the opportunities of CFE 8 Notes from our sponsor 10-12 Mending the gap

Compliance Update 14-16 Regime change

Commercial Finance 18-19 Essential news bites

Top Story 20

Avamore publishes its first industry report

Introducing 22

Maslow Capital launches dedicated lending service for the industrial sector

Special Features 34-36 How Love Island gives an indication of asset finance trends 38-39 The case for long terms and fixed rates 40-42 We need open finance

Industry Guides 44

The intricacies of smaller developments 46-48 What do the young ones want?

Opinion & Commentary 50 Open all hours 52-53 Have you considered going further? 54 BTL landlords are picking themselves up

Case Studies 24

Progressing two applications side by side 26-27 200+ Proplend funders support Welsh bridging requirement 28 Adapting to changing scenarios for £12.8m facility

Patron Profile 30-31 IW Capital

Ask the Expert 32

Graham Shaw

For further information Kieran Jones, communications manager t. 020 7101 0359 33 Eastcheap, London EC3M 1DT Email: Kieran.Jones@nacfb.org.uk

ADVERTISING & EDITING: Medianett t. 0203 818 0163 www.medianett.co.uk

Vera Sugar, editor t. 0203 818 0171 71 Gloucester Place, London W1U 8JW Email: vera@medianett.co.uk

DESIGN & PRODUCTION: Carbide Finger Ltd t. 0845 812 8206

Octopus Property is the trading name of Bridgeco Ltd (Reg No 6629989), Fern Trading Ltd (Reg No 6447318), Nino Ltd (Reg No 9015082), Octopus Property Lending Ltd (Reg No 7531926) and Octopus Co-Lend Ltd (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. Octopus Property Lending Ltd and Octopus Co-Lend Ltd are authorised and regulated by the Financial Conduct Authority.

NACFB Magazine | 3

Commercial term product • Loans from £0.5m • 1.0x interest cover • Interest only • No ERCs after 24 months • Up to 65% • 2 to 5 year terms

0800 294 6850 | sales@octopusproperty.com | octopusproperty.com For use by mortgage intermediaries only

Graham Toy CEO NACFB

In this August issue NACFB News 4-6 7

In the news Maximising the opportunities of CFE 8 Notes from our sponsor 10-12 Mending the gap

Compliance Update 14-16 Regime change

Commercial Finance 18-19 Essential news bites

Top Story 20

Avamore publishes its first industry report

Introducing 22

Maslow Capital launches dedicated lending service for the industrial sector

Special Features 34-36 How Love Island gives an indication of asset finance trends 38-39 The case for long terms and fixed rates 40-42 We need open finance

Industry Guides 44

The intricacies of smaller developments 46-48 What do the young ones want?

Opinion & Commentary 50 Open all hours 52-53 Have you considered going further? 54 BTL landlords are picking themselves up

Case Studies 24

Progressing two applications side by side 26-27 200+ Proplend funders support Welsh bridging requirement 28 Adapting to changing scenarios for £12.8m facility

Patron Profile 30-31 IW Capital

Ask the Expert 32

Graham Shaw

For further information Kieran Jones, communications manager t. 020 7101 0359 33 Eastcheap, London EC3M 1DT Email: Kieran.Jones@nacfb.org.uk

ADVERTISING & EDITING: Medianett t. 0203 818 0163 www.medianett.co.uk

Vera Sugar, editor t. 0203 818 0171 71 Gloucester Place, London W1U 8JW Email: vera@medianett.co.uk

DESIGN & PRODUCTION: Carbide Finger Ltd t. 0845 812 8206

NACFB Magazine | 3

NACFB | in the news Association news and updates for August 2018

The NACFB joins the Women

in Finance Charter

The NACFB has become the first trade body in the commercial finance sector to sign up to the Treasury’s Women in Finance Charter. The Treasury announced the NACFB’s inclusion as part of a tranche of a further 67 companies that have signed up to the Charter, which aims to tackle gender inequality in senior roles. We are proud to stand alongside our Patrons, many of whom have already signed up, as we join over 270 signatories. The Charter now covers over 760,000 financial services employees in the UK.

Introducing our new events manager

laire Luckhurst has joined the NACFB in July as the new events manager. Claire joins us after spending four and a half years at the Chartered Institute of Taxation, where she worked as part of their events team. This role saw Claire delivering numerous training and corporate hospitality events across the UK and internationally for its membership base. With experience in developing marketing material and campaigns, Claire oversaw the launch of various projects with the Institute. Claire has previously worked

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in professional education and the HMCTS, where she developed training programmes and marketing material. Claire has an English Literature degree and in her spare time writes creatively and mentors young aspiring bloggers. An avid baker and reader, she is likely to be found covered in icing sugar or behind a book. You can find out more about the upcoming NACFB events programme by visiting www.NACFB.org/events or by emailing Claire Luckhurst on Claire.Luckhurst@NACFB.org.uk

The Women in Finance Charter asks firms to commit to four industry actions to prepare their female talent for leadership positions. These include setting internal targets for gender diversity in senior management roles and publishing our progress annually against these targets in reports on the NACFB website. NACFB CEO Graham Toy commented: “We are delighted to have joined more than 270 companies that have committed to HM Treasury’s Women in Finance Charter. Gender equality and diversity is integral to creating a fairer, more prosperous society. While there’s still some way to go across the wider sector, we are proud to be part of a modern trade association that is taking steps to be part of the solution.”

We’ve got a crush on you. The thought of your client demolishing and building from the ground up makes us giddy.

Call us on 020 7118 1133 or visit intermediaries.lendinvest.com. LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929). ICO number ZA179467. Your client’s property may be repossessed if they do not keep up repayments on their mortgage. For intermediaries only.

NACFB | in the news Association news and updates for August 2018

The NACFB joins the Women

in Finance Charter

Introducing our new events manager

4 | NACFB Magazine

We’ve got a crush on you. The thought of your client demolishing and building from the ground up makes us giddy.

NACFB NEWS

NACFB & FLA Joint Statement GDPR and the broking process The NACFB has issued a joint statement with The Finance & Leasing Association (FLA) outlining a unified interpretation of how the broking process is impacted by the General Data Protection Regulations (GDPR). The statement confirms a consistent and allied interpretation, specifically on the implementation and use of privacy notices, and has been arrived at after consulting Members, lenders and the regulator. It forms part of ongoing efforts by both associations to safeguard all Members’ interests. GDPR statement for funders and brokers This statement has been prepared as guidance for brokers to consider when they act as a finance intermediary. This statement does not constitute legal advice and is intended to inform rather than replace any implementation plans you have in place based on your interpretation of the regulation. If you require clarification in relation to any matters referred to in this document, we recommend you seek independent legal advice. The GDPR came into effect on 25th May 2018. Firms which

Esme Loans becomes our newest Patron The NACFB is delighted to onboard Esme Loans as the latest Patron of the Association. Please find an outline of their offering, in their own words, below. We look forward to NACFB Members engaging with our newest lender Patron. About Esme Loans Esme’s simple, fast and fair approach makes getting a competitive business loan quick and easy. With rates as low as 4.08% and a fully paperless

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are already complying properly with the current data protection legislation will be largely compliant with the new regulation. The GDPR does, however, place greater emphasis on the documentation that controllers must keep demonstrating their accountability.

for firms to consider the most appropriate approach for their organisations and customers.

Privacy notices While the GDPR does permit privacy notices to refer to ‘categories’ of recipients of the individual’s information, rather than necessarily named recipients, this possibility has to be considered alongside the regulation’s overall requirement that information be handled fairly and transparently. This is a high bar.

It should be remembered that some individuals may not have access to, or be able to use, digital sources. Intermediaries should therefore ensure that such individuals are able to access the privacy information by alternative means, for example by telephone or verbally: see the ICO’s guidance on how to deliver privacy notices for further information on this. It should also be remembered that, if the individual’s data is going to be handled differently in some way, then this should be clearly explained to them. In some cases, lenders may ask intermediaries to have copies of certain information available, should a customer need a paper copy. One example is the Credit Reference Agency Information Notice. Lenders will let intermediaries know where this is the case.

Consistent with this, the ICO’s view is therefore that the most practical solution is for the intermediary’s privacy notice to summarise the key points that appear in finance providers’ privacy notices and explain why the individual’s information is being passed to finance providers, with individuals then being directed to finance providers’ websites where their own privacy notices can be read.

Please note that the intermediary’s privacy notice should be provided to the individual at the time you obtain their data from them.

The inclusion of links to finance providers’ information is, however, not mandatory and it is application process, Esme is built with you and your client in mind. Offering unsecured business loans between £10,000-150,000 over 1-5 years, you can apply for a loan within 10 minutes. There are no early repayment charges and your client can pay more one month, less the next at no extra cost. Plus, once approved, we can send the money within an hour, so they should receive their funds on the same day if their account can receive faster payments. Esme’s platform is simple and easy to use – we offer a hassle-free, paperless application, live quoting tool and a dedicated broker portal, allowing you to track application status and access documents online.

Maximising the opportunities of CFE

We are a NatWest-owned subsidiary and also offer 3% commission, which is available as soon as your client draws down the loan. Eligibility To get an Esme business loan your client needs to be a director of a business, over 18 with a UK address and be able to provide a personal guarantee for the loan. Their company must also be registered in the UK and have been actively trading for at least 18 months, with a current annual turnover of at least £15,000. We’ll look at credit scores and ask for bank statements, annual accounts and VAT returns to confirm turnover and demonstrate the loan is affordable.

Paul Goodman Chairman NACFB

he Commercial Finance Expo is a headline event in the NACFB’s calendar and is always important to me both as the Association’s chair and as a broker. This year it also took on an extrapersonal dimension as I put to bed the demons of falling seriously ill on the morning of last year’s Expo, so it was great to deliver an updated version of the chair’s speech that I had intended to give the year before. To say that I was nervous would be an understatement, but hopefully I have closed that chapter in my life now. With my professional hat on, it was exciting to see first-hand the culmination of all that had been done behind the scenes over the last year at the NACFB, not just preparing for the Expo, but in further developing and growing the association as a whole. I am proud of the team’s work and am honoured to be at the helm during this time. Future-proofing is at the forefront of people’s minds During the Expo I spoke at a panel session on the changing dynamics of the lender/broker relationship, and it was clear from the discussions that brokers are among the many finance professionals who are concerned about the future – what Brexit will bring, how technological developments such as the march of artificial intelligence will affect us and so on. The conversations have inspired me to start thinking long and hard about the sustainability and future-proofing of my own business. I mentioned on stage that my concern about the future is how I and the team will be able to sell our services to my now

13-year-old son in 10 years’ time. Thankfully we are in a market where people still ‘buy’ people, appreciating the value of a specialist broker who works hard to understand and deliver on individual needs – but I suspect this will not be the same for my son. Increasing the size of the lending pie There is a sentiment among mainstream press that banks are not lending to SMEs, but in reality eight out of 10 who approach a bank will secure the funding they need. Supporting the banks are several hundred lenders who can offer SMEs a diverse range of mainstream and specialist, out-ofthe-box funding. The Expo showed me that the NACFB, its Members and Patrons can work together to increase the size of the lending pie

instead of merely fighting over the same slice. Collaboration across the industry was clear for all to see. Your ideas for next year Plans are already underway for the 2019 Expo. Personally, I’d like to see more of the same, but I’d also welcome anything that makes for more engagement throughout the day. If you were at this year’s event, have visited in previous years or are considering attending for the first time next year, please let me know how we can best make this event work hard for us all – while it’s free to attend, it’s still an investment in time, so how can we maximise this opportunity? Feel free to drop me, or the NACFB’s new event manager Claire Luckhurst, a note with your thoughts.

NACFB Magazine | 7

NACFB NEWS

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for firms to consider the most appropriate approach for their organisations and customers.

Please note that the intermediary’s privacy notice should be provided to the individual at the time you obtain their data from them.

Maximising the opportunities of CFE

Paul Goodman Chairman NACFB

NACFB Magazine | 7

NACFB NEWS

Notes from our sponsor Andy Bishop National director of business development Lloyds Bank

We sat down with Andy Bishop, national director of business development - SME banking at Lloyds Bank, to learn of the latest developments impacting the introducer community.

What have you and the Lloyds team been up to in 2018? We’ve had a strong start to 2018, indeed our broker channel agreed lending is up by 42% on last year. We’ve also seen some quite significant rises in both our invoice finance broker deals that have increased 45% year on year and our asset finance activity that has increased 25% year on year. We are on a very positive trajectory and it is something we’ve worked hard to achieve and maintain. Taking a step back, this performance is consistent with our broader development: since the start of 2011 we have grown our lending to SMEs by 33% net, while the market has contracted by 11%.

lasting relationships with brokers and their clients to ensure we deliver what they need now and in the future.

How is the broker channel supporting Lloyds’ Helping Britain Prosper campaign? Through our products and services, Lloyds Bank has been helping Britain prosper for more than 250 years and today we help 27 million customers with their financial needs. Our Helping Britain Prosper Plan tackles the social and economic issues that matter to Britain: its people, businesses, environment and communities. The broker channel is absolutely aligned and integral to this wider campaign. Working side-by-side - and in partnership with - commercial finance brokers is a key part of our strategy to support the growth of the UK’s SMEs.

What advice would you give to NACFB broker Members? My team and I engage with NACFB Members every day and we see first-hand the work the Association has been doing to raise the bar for professional standards even higher. My advice for Members would be to embrace the full range of benefits available to you through your membership. Some Members aren’t aware of everything that is available to them and I would encourage all brokers to take advantage of the compliance and regulatory support that is on hand for them.

How important is the introducer model to Lloyds? Very. In fact, it’s critical. We see it as both a growing channel and opportunity over the coming months and years. We recognise the vital part that brokers play in helping SMEs access the right finance and banking relationship for their business, and we provide a tailored, high-level service through our team of dedicated business development managers. Our goal is to be the best bank for brokers’ clients. We invest time to work with brokers to understand their clients’ businesses so we can provide tailored solutions that support their objectives and aspirations. In this way we build

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How do you foresee the lender/ broker relationship evolving? I think we will undoubtably see some consolidation in the broker market – this is bound to happen as we go forward. But more and more I foresee both brokers and financial institutions working closer together for the benefit of SME businesses. One key aspect that will impact the dynamic is technology. For us there is a balance to be struck with the increasing use of technology while maintaining the traditional face-to-face relationships that are the bedrock of our industry.

Why join the NACFB? The National Association of Commercial Finance Brokers (NACFB) is the flagship trade body for UK commercial finance brokers. Our Association comprises over 1600 commercial finance brokers covering the whole of the UK. Our Members are required to have FCA Permissions, Professional

CODE OF PRACTICE

COLLABORATIVE EVENTS

Helping all our Members adhere to a consistent set of principles assuring both lenders and SMEs.

COMPLIANCE & REGULATION Delivering a comprehensive and bespoke compliance support package for all Members.

Hosting the Commercial Finance Expo and CPD accredited workshops alongside regional training and educational roadshows.

PI INSURANCE Competitively priced Professional Indemnity Cover helps keep Members’ costs down and mitigates risk.

BROKER & LENDER ENGAGEMENT Enabling a closer working lender relationship – making processes easier and more time efficient.

What plans do you have to expand your offering in the future? That would be telling! We are always looking to develop our propositions and offer brokers and their clients the products they need. NACFB brokers will be among the first to hear about any new proposition developments or new products we launch. What other messages would you like to relay to NACFB members? We’re now two months on from the NACFB Expo but the team and I are still reflecting on the event. I’m keen to thank all those connections, old and new, that our team engaged with on the day. It was the biggest and best Expo we’ve attended, and it really is an event not to be missed.

Indemnity Insurance and a Data Protection Licence. The Association partners with all Members to foster professional expertise, embracing the highest industry and regulatory standards to help your business prosper.

INDUSTRY VOICE

BRAND & REPUTATION Promoting a kitemark of quality and trust with clients and lenders, maintaining sector confidence.

w. t. e. a.

nacfb.org 02071010359 admin@nacfb.org.uk 33 Eastcheap, London, EC3M 1DT

Maintaining an authoritative dialogue on behalf of Members before lenders, regulators and the Government.

@NACFB linkedin.com/in/nacfb

NACFB NEWS

Notes from our sponsor Andy Bishop National director of business development Lloyds Bank

We sat down with Andy Bishop, national director of business development - SME banking at Lloyds Bank, to learn of the latest developments impacting the introducer community.

lasting relationships with brokers and their clients to ensure we deliver what they need now and in the future.

8 | NACFB Magazine

CODE OF PRACTICE

COLLABORATIVE EVENTS

Helping all our Members adhere to a consistent set of principles assuring both lenders and SMEs.

COMPLIANCE & REGULATION Delivering a comprehensive and bespoke compliance support package for all Members.

Hosting the Commercial Finance Expo and CPD accredited workshops alongside regional training and educational roadshows.

PI INSURANCE Competitively priced Professional Indemnity Cover helps keep Members’ costs down and mitigates risk.

BROKER & LENDER ENGAGEMENT Enabling a closer working lender relationship – making processes easier and more time efficient.

INDUSTRY VOICE

BRAND & REPUTATION Promoting a kitemark of quality and trust with clients and lenders, maintaining sector confidence.

w. t. e. a.

nacfb.org 02071010359 admin@nacfb.org.uk 33 Eastcheap, London, EC3M 1DT

Maintaining an authoritative dialogue on behalf of Members before lenders, regulators and the Government.

@NACFB linkedin.com/in/nacfb

NACFB | cover story

Mending the gap How can we solve the £57bn productivity shortfall? Norman Chambers Managing director NACFB

Recently unveiled research by NACFB Patron NatWest showed that UK SMEs could add up to £57bn a year to the UK economy – more than the cost of Brexit – if they were as productive as SMEs in Germany.

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hile both businesses and government focus on the UK’s imminent departure from the EU, the findings suggest that UK SME employees, on average, generate £147,000 worth of output per year – less than half that of their German counterparts (£335,000 per worker, per year). This productivity gap is under further pressure, according to the latest Office for National Statistics (ONS) estimates, which identified a 0.5% fall in UK productivity in the first quarter of 2018. In 2016, output per British worker lagged behind every G7 country except Japan, and the gap between the UK and the US stood at 27.3%. Despite this productivity gap, NatWest’s research found UK SMEs were uncertain about the actions

they needed to take to boost business productivity. Even though more than two-thirds of SME decision makers (69%) believe improving productivity is important, just over two-fifths (41%) don’t know what productivity means in practice – making it difficult for them to identify the steps to improve. NatWest’s research, ‘Productivity in focus: Germany vs the UK’, analysed the productivity of UK SMEs and those in Germany – the G7’s most productive economy – to identify potential changes UK firms could make to close the productivity gap. It found that a UK business with 10 employees could increase annual turnover by £1.9m if they worked at the same productivity level as a German business, with this figure increasing to £4.7m for

businesses with 25 employees. Despite these potential gains, the research identified that Brexit and political uncertainty means tackling productivity falls to the bottom of a list of key business priorities, and British SMEs are also less likely to set productivity improvement targets, compared with their German counterparts (39% vs 52%). It is simply not the case that UK SMEs lack the determination and drive. Nor is it that countries such as Germany are innately better at enterprise. The UK has a long-standing history and vibrant business culture when it comes to entrepreneurialism, yet the productivity puzzle persists. Alison Rose, chief executive of commercial & private banking at

NatWest, believes part of the problem may be the academic language of productivity, which not only leaves businesses cold, but can feel meaningless, especially for SMEs. In theory, productivity is a simple equation: output divided by input. But businesses don’t run on theory; they are focused on the inherently practical. Dave Furnival, head of broker and intermediary development at NatWest, spoke of how currently a “French or German worker could clock out on a Thursday having churned out as much as their UK counterpart would manage to produce in a full working week.” He added: “When an SME comes to a broker seeking growth finance, are brokers discussing with them potential options for productivity funding? I believe brokers have an opportunity

to add real value to their clients by highlighting some of these challenges, and it’s in this space we can partner with introducers, to advise them on the range of options available.” All those in the UK’s commercial finance community are in position to advise clients on the types of lending available to boost performance through investment in productivity-improving measures. This is where introducers, advisers and lenders of all shapes and sizes can step up and help to build partnerships of real value to SMEs. So, what can we, as a community, do to help solve the puzzle? Discussions about productivity often centre on manufacturing, with conversations about investing in technology and

NACFB Magazine | 11

NACFB | cover story

Mending the gap How can we solve the £57bn productivity shortfall? Norman Chambers Managing director NACFB

10 | NACFB Magazine

NACFB Magazine | 11

NACFB NEWS

For most businesses, the capacity to change, improve and innovate is interwoven with the performance and attitude of their people

machinery to improve efficiency, so checking that the right tools are being used to produce and sell products is an obvious first step. But for most businesses, the capacity to change, improve and innovate is interwoven with the performance and attitude of their people. Innovation is not confined to the laboratory. It includes investing in staff, not just in terms of skills and development, but also their enthusiasm and satisfaction. Creating the right workplace culture and organisational structure, providing decent, tailored benefits packages, and focusing on employee health and wellbeing can improve individual performance, retain talent, and create additional value. It is these intangible or knowledgebased assets, often inseparable from the people who work in SMEs themselves, that could potentially add billions to the UK economy. Investing in workplace culture, employee benefits packages and offering rewards for good performance were the measures most likely to have the greatest impact on improving productivity. Despite this, only a

third of UK SMEs (32%) said that they invest in workplace culture and employee benefits above the statutory minimum, and just over a quarter (26%) offer rewards for good performance (both financial and non-financial), such as bonuses. In July, the government launched a new £8m Business Basics Fund, with the stated aim of helping SMEs in England to improve their productivity. The fund forms part of the government’s industrial strategy, which seeks to boost productivity and earning power across the UK. In the first phase, funding is being made available for undertaking proof of concept projects. Private sector organisations that are collaborating with at least one public sector or not-for-profit partner can apply to receive a grant. Proof of concept projects could be eligible for grant funding of up to £60,000. By comparison, a much higher percentage of SMEs in Germany are already implementing two of the top three measures most likely to have the greatest impact on German SME productivity. But,

as is the case in the UK, German SMEs would also see a significant benefit per employee if they offered rewards for good performance. Brokers are well placed to provide businesses with guidance on how to improve performance and play their part in solving the productivity puzzle. The UK’s economy is built on the hard work and innovation of small businesses, and by increasing awareness of alternative financing solutions brokers can help prevent any further throttling of economic growth and reduce hardship for thousands of businesses. Informed and dynamic commercial finance brokers – championed by a strong and independent trade body – have a vital role to play in ensuring Britain continues to prosper beyond our exit from the European Union and help to increase levels of competitiveness and productivity.

We’re redefining standard

We’ve put a lot of thought into our newly extended suite of short-term lending products. In an increasingly diverse world we know brokers need maximum flexibility to handle the widest possible range of client scenarios.

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

Prime Bridging Standard Bridging Light Development Development Commercial

Are you ready to rethink what standard means?

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

12 | NACFB Magazine

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.

NACFB NEWS

For most businesses, the capacity to change, improve and innovate is interwoven with the performance and attitude of their people

We’re redefining standard

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

Prime Bridging Standard Bridging Light Development Development Commercial

Are you ready to rethink what standard means?

12 | NACFB Magazine

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.

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

Regime change T Keeping abreast of SM&CR developments After the financial crisis of 2008, parliament recommended that the Financial Conduct Authority (FCA) develop a new accountability system focusing on senior managers and individual responsibility â&#x20AC;&#x201C; the driver behind the new Senior Managers and Certification Regime (SM&CR). James Hinch (AICA) Adv. CERT (Comp) Compliance consultant NACFB Compliance

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he regulation was applied to banks, building societies, credit unions and PRA-designated investment firms, and has replaced the Approved Persons regime for these firms from March 2016. The SM&CR has since been expanded and the revised scope affects almost every firm the FCA regulates. This will include very small firms and those with limited permissions, including sole traders and consumer credit firms, as well as some of the largest global firms. While the extension of the SM&CR â&#x20AC;&#x201C; proposed in the FCA consultation paper CP17/25 â&#x20AC;&#x201C; does not affect individuals and approved persons working as appointed representatives (AR), there may be consequential effects that will be of interest to ARs of firms (the Bank of England and Financial Services Act 2016 does not currently provide the FCA with the power to extend the regime to ARs).

Replacing the Approved Persons regime Holding individuals to account is a key element of effective regulation and the SM&CR is changing how individuals working in financial services are regulated. The FCA is proposing an extension of the SM&CR, which places high-level standards of behaviour that will apply to almost all employees who conduct financial services activities within a firm. Some of the conduct rules apply to all employees, while others only apply to senior managers.

limited permission consumer credit firms sole traders authorised professional firms whose only regulated activities are non-mainstream regulated activities

Limited firms that are already subject to the Approved Persons regime will not have to apply for re-approval for their approved individuals and no extra checks are required (such as mandatory criminal records check and regulatory references), as firms already have to ensure that these individuals are, and continue to be, fit and proper.

oil market participants service companies energy market participants

Firms will be categorised into three types: limited, core and enhanced firms. Limited firms will be subject to fewer requirements than core firms, and cover all businesses that currently have a limited application of the Approved Persons regime, including:

subsidiaries of local authorities or registered social landlords insurance intermediaries whose principal business is not insurance intermediation and who only have permission to carry on insurance mediation activity in relation to noninvestment insurance contracts authorised, internally managed alternative investment funds.

NACFB Magazine | 15

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

14 | NACFB Magazine

limited permission consumer credit firms sole traders authorised professional firms whose only regulated activities are non-mainstream regulated activities

oil market participants service companies energy market participants

NACFB Magazine | 15

COMPLIANCE

Current controlled function

Possible corresponding senior management function(s)

CF1 – Director

SMF3 – Executive director

CF2 – Non-executive director

SMF9 – Chair

CF3 – Chief executive

SMF1 – Chief executive SMF19 – Head of third country branch

CF4 – Partner

SMF3 – Executive director SMF27 – Partner

CF5 – Director of unincorporated association

SMF3 – Executive director

CF6 – Small friendly society function

SMF3 – Executive director

CF8 – Apportionment and oversight function

SMF29 – Limited scope

CF10 – Compliance oversight

SMF16 – Compliance oversight

CF11 – Money laundering reporting officer

SMF17 – Money laundering reporting officer

CF29 – Significant management function

SMF21 – EEA branch senior management function

Current controlled functions The above table sets out on the left the controlled functions under the current Approved Persons regime, which should be familiar. The right column is the new function under SM&CR. Why are these changes being introduced? The regulator wants to bring in new rules for all FCA-regulated firms to make sure individuals and their conduct can be held accountable. The new rules state that companies must clearly explain all the areas of responsibility their senior managers have, and each must have a named individual for each area, including financial crime prevention. These managers will get FCA approval and be listed on its register. The FCA has also proposed five conduct rules that all staff within firms must comply with, which are equivalent to those it already imposes on banks. These are:

NACFB Compliance support is available to all NACFB Members. Our team will provide you and your Brokerage with the guidance, training and support necessary to remain fully compliant with both regulatory requirements and the NACFB Minimum Standards.

25 Years Sector Experience

you must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively

you must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively

you must be open and cooperative with the FCA, the PRA and other regulators you must pay due regard to the interests of customers and treat them fairly you must observe proper standards of market conduct.

16 | NACFB Magazine

Centralised Personal Support

Hosting bespoke workshops, training sessions and webinars on a diverse range of industry matters.

you must disclose appropriately any information of which the FCA or PRA would reasonably expect notice. The Treasury sets the timetable for the implementation of the regime. It is expected that the regime will commence from mid- to late 2019. All NACFB Members will be kept abreast of the latest changes and developments concerning SM&CR. Our NACFB Compliance team will be sharing updates and guidance to ensure that brokers remain informed and able to implement the appropriate changes with minimal business interruption.

Facilitating harmonisation between key stakeholders when new regulation is introduced.

Calendar of Workshops

Delivering high-quality expert insight via email and telephone as well as consultations in person.

Model Office & Pragmatic Support

you must act with integrity you must act with due care, skill and diligence

Patron Engagement

Promoting a kitemark of quality and trust before the regulator, clients and lenders maintaining sector confidence

There are an additional four conduct rules for the senior managers within a firm:

you must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system

Members of the NACFB benefit from access to a wide range of bespoke template documents, help-desk support, regulatory updates, targeted workshops and access to our MyNACFB training portal.

Providing a full suite of the latest customisable working documents for your business.

w. t. e. a.

nacfbcompliance.co.uk 02071010359 compliance@nacfb.org.uk 33 Eastcheap, London, EC3M 1DT

Regulatory Dialogue & Future Insight Maintaining a dialogue with the regulator keeping ahead of the curve.

@NACFBCompliance linkedin.com/in/nacfb

COMPLIANCE

Current controlled function

Possible corresponding senior management function(s)

CF1 – Director

SMF3 – Executive director

CF2 – Non-executive director

SMF9 – Chair

CF3 – Chief executive

SMF1 – Chief executive SMF19 – Head of third country branch

CF4 – Partner

SMF3 – Executive director SMF27 – Partner

CF5 – Director of unincorporated association

SMF3 – Executive director

CF6 – Small friendly society function

SMF3 – Executive director

CF8 – Apportionment and oversight function

SMF29 – Limited scope

CF10 – Compliance oversight

SMF16 – Compliance oversight

CF11 – Money laundering reporting officer

SMF17 – Money laundering reporting officer

CF29 – Significant management function

SMF21 – EEA branch senior management function

25 Years Sector Experience

you must take reasonable steps to ensure that the business of the firm for which you are responsible is controlled effectively

you must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively

16 | NACFB Magazine

Centralised Personal Support

Hosting bespoke workshops, training sessions and webinars on a diverse range of industry matters.

Facilitating harmonisation between key stakeholders when new regulation is introduced.

Calendar of Workshops

Delivering high-quality expert insight via email and telephone as well as consultations in person.

Model Office & Pragmatic Support

you must act with integrity you must act with due care, skill and diligence

Patron Engagement

Promoting a kitemark of quality and trust before the regulator, clients and lenders maintaining sector confidence

There are an additional four conduct rules for the senior managers within a firm:

you must take reasonable steps to ensure that the business of the firm for which you are responsible complies with the relevant requirements and standards of the regulatory system

Members of the NACFB benefit from access to a wide range of bespoke template documents, help-desk support, regulatory updates, targeted workshops and access to our MyNACFB training portal.

Providing a full suite of the latest customisable working documents for your business.

w. t. e. a.

nacfbcompliance.co.uk 02071010359 compliance@nacfb.org.uk 33 Eastcheap, London, EC3M 1DT

Regulatory Dialogue & Future Insight Maintaining a dialogue with the regulator keeping ahead of the curve.

@NACFBCompliance linkedin.com/in/nacfb

Lendy secures full FCA authorisation Lendy has announced that it has received full authorisation from the FCA. The P2P platform’s secured lending model was authorised by the regulator following a detailed end-to-end assessment of its business and operating model. Since launching in 2012, Lendy has facilitated over £400m of lending and has 21,500 registered investors.

Commercial Finance

£5.9bn invested in UK SMEs in 2017

ThinCats opens Birmingham office ThinCats has expanded its presence in Birmingham with a new office, following a record month in which it provided loans totalling £14.7m. The office will be the West Midlands base for the alternative finance specialist, which will continue to retain its HQ in Ashby-de-laZouch in Leicestershire. The new office is part of ThinCats’ ambitious plan to expand in Birmingham.

iwoca announces profitability

Oblix gains authorisation for P2P lending platform Oblix Capital Technologies has been granted authorisation as a P2P firm by the FCA. The authorisation allows the subsidiary to the Londonbased specialist lender Oblix Group to operate a regulated electronic lending platform. Oblix has enjoyed a strong period of growth and hopes the launch of its P2P lending platform will supplement this.

Alternative small business lender iwoca has announced that it reached profitability in the first half of 2018 after doubling its revenue over three successive years The announcement comes as iwoca revealed that it lent a company record £2.2m to 137 businesses in a day at the end of June. Since its launch in 2012, iwoca has lent £500m to 20,000 businesses.

Some £5.9bn of equity was invested in UK SMEs in 2017, according to the British Business Bank. The Small Business Equity Tracker report revealed that total equity investment increased by 89%. London accounted for 51% of all UK equity deals in 2017. The 10 largest equity deals were equal to £1.7bn, which formed 28% of the market.

49% of senior leaders in FS fear skills shortage Almost half of senior leaders in the financial services sector (49%) cited skills shortage as their biggest worry over the next 12 months, according to recent research. A survey conducted by Robert Half Financial Services found that tightened regulatory controls (42%), new business processes (35%), and training and development for employees (32%) were other major worries for respondents.

LendInvest reports 91% loan origination growth

Positive Commercial Finance posts 300% turnover increase Positive Commercial Finance has seen turnover increase by over 300% during H1 2018, compared with the same period last year. The specialist commercial finance broker reported a record-breaking month in June after winning Best Commercial Broker at the Bridging & Commercial Awards. Its profitability was at a record high and it has supported the funding of over 1,000 units this year.

FCA proposes new directory of financial services workers

Tuscan Capital launches auction product

Tuscan Capital has announced the launch of an auction finance product. Auction Funding by Tuscan Capital is specifically designed to provide credibility and proof of funds when bidding at auction. Key features include lending against bricks and mortar in England and Wales from £150,0003m, access to a dedicated legal team and valuation with prompt turnaround times (48 hours). Former RBS manager joins Assetz Capital Assetz Capital has announced the appointment of Jake Hiskett as a senior relationship manager for the North West. Jake joins the P2P lender from RBS, where he spent five years as a relationship manager across the North West. In his new role, Jake will join Assetz Capital’s growing North West team and facilitate deals for clients and new customers.

The FCA has proposed a new directory to help consumers and firms check the status and history of individuals in financial services. The directory would include all those in senior manager positions requiring FCA approval and those whose roles require firms to certify that they are fit and proper. This will include those in consumer-facing roles, such as mortgage and investment advisers.

We know that no two projects are the same, so we identify the unique features of each project and offer a bespoke solution. LendInvest has revealed that total loan originations increased to £536m in the year ending 31st March 2018, up 91% on the previous period. The marketplace platform for mortgages also saw revenue increase to £53m, while lending capital grew 94% to £791m. Profit before tax stood at £1.9m, resulting in LendInvest’s fourth consecutive annual profit from operations.

Downing’s development loans can be used to:

Downing can offer:

ff fund ff fund

ff first-charge

the acquisition and development of residential property for resale; the acquisition and development of new sites for trading businesses such as care homes, data centres, pubs and children’s nurseries; and ff fund the construction of renewable energy and other infrastructure projects.

Downing’s bridging loans can be used for: ff site

acquisitions; and exit loans.

ff development

Find out more: Phone: 020 7416 7780 Email: investment@downing.co.uk

secured loans up to 70% loan-to-value ranging from £1 million to £10 million; ff introducer fees paid on the first drawdown of the loan facility; ff interest rates typically ranging from 8% - 11% p.a.; and ff terms typically ranging from 6-36 months.

Downing LLP

Downing LLP, St Magnus House, 3 Lower Thames Street, London EC3R 6HD, is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 545025). Information correct as at 23 April 2018.

18 | NACFB Magazine

NACFB Magazine | 19

Commercial Finance

£5.9bn invested in UK SMEs in 2017

iwoca announces profitability

LendInvest reports 91% loan origination growth

FCA proposes new directory of financial services workers

Tuscan Capital launches auction product

Downing’s development loans can be used to:

Downing can offer:

ff fund ff fund

ff first-charge

Downing’s bridging loans can be used for: ff site

acquisitions; and exit loans.

ff development

Find out more: Phone: 020 7416 7780 Email: investment@downing.co.uk

Downing LLP

18 | NACFB Magazine

NACFB Magazine | 19

Top | story Our pick of the latest Patron news

Avamore publishes its first industry report Tom Belger Senior reporter Bridging & Commercial

H1 Unregulated bridging fiinance market position Examining key figures and trends in the bridging finance sphere

70%

vamore Capital has produced its first ever industry report, which highlights the key trends and thoughts for H1 2018 along with predictions for H2. The specialist bridging and development lender has collaborated with brokers from across the sector with the report covering development finance and the unregulated bridging market. Figures include the average LTV, LTC and loan life seen across the market during H1. The figure that Avamore believes will spark the most interest is the average interest rate for development finance, which is around 0.7% pcm or 8.5% pa.

The market LTV is roughly around 70%. Changes to this will inevitably affect interest rates. Exit bridges can be structured at up to 75% LTV.

Avamore also offered its own insights into H2 trends and covered such topics as construction costs, predictions for the sales cycle and whether more mergers would be expected to take place between bridging finance providers. The report is part of the lender’s commitment to contributing education and thought leadership to the industry and it hopes it will be a useful guide to developers and brokers for the second half of the year.

you and your clients needs

0.65% There are a wide range of rates depending on LTV, complexity and time contraints. The average interest rates for bridging is around 0.65% per month.

Just call us now

0121 418 5037

Alternatively, find out more

justcashflow.com/partner

Pricing Brokers suggest that bridging prices will remain relatively consistent. Most said that the market rate has reached the lowest point and so, lenders will now look to be competetive in other areas.

✓

✓ Simple application process of solutions to meet ✓ Range differing client needs

strong underwriting team and ✓ Abroker relations team to support

The average loan term for bridging is around 6 months. The maximum is likely to be 12 months.

Respondents felt there was a clear need for more bridge to development products and greater flexibility with borrowers looking to use the same lender from acquisition all the way to completion.

flexible funding solutions ✓ Fast, from £10k to £500k

pay interest on the amount ✓ Only drawn down

6 months

Brokers highlighted that pricing was set to remain relatively consistent for both bridging and development, while there were some interesting thoughts on what new products were likely to come into the market.

Fast & flexible funding for your clients from Just Cashflow...

Patron Member FS668057

BCMS668054

Just Cash Flow PLC is registered at 1 Charterhouse Mews, Farringdon, London EC1M 6BB under Company number 08508165 © Just Cash Flow PLC 2018

20 | NACFB Magazine

Top | story Our pick of the latest Patron news

Avamore publishes its first industry report Tom Belger Senior reporter Bridging & Commercial

H1 Unregulated bridging fiinance market position Examining key figures and trends in the bridging finance sphere

70%

The market LTV is roughly around 70%. Changes to this will inevitably affect interest rates. Exit bridges can be structured at up to 75% LTV.

you and your clients needs

0.65% There are a wide range of rates depending on LTV, complexity and time contraints. The average interest rates for bridging is around 0.65% per month.

Just call us now

0121 418 5037

Alternatively, find out more

justcashflow.com/partner

✓

✓ Simple application process of solutions to meet ✓ Range differing client needs

strong underwriting team and ✓ Abroker relations team to support

The average loan term for bridging is around 6 months. The maximum is likely to be 12 months.

Respondents felt there was a clear need for more bridge to development products and greater flexibility with borrowers looking to use the same lender from acquisition all the way to completion.

flexible funding solutions ✓ Fast, from £10k to £500k

pay interest on the amount ✓ Only drawn down

6 months

Fast & flexible funding for your clients from Just Cashflow...

Patron Member FS668057

BCMS668054

Just Cash Flow PLC is registered at 1 Charterhouse Mews, Farringdon, London EC1M 6BB under Company number 08508165 © Just Cash Flow PLC 2018

20 | NACFB Magazine

THE TEAM FOR COMMERCIAL LOANS

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

Maslow Capital launches dedicated lending service for the industrial sector

COMMERCIAL

RETAIL

INDUSTRIAL

SHOPS

AST’S

INVESTMENT

RESIDENTIAL

HOTELS

OFFICES

FACTORIES

OWNER OCCUPIERS

INVESTORS

ALL!

Michael Kearney Deal origination Maslow Capital

aslow Capital, a leading real estate development financier, has announced the launch of a specialist origination and lending division for the industrial and logistics sectors. This is Maslow’s latest sector expansion, adding to the purposebuilt student accommodation lending product in late 2017. The industrial sector is a mature investment class that is undergoing an amount of structural change, where owners and developers are seeing long-term opportunities to regenerate and enhance assets to meet the changing needs of occupiers. Rapid advancements in distribution and supply chain technology are changing operators’ space and location requirements, which represents an opportunity for developers to innovate. Maslow’s new offer directly supports these changes and its expertise in the development and regeneration process means that lending facilities can be tailored, structured and delivered in a way that meets its clients’ exact requirements.

Maslow’s lending parameters for developers are as follows: Parameters Loan

Minimum £5m

Leverage

Maximum 65% LTV

Pricing

From 5.65% over 1 month LIBOR

Product

mid box and logistics (>50,000sq ft) refurbishment schemes multi-let schemes

Pre-Lease

Not mandatory

Pre-Sale

Not mandatory

Geography

England

The first quarter of 2018 was a record for the sector, according to research from CBRE. More than 19m sq ft of space is currently under construction and 28 major logistics facilities changed hands. Maslow has provided more than £300m of new loans to developers

22 | NACFB Magazine

so far in 2018 – a 20% increase compared with the equivalent period last year. This increase reflects both the growing demand for alternative finance from developers in the UK and the broadening appetite for Maslow’s specialist lending approach, which combines rigorous risk management with deep knowledge and understanding of the total lifecycle of long-term development schemes. Ellis Sher, co-founder of Maslow Capital, said: “Our new offer for the industrial sector is the latest step in our plans to expand into more diverse markets, enabling us to deliver bespoke lending facilities for developers of these essential assets across England. “The opportunities for developers in the sector are compelling and we are committed to supporting the long-term strength of the sector by providing tailored, fit for purpose lending solutions that enable assets to be developed efficiently and which meet the needs of owners and occupiers. As with our other specialist offers, we are looking to the future – the rapid expansion of the sector in the first quarter, in particular, highlights the opportunities for our clients and we are looking forward to underpinning their ambitions as we move forward.”

CMY

Let’s Talk!

COM M ERCIAL

•

020 8349 5190 finance@alternativebridging.co.uk @ABC_Bridging Alternative Bridging Corporation

RESIDENT I AL

•

A PRINCIPAL LENDER

DEVELOP ME N T

THE TEAM FOR COMMERCIAL LOANS

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

Maslow Capital launches dedicated lending service for the industrial sector

COMMERCIAL

RETAIL

INDUSTRIAL

SHOPS

AST’S

INVESTMENT

RESIDENTIAL

HOTELS

OFFICES

FACTORIES

OWNER OCCUPIERS

INVESTORS

ALL!

Michael Kearney Deal origination Maslow Capital

Maslow’s lending parameters for developers are as follows: Parameters Loan

Minimum £5m

Leverage

Maximum 65% LTV

Pricing

From 5.65% over 1 month LIBOR

Product

mid box and logistics (>50,000sq ft) refurbishment schemes multi-let schemes

Pre-Lease

Not mandatory

Pre-Sale

Not mandatory

Geography

England

22 | NACFB Magazine

CMY

Let’s Talk!

COM M ERCIAL

•

020 8349 5190 finance@alternativebridging.co.uk @ABC_Bridging Alternative Bridging Corporation

RESIDENT I AL

•

A PRINCIPAL LENDER

DEVELOP ME N T

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

Progressing two applications side by side developer – to us at West One Loans. RHL is a specialist master broker and distributor specialising in residential, buy-to-let, commercial and second charge mortgages and bridging finance – so was ideally placed to provide the support this complex scenario needed. The client required funding for the purchase and development of an old, rundown office building to convert it into 42 two-bedroom flats. The offices were in a four-storey, freehold detached building that was built in the late 1970s. But it was in a state of serious disrepair, stripped bare and left empty and unloved for several years. The good news, however, was that the applicant had recently obtained permitted development rights for the change of use from offices (B1) to residential (C3).

W Marie Grundy Sales director West One Loans

he world of property development can be incredibly fast moving. When the opportunity arises, speed is of the essence. In a complex bridging deal, getting everything over the line on time is already a challenge. Throw in a second bridge running in parallel on a separate property, a high loan value and multiple drawdowns – and the challenge becomes truly interesting. That’s exactly what happened when Tony Hughes of Residential Home Loans Ltd (RHL) introduced his client – an experienced property

24 | NACFB Magazine

ith the extensive renovation required (on top of the building valuation of £3,750,000) the whole scheme required funding of £7,472,500. With a high loan amount required, additional funding would be necessary. With a large gap between the site’s valuation and total costs, the borrower applied for an additional bridge on a second, separate development to make the difference and reach their target. We received the initial enquiry a few weeks before and had instructed the valuers and solicitors – but due to the client focusing on getting an existing project over the line, things had been delayed. The client had previously paid a deposit for the building and was in danger of losing it, so when everything fell into place we needed to move quickly. With the valuations and documentation in place, we

were able to offer two loans. The first was based on the purchase site. The GDV of the site was £9,450,000 so we were able to offer a ‘day one’ loan amount of £2,437,500 and a total loan facility of £6,142,500 with a maximum 65% LTV at any time, to raise the funds for the purchase and development of the property. Additionally, there were to be between four and 10 drawdowns to support the development work.

What can Conister do for you... Wholesale Funding Asset Finance Block Discounting Commercial Loans Premium Finance Personal Loans

The second bridge – to fill the gap in funding – was on a separate development site nearing completion, which would include a large, three-storey detached house and a separate two-storey property – both for residential C3 use. With time running out on the deposit period and builders on standby to start the work, the funds needed to be in place as soon as possible. When the client accepted our offers, we instructed the solicitors to progress with their usual checks and searches. West One instructs solicitors on an undertaking to speed up the bridging loan process – which was essential in this particular case. Our underwriting team worked incredibly hard to progress two applications side by side, as both were crucial to the whole deal. Between the client, broker and solicitor we provided almost hourly updates, such were the complexities of the case. In the end, we were able to complete on both loans – enabling the purchase of the property – in just two weeks from getting the go-ahead from the client. Development work started shortly afterwards, and we can’t wait to see the finished product.

Competitive rates - Quick Decisions For further details: telephone 01624 694694 email info@conisterbank.co.im or visit www.conisterbank.co.im Conister Bank Limited. Registered in the Isle of Man No. 000738C. Registered Office: Clarendon House, Victoria Street, Douglas, Isle of Man, IM1 2LN. Conister Bank Limited is licensed by the Isle of Man Financial Services Authority for its deposit taking activities and is authorised and regulated in the United Kingdom by the Financial Conduct Authority for its consumer credit activities and mortgage lending administration, firm registration number 619002.

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

W Marie Grundy Sales director West One Loans

24 | NACFB Magazine

What can Conister do for you... Wholesale Funding Asset Finance Block Discounting Commercial Loans Premium Finance Personal Loans

CASE STUDIES

Proplend funders support Welsh bridging requirement Philip Gould Head of credit Proplend

Have you heard about the case with the purchase option expiring in seven days, or the one that wasn’t income producing? Neither had we until we dug a little deeper to see if we could help find a lending solution.

26 | NACFB Magazine

t Proplend, we pride ourselves on trying very hard to facilitate a wide range of commercial mortgage and bridging circumstances – even when they don’t all sit comfortably in the ‘meets all criteria’ tray. Without straying from the traditional criteria for underwriting property transactions, there wouldn’t be alternative lenders or P2P lending platforms, just a gaping hole where high street lenders used to be. And if Proplend, as a platform, wasn’t willing to consider the lesser-taken path and adapt to the changing needs of the commercial property finance sector, brokers wouldn’t have a viable funding alternative for their clients. Naturally, the more criteria that are comfortably met, and the better the overall security package, the lower the lending rate we can offer. From our lenders’ perspective, the more Proplend can mitigate the risks of a lending opportunity, the lower the rate of return they are willing to accept as compensation for assuming that risk. For low-LTV, tenanted commercial mortgage facilities with an interest cover ratio of 1.25x or more, we can offer interest-only rates from 5.5%.

In May, we were contacted by an NACFB-registered broker, Gitesh Patel at PIA Financial Group, regarding a 75% LTV bridging finance requirement in Wales. The asset was operating as a car park and benefited from having planning permission for a significant hotel development in an area with substantial unmet demand for hotel space. Having worked with us before, Gitesh thought of us as being as likely as anyone to get his clients the funding they required – making us one of his first ports of call.

ith a strong preference for income-producing, tenanted property, it wasn’t a transaction we were definitely going to be able to accommodate, particularly as the facility was for a non-UK borrowing vehicle. While their Jersey-based borrowers had six weeks to secure the funding in this case, we had previously delivered a facility for another of PIA’s clients within a week of initial enquiry – so PIA was confident we could deliver for their client and were keen to work with us again. “While this wasn’t the easiest property to fund, with all our expertise around the table we were able to successfully structure and negotiate a funding deal which worked for the client

and Proplend lenders,” said Gitesh. “The team at Proplend is highly professional, easy to deal with and, ultimately, they deliver. I would not hesitate in recommending them.” As with all bridging transactions funded via the platform, we took an interest reserve (deducted from the loan capital drawdown) that covered the 12-month term. Director personal guarantees were also set at an appropriate level to complete the security package alongside our standard first legal charge and debenture. The interest rate also needed to reflect the circumstances and perceived risk. Weighed up against the security agreed for the loan, well over 200 participating platform lenders found the overall lending proposition acceptable – funding over £1.6m.

think of us as an open-minded, commercial property funding source that is always worth giving a call.

sometimes achieve the necessary confidence level to make an offer in principle – even if not all our boxes are necessarily ticked.

For those of you who don’t know us, our bread and butter is interestonly commercial lending of up to 75% LTV, secured against incomeproducing property in England and Wales. We endeavour to facilitate as many different circumstances and commercial property types as we can. And while we’ll never compromise on our standards for assessing creditworthiness, we’ll certainly give you and your commercial clients every opportunity to evidence the viability of their borrowing requirement. Thanks to our comprehensive underwriting process and willingness to consider a variety of security options, we can

We have never listed a loan request that we weren’t confident our lenders would fund and have not had a loan to date where the borrower has defaulted on repayment. As a P2P lending platform offering funding and lending opportunities, we’re happy to be many things to many people. We’d invite our fellow NACFB Members to simply

NACFB Magazine | 27

CASE STUDIES

Proplend funders support Welsh bridging requirement Philip Gould Head of credit Proplend

26 | NACFB Magazine

think of us as an open-minded, commercial property funding source that is always worth giving a call.

sometimes achieve the necessary confidence level to make an offer in principle – even if not all our boxes are necessarily ticked.

NACFB Magazine | 27

CASE STUDIES

Assetz Capital, more than a partnership

Adapting to changing scenarios for £12.8m facility

Our fast and flexible approach to lending will enable you to support existing borrowers and identify new clients

While there are several development lenders in the market to choose from, most only provide funding in specific circumstances. Gerard Morgan Jackson Head of structured finance United Trust Bank

hile there are several development lenders in the market to choose from, most only provide funding in specific circumstances. This results in clients having to refinance their schemes with different lenders as they move through the various stages of a development and beyond – for example, acquisition, planning assembly, development, sales period and/or investment. Each change of facility can trigger additional costs, including solicitor and valuation fees, which can take a substantial bite out of the developer’s margin. But perhaps more importantly, and especially in the current economic environment, there can be a lack of certainty when it comes to agreeing a new facility with a new debt provider. The relationship built up with the lender during a previous stage of the project counts for nothing if the developer then has to seek out a new funder to accommodate the next step. Once a client has established a relationship with United Trust Bank (UTB), we are able to move with them, adapting as the scenario and the client’s needs change. Being a specialist property lender, UTB provides flexible funding solutions. If necessary, we can support a developer or housebuilder with structured finance, development finance and bridging finance, with the three divisions working closely together to provide the most suitable solution.

28 | NACFB Magazine

With the case examined below, the client would typically have had to take a sales period loan, and with it pressures to achieve sales by certain deadlines, or an investment loan to retain the flats, which would require specific income levels and exit fees if the client elects to sell any of the units. In a market which is susceptible to rapid change, we structured a facility to allow the client to do both and thereby provided both flexibility and certainty while keeping their additional project costs to a minimum.

Case details

In this case, UTB refinanced the completion of a development of 13 flats in north London and offered a nine-month sales period facility in order for the borrower to sell the units and repay the loan. The facility was secured by the development and a security package comprising residential and commercial properties in the South East held in third-party vehicles.

LTV 63.5%

The development reached practical completion in early 2018 and while some initial sales were achieved, the clients felt that they could maximise profits by holding some of the units and selling these over a period of time. We were, therefore, approached to restructure the facility and we agreed a three-year term loan, which offered the borrower the flexibility to sell or rent individual flats, subject to covenants during the term of the loan. Repayment could be achieved through a combination of sales or refinance, with this structure offering the borrower flexibility during the course of the facility and giving them the opportunity to maximise their return on the completed development.

Borrower Developer/private client Amount £12.8m Loan type Refinance partly completed development on to a mediumterm facility Location Central London/ South East

Project type Security package including 13 flats, commercial premises and a property in a prime location in the South East Special features Flexible loan structure

Over £530m lent to date

Tom Robinson, director of introducers at Bircroft Private, commented: “Gerard Morgan Jackson structured a deal that perfectly met the requirements of the borrower with the loan allowing time to deliver a sensible combination of sales and lettings. “Gerard is very focused on providing structured debt solutions to highcalibre borrowers where other funders find problems and delays. The ability to then pass the transaction over to Ajsela Cela to ensure a speedy and pain-free completion makes for a very efficient and effective process.”

Our lending solutions include SME business term loans, commercial mortgages, development finance, bridging finance, buy-to-let for landlords, property investor hunting licence and residential refurbishment. Find out more at assetzcapital.co.uk/borrow or call 0800 470 0432 Assetz SME Capital Ltd is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority (Reg No: 724996). ‘Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital Ltd is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.

CASE STUDIES

Assetz Capital, more than a partnership

Adapting to changing scenarios for £12.8m facility

Our fast and flexible approach to lending will enable you to support existing borrowers and identify new clients

While there are several development lenders in the market to choose from, most only provide funding in specific circumstances. Gerard Morgan Jackson Head of structured finance United Trust Bank

28 | NACFB Magazine

Case details

LTV 63.5%

Borrower Developer/private client Amount £12.8m Loan type Refinance partly completed development on to a mediumterm facility Location Central London/ South East

Project type Security package including 13 flats, commercial premises and a property in a prime location in the South East Special features Flexible loan structure

Over £530m lent to date

Patron | profile

IW Capital

Focused on complete solutions Mark Cameron Head of debt transactions IW Capital

he media is awash these days with articles that highlight the continuing retrenchment of high street lenders from SME lending, and stories of poor service and mixed messages that are shared by those SMEs (un)fortunate enough to have received some level of engagement from their bank. Equally, much is made of how the alternative lending community – in its various forms – is filling this void, and while this is true in some areas of the market, it is still not the case in all. In much the same way that banks show an inclination to lend to SMEs

30 | NACFB Magazine

whose balance sheet exhibits a strong, tangible fixed asset base, there is a plethora of alternative finance providers that compete for such business. However, when the aforementioned asset cover is not present, or they have reached their maximum LTV lending criteria, their appetite for supporting SMEs quickly evaporates, demonstrating a lack of conviction in the business and the management, upon whom ultimately the focus of attention should be. The message being sent here could be interpreted as “don’t operate in the service sector or hope to borrow outside of conventional LTV parameters”. IW Capital (IWC) does not follow such a mantra, simply because it ascribes first and foremost to the belief that

if you invest the time in properly understanding a business (in all its component parts), and building a relationship with management, you can lend with greater purpose through offering a bespoke lending proposal. In following this philosophy IWC has put its clients’ money where its mouth is, in lending over £50m in the form of equity, and since November 2016, senior secured debt on a generally sector-agnostic basis. IWC will lend between £500,000 and £2.5m (current average loan size £1.15m and rising) to support established businesses for a broad range of purposes. Because of its robust due diligence process, many (but certainly not all) enquiries are associated with acquisition financing in its various forms – indeed two of its latest transactions have been a £2.3m MBO

for a building management services and smoke ventilation specialist, and a £1.5m facility for an IFA aggregator. There are key differences in IWC’s approach. First, asset-based lenders’ appetite to lend is often capped and shaped by the asset base of the company, be it property, fixtures and fittings, vehicles or the debtor book – but in doing so they are only part of the solution, rather than offering a complete one, which is what IWC focuses on. Second, many such lenders have constraints in terms of the structure of the funding that they can offer, whereas IWC offers bespoke solutions, which are formulated once IWC is able to factor in the strategic objectives of the management team over the proposed loan term.

IWC is a responsible lender and key features of its lending model are: 1. IWC requires a first-ranking mortgage debenture over the assets of the borrower (extending to cross guarantees and debentures in a group scenario), but it will allow a co-funding lender – such as an invoice discounter or factoring company – to take priority in relation to the debtor book, or allow a HP lender to provide funding over a vehicle fleet. This approach makes IWC an ideal partner for an asset finance provider with fixed lending parameters and an interest in providing its customers with a complete funding solution.

2. All loans terms include adherence to financial covenants and the provision of management accounting information, both typically assessed on a quarterly basis. To cater for its existing pipeline of lending opportunities and also consider new ones, IWC has launched its first mediumterm secured debt fund, which is available to not only support acquisition financing, but also working capital needs, asset purchase, refinancing and/or a combination of the aforementioned reasons.

NACFB Magazine | 31

Patron | profile

IW Capital

Focused on complete solutions Mark Cameron Head of debt transactions IW Capital

30 | NACFB Magazine

NACFB Magazine | 31

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

Caring for our landmarks Graham Shaw, managing director at Willmott Dixon Interiors, discusses the recent surge in landmark restoration projects – and their appeal

Q A

Why the sudden surge in landmark restoration?

The business case is clear: restoring heritage buildings brings economic vitality to towns and cities. In 2016, £9.6bn was spent on the repair and maintenance of historic buildings in England, according to Historic England. Examples include updating Alexandra Palace’s East Wing or turning the iconic Old Admiralty Building – famous as a backdrop for Trooping the Colour – into the new head office for the Department for Education. We also saw the Commonwealth Institute transformed into a new home for the Design Museum, attracting over 500,000 visitors a year. It was also recently named European Museum of the Year – a huge accolade for the UK.

Q A

Why is it happening?

Renewing our local Grade I or Grade II* landmarks is about one thing: attracting new money into the local economy. Whether through more visitor numbers or providing space for new homes and businesses, local economies are competing with each other to create space that’s a catalyst for further investment.

Q A

What is the business case?

There’s mounting evidence that towns with an interesting mix of

32 | NACFB Magazine

architecture will fare better than those where all older buildings have been replaced with new. Towns are using restored heritage property as the showcase for the future. Bolton Council, for example, invested millions in upgrading its Grade II* town hall to increase footfall in the town centre by creating new spaces such as wedding rooms and a café area. Down in Plymouth, the Box project is another multi-million-pound investment by the council to create a brand new visitor attraction that will also serve to remind people of the town’s role in the voyage of the Mayflower to America in 1620 that heralded the dawn of the US.

Q A

How do you get local community buy-in?

Any heritage project brings a raft of stakeholders from elected council members to residential and business neighbours, community groups, statutory bodies and historic societies. Some of these stakeholders hold the power to slow down or even derail a project. In the case of the Box in Plymouth, it was facing a year’s delay when one of the local societies opposed the contemporary design of the new elements of the development. Getting through these challenges means proactive commutation and being prepared to negotiate. You have to be diplomatic and ready to explain the value and put a narrative to the opposing view to persuade them. This is important as

objection means the secretary of state – rather than the local authority – has to determine the planning application, which puts months and years on the process.

Q A

What are the challenges with these projects?

Perhaps the biggest challenge for any heritage building project is the cost and the cost uncertainty. Sometimes it’s cheaper to demolish an old building and replace it with a new one, and for buildings without a listing that is frequently what happens. Contractors and customers are working more closely so that they price projects realistically but not uneconomically. That means early contractor involvement to determine where the real value lies for the customer and what scope is achievable within a given budget.

Q A

Is there real value?

There is another question relating to heritage projects: what is the real value in improving these buildings and allowing more people to use and appreciate them? Experts are still trying to get a handle on this. Historic England quotes a 2014 study by social impact specialist Simetrica that equates the wellbeing value of visiting a heritage site to £1,646 a year – greater than the social benefit of participating in sports or the arts.

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

Caring for our landmarks Graham Shaw, managing director at Willmott Dixon Interiors, discusses the recent surge in landmark restoration projects – and their appeal

Q A

Why the sudden surge in landmark restoration?

Q A

Why is it happening?

Q A

What is the business case?

There’s mounting evidence that towns with an interesting mix of

32 | NACFB Magazine

Q A

How do you get local community buy-in?

objection means the secretary of state – rather than the local authority – has to determine the planning application, which puts months and years on the process.

Q A

What are the challenges with these projects?

Q A

Is there real value?

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

How Love Island gives an indication of asset finance trends Tim Shand Business development director Rivers Leasing

here has been quite a bit of news about the contraction of discretionary spending of late. The UK economy is showing its greatest signs of strain since 2012, we are told. Batten down the hatches and prepare for a stormy ride is the subtext: we’re heading for a world of a little less luxury. Of course, there are practical indicators to inform this view, but there are also signs that it is not a generalisation that should be made across all sectors. It is true that inflation has been running at higher levels, mainly caused by fuel

(domestic and transport), imported goods (blamed on the exchange rate) and food (wages, production and transport costs). Wages have not been rising fast enough to overcome this rise. The common narrative is that this has caused individuals to tighten their belts regarding non-essential spending. Galvanising this view is the evidence that certain markets have been hit because they rely on the discretionary spend, such as the restaurant trade – there have been a number of high profile chains which have had to restructure, including Jamie’s Italian, Byron and Carluccio’s. The blame, at least in part, has been laid at the door of belt tightening, but the reality is a little more complex. There seem to be more restaurants than ever,

many of which are flourishing, and other niche markets also seem to be prospering despite apparently being at the mercy of the discretionary spend. This is not a new phenomenon. For example, if we look back to the wake of 2007/8, when many small-town businesses were closing in France, after the bakery the country’s last man standing was often the local salon, closely followed by the patisserie. The reason? Well, no one in France really considered their pastries or their haircuts to be discretionary. There was a cultural understanding that whatever the situation, these things were worth striving to retain. It is a concept that resonates with other businesses in the UK as well. In 2010, the Guardian reported that it was the little luxuries that resisted the downturn,

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

How Love Island gives an indication of asset finance trends Tim Shand Business development director Rivers Leasing

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including beauty treatments. By way of example, Abi Wright, managing director of spa booking agency Spabreaks.com, began her business in 2008, and attributes at least part of the business’s success to individuals not going without luxuries in harder times, but simply downsizing them. You may go without a week overseas, but instead you may opt for having spa treatments in the UK a couple of days a year. Spabreaks.com is now one of the market leaders in its field. Today we continue to find that the beauty and fitness industry is in high demand. Perhaps this is another example of media influence: reality TV shows such as Made in Chelsea, TOWIE, Love Island and The Real Housewives of Cheshire seem to have led to a demand for shiny white teeth, hair extensions, botox, lipo, fake tans and beachready bodies for both men and women. The comparative accessibility of the reality TV star, the way the shows have redefined beauty, the high-street accessibility of many of the mechanisms to achieve it and the changing attitude towards health and fitness provide a feel-good factor achievable on a scaleable budget. That, combined with the kind of reach, influence and synergy with popular feeling that reality TV shows have, creates a sense that not only are these things achievable or even necessary in an economic downturn, but there is also a sense that they are no longer discretionary. They are must-haves. Bringing together a number of factors, housing may also be having an influence on discretionary spending. With many potential first-time buyers feeling priced out of the market, more and more seem to be giving up on the ambition of house ownership and are becoming content to rent. This then allows cash to be diverted from saving for a deposit to spending. Whatever the reason, despite the changing economy, a downturn in discretionary spending does not mean the same thing for all markets, nor does it present in the same way it may have done 20 years ago. While this is not intended to be a deeply scientific piece of research, but a few thoughts about certain developments in niche markets which may impact on the perception of risk managers and how the media can influence this, the good news is that there is still strong demand for asset finance in the health and beauty sectors. Although naturally, one would have to caveat the need to understand the very complex underlying factors in the shifting of the plates.

36 | NACFB Magazine

We continue to find that the beauty and fitness industry is in high demand. Perhaps this is another example of media influence

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36 | NACFB Magazine

We continue to find that the beauty and fitness industry is in high demand. Perhaps this is another example of media influence

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The case for long terms and fixed rates

In an interview with the BBC, Jes Staley, CEO at Barclays Bank, noted that concerns over Brexit meant the bank planned to review its lending criteria for its UK loan book. Marc Bajer CEO Hadrian’s Wall Capital

is comments triggered over 1,700 posts on the BBC website in response to the story. Should the SME lending community be concerned? The fact is that any tightening of Barclays’ loan credit criteria is merely additive to many years of reduced lending from not only Barclays, but from all UK banks to SMEs. A recent study of Bank of England statistics by Hadrian’s Wall Capital seems to suggest that UK banks have increased their focus on lending to big businesses – possibly at the expense of SMEs. The statistics show that bank lending to big businesses is now worth £8.6bn more than it was at the same time five years ago. However, SMEs are now receiving £8.2bn less than they were in 2013. The government has made some positive noises about supporting SMEs, overseeing the introduction of schemes such as Funding for Lending (which ended in January), but small businesses still face a funding gap. Basel III regulations – which have imposed tighter controls on banks’ capital holdings – are certainly contributing to a lack

38 | NACFB Magazine

of improvement in the lending volume to SMEs. One thing is clear, however: whether because of Basel III, Brexit or internally imposed bank constraints, small UK businesses are bearing the brunt of the shift in lending focus. The decline in money lent to small businesses creates two key problems. First, fewer small businesses will receive a ‘leg up’ to start operations. Second, small businesses that want to grow – and all businesses need available finance to do so – are finding their funding options increasingly scarce. To add to current problems, only 16% of the funding that is taking place to small businesses is on a fixed-rate basis. This can make it difficult for them to plan, whether for investment or corporate finance activity. Corporate finance advisers have told us that one barrier to business growth is the lack of long-term, fixed-rate lending. A lack of capital for investment can hamper the delivery of corporate finance solutions such as MBOs, acquisitions, and re-structuring.

cost of borrowing – even with alternative finance providers – could still increase. It is, therefore, more important than ever that the UK’s small businesses are aware of all the funding options available to them. The case for long-term, fixed-rate debt for small businesses is clearer than ever. At Hadrian’s Wall Capital, we have deliberately focused on providing SMEs with a source for this type of loan. It is this kind of funding that provides businesses with secure financing to invest in their long-term growth or complete vital corporate finance transactions. Our funding solutions have several immediate benefits for small businesses, including being free from bank ‘payable on demand’ provisions and thereby minimising risk and uncertainty in the SME funding structure. SMEs are one of the essential engines in our economy and in a time of economic uncertainty, our small businesses can benefit from the security of fixed-rate, long-term funding to help drive the country’s growth.

As a result of the banks contracting their lending to small businesses, many alternative finance providers are stepping in to provide finance, which can be an effective solution. However, with potential interest rate rises still on the horizon, the

NACFB Magazine | 39

SPECIAL FEATURES

The case for long terms and fixed rates

38 | NACFB Magazine

NACFB Magazine | 39

SPECIAL FEATURES

Gavin Wraith-Carter Managing director Hitachi Capital Business Finance

n the past, small businesses have not enjoyed the ease of access to finance that larger corporations often take for granted. From our small business research, we see the sad story of bright, young businesses feeling restrained from reaching their full potential due to red tape and never-ending terms and conditions. At the beginning of the year, Open Banking was intended to signal a new mind-set from the financial services industry – a

40 | NACFB Magazine

SPECIAL FEATURES

new agenda that was supposed to put the customer at the forefront. In theory, this enabled the UK’s small- and medium-sized businesses to get greater access to new products and services. The idea behind the changes was that they would introduce more competition and innovation to the sector and would lead smaller companies to better money management. Ultimately, Open Banking promises the potential to break the stranglehold of larger, high street lenders and to give small companies a greater chance to compete against their larger counterparts. Yes, waves have been made, but Open Banking is still a relatively new concept for the industry to really see a big difference.

Hitachi Capital’s research has shown us that almost one in two small businesses (49%) – of the 1,200 decision makers surveyed by our Business Barometer – said that they would be unable to grow their business without access to finance. This rises to 86% of companies already struggling to grow. Of foremost concern are the areas within a business that can be negatively impacted due to inadequate access to finance. For example, having the right, skilled people can be crucial to a company’s development. Our research revealed that one in four small businesses (25%) would struggle to increase headcount without the ability to borrow money in the next 12 months – which rises to 55% of those struggling to

survive. We’ve found that employing more people would in fact be the number one challenge across several sectors of the small business community, specifically those working in construction (27%) as well as those based in London (27%). Our latest study suggested there were other big issues keeping small business owners awake at night. Almost one in five small businesses (19%) said they would be unable to run a marketing or advertising campaign without access to finance, and 18% said a lack of financial support would result in them shelving plans to launch new products and services.

Activities small businesses would not be able to do if they were unable to secure finance Q2 2018 Increase headcount/hire new people

22%

Run a marketing/advertising campaign

19%

Launch new products/services

18%

Move to a better location/bigger space

18%

Compete with larger competitors

18%

Modernise IT capability/purchase new IT equipment

16%

Invest in new vehicles

16%

Invest in new production lines/machinery

15%

Invest in staff training programmes

15%

Invest in a new company brand/website

13%

NACFB Magazine | 41

SPECIAL FEATURES

Gavin Wraith-Carter Managing director Hitachi Capital Business Finance

40 | NACFB Magazine

SPECIAL FEATURES

Activities small businesses would not be able to do if they were unable to secure finance Q2 2018 Increase headcount/hire new people

22%

Run a marketing/advertising campaign

19%

Launch new products/services

18%

Move to a better location/bigger space

18%

Compete with larger competitors

18%

Modernise IT capability/purchase new IT equipment

16%

Invest in new vehicles

16%

Invest in new production lines/machinery

15%

Invest in staff training programmes

15%

Invest in a new company brand/website

13%

NACFB Magazine | 41

SPECIAL FEATURES

Almost one in five small businesses said they would be unable to run a marketing or advertising campaign without access to finance

Sectors in focus Retail More than three in five small ventures in retail (66%) said they would struggle to expand without borrowing money over the next 12 months – the sector most reliant on funding. The foremost concern was being unable to finance an advertising campaign (22%), followed by a struggle to launch new products and services (21%). One in five respondents (20%) also admitted they would find it challenging to hire new people.

Media Almost three in five decision makers in media (58%) admitted they would find it difficult to expand without proper access to finance. More than one in four respondents (26%) would not be able to invest in new staff, 25% would struggle running a marketing campaign, while 21% could not launch new services. In 2008, as the austerity era kicked in, banks became less willing to lend money to small businesses. This frame of mind forced many in the small business community into a corner, faced with the prospect of a tough fight for funds. Our own tracking research over the last five years repeatedly showed that many smaller ventures now presume a lot of high street lenders are simply not on their side, and quick to say no. The ability to quickly access support, whether it comes in the form of a loan or an asset is vital for smaller enterprises. In the current economic climate, it is difficult for SMEs to compete effectively in a fast-paced market, with uncertainty also surrounding the economic fallout of Brexit. Over the years, we have worked with thousands of small- and medium-sized businesses across the UK, helping owners to reach their full potential. We have supported them with the right financial services tailored around their needs and their dreams. We understand that every business is unique and so we continually strive to be innovative in the products and services that we offer. We are constantly evolving and finding ways to be innovative in a world that never stands still.

42 | NACFB Magazine

Even with a new era of Open Banking, smaller companies are still struggling without greater transparency and access to the correct financial support. Many still don’t know the full range of finance options available to them – and based on their previous experience with high street lenders, many young businesses look for help with finance when it’s too late. Small businesses are the backbone to our economy and to help them grow and prosper we need to see the industry embrace a more visionary, collaborative and supportive approach to finance. Many small businesses are tough, versatile and thick-skinned. From our study we have seen business confidence remain bullish, whatever the broader political and economic storms they have had to face. However, they need more than fighting spirit: they need support, knowledge, understanding and above all an engaging approach to finance. They need to feel that more people are on their side, backing their corner. In the age of Open Banking what we really need is a true mindset change from lenders that are genuinely open for business – an age of open finance.

Manufacturing More than half of small businesses within manufacturing (52%) said they needed access to finance in order to grow their business. Investing in new machinery (24%) would be shelved if businesses were unable to secure funding, while 16% admitted they would not be able to move to a bigger location and 14% would have problems hiring new people.

Construction Half of small businesses in construction (50%) admitted they would face challenges if they were unable to secure finance. Their biggest challenge would be hiring new people (27%) – most commonly felt in this sector – while 22% of respondents said they would struggle competing against larger companies and 21% would not be able to afford new vehicles.

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Almost one in five small businesses said they would be unable to run a marketing or advertising campaign without access to finance

42 | NACFB Magazine

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

The intricacies of smaller developments David Garbett Senior BDM FBSE Finance

onstruction output has continued to decline in the three-month-on-three-month series, according to the Office for National Statistics (ONS). It fell by 3.4% in April 2018, which is the biggest fall seen in the series since August 2012. The ONS attributed the decline to falls in both repair and maintenance and new work. The resulting fallout has meant some of the larger firms are struggling or even failing, but smaller builders may now be able to bid for many of these contracts. There are, however, a myriad of factors that create a barrier to entry for the smaller firms and they can generally be broken down into reasons that relate to the funding side, or to the builder/developer. Minimum loan sizes There is an ever-increasing choice of lenders in the market and many that are looking to partake in the lucrative development finance area. Many of the builders and developers that would have traditionally used mainstream banks are now supported by specialist lenders. One of the main problems is that many of these lenders have minimum loan sizes, with some being as high as £1m or more. This creates a quantum barrier to the market. The question is – why the minimum loan size?

44 | NACFB Magazine

Cost This is generally the main reason that lenders have minimum loan sizes. The number of man-hours it takes to do a £1m development is comparable to a £250,000 one, so quite simply the £/hour generated makes it far more cost-efficient to do larger loans. Expertise Development finance is one of the more complicated forms of property finance and with that comes a requirement for specific skill sets from employees. These employees are generally more expensive and thus increase cost. Risk profile Many lenders are risk averse. As development lending has many moving parts, things can easily go wrong and thus they are considered a riskier proposition. With the increase in risk many lenders feel the returns need to be higher – above a minimum amount – to justify the resources utilised. Builders and developers There are some problems that are typically associated with builders and developers that do smaller deals. Experience Probably the biggest difficulty developers have when starting out is lack of evidential experience. Cash/LTV requirements Speaking in general terms, smaller developers do not have access to large amounts of cash to either initially purchase land or to make

How to support these clients With a client that is a small builder/developer there are lenders you can go to that will do these deals, but you should consider a few things first. You need to understand the deal well – analyse the deal like a lender would. Be realistic with the client. If you know there is something wrong in the background, make sure the client knows this could affect the rate or the LTV offered in some circumstances. This helps avoid not being able to deliver on promised low rates or LTVs. Provide as much information as you can to the lender upfront, including the negative points. This will save you a lot of time and stress. Consider some lenders that you might not have used before, as there is a lot of choice out there. up the 30%+ deposit that is required. This means hitting the LTV hurdles can be a challenge. Also, if a project does go wrong, they typically do not have other assets in the background to draw on, resulting in the lender being forced to lend more or allowing the build to grind to a halt. Non-standard numbers Many small builders can operate at figures below the Building Cost Information Service estimations, which leads to underwriting issues for the lenders, as they will often contradict valuers and their build estimates. Geographical Given the size of the deals that the smaller developers might be looking to do, they could choose to do them in locations that have generally lower prices, for example, north Scotland. This could potentially put off some lenders.

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

The intricacies of smaller developments David Garbett Senior BDM FBSE Finance

44 | NACFB Magazine

GUIDES

Annie Maddock Content writer Kuflink

Millennials are often the subject of much media attention, especially surrounding their financial affairs, which are often scrutinised by those trying to understand their motivations.

s the next generation to hold the majority of the world’s capital, it’s no surprise that financial institutions want to find out what makes them tick. Often split into two distinct and derided categories – affluent, young ‘Instagram rich kids’ and those stuck on zero-hour contracts with no choice but to live with their parents well into their thirties – the millennial condition is actually far more nuanced. Generally, though, how much spare money does the average young adult have? Are they saving, investing or spending it and, if so, how? According to research conducted by Strutt & Parker, millennials are spending thousands of pounds every year on luxuries, including nights out (over £3,000), takeaways (over £1,300) and over £600 per year on coffee. Furthermore, UK millennials were shown to be the most enthusiastic about luxury goods, with over 70% classing themselves as ‘very interested’ in premium items ranging from high-end watches to designer clothing brands. Alongside an interest in luxury goods, 49% of millennials consider themselves to be ‘savers’, with 23% claiming to save at least half of their disposable income each month. Fintech saving apps such as Squirrel and Chip – which regularly withdraw small amounts from current accounts,

46 | NACFB Magazine

NACFB Magazine | 47

GUIDES

Annie Maddock Content writer Kuflink

Millennials are often the subject of much media attention, especially surrounding their financial affairs, which are often scrutinised by those trying to understand their motivations.

46 | NACFB Magazine

NACFB Magazine | 47

GUIDES

ensuring regular contributions to savings – are hugely popular with the younger generation. Millennials’ savings could be better placed in securely managed investments, and many are starting to wake up to this fact and explore the abundance of options available to them. London Block Exchange research predicts that by the end of 2018, 12% of millennials will have invested in shares, 20% in bonds, 19% in precious metals and 18% in property. This report also uncovered that one of the most popular new investment vehicles for this age group is cryptocurrencies, with 5% of those aged below 35 having already invested, and a further 11% planning to invest this year. Further alternative investment opportunities welcomed by millennials include platforms emerging from new technologies such as P2P. These are offering millennials high rates of interest they wouldn’t get from traditional options such as banks, as well as offering borrowers access to loans that banks are more reluctant to award due to the fallout of the financial crisis 10 years ago. Property has traditionally been one of the most popular investments, and although current data shows that the chances of a young adult on a middle income owning a home in the UK have more than halved in the past two decades, there is an abundance of other options available for those looking to invest in bricks and mortar. As there is high demand from developers for alternative loans from P2P sites due to the banks’ anxieties, there are many options – such as Kuflink’s property-backed P2P platform, which continues to grow at an exceptional pace. With a new generation of tech-savvy investors putting money in platforms such as Kuflink, there is a large supply of funds available to developers and project managers looking for accessible and rapid finance. As these platforms are not subject to the same legacy infrastructures as the banks, vetted loans can be provided in a fast and professional manner to fuel the development of projects across the country.

48 | NACFB Magazine

Their money could be better placed in securely managed investments, and many millennials are starting to wake up to this fact

Taking a flexible approach to your clients lending requirements is what we do best. Take our Short Term range for example, delivering rapid funding options to support tactical investment opportunities for Ltd companies, LLPs and individuals. ■ ■ ■

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GUIDES

48 | NACFB Magazine

Their money could be better placed in securely managed investments, and many millennials are starting to wake up to this fact

■

Exit development finance Auction purchases Commercial to residential under permitted development All property types considered

Contact our award winning team

0330 123 4521 salesdesk@shawbrook.co.uk shawbrook.co.uk

Proudly different. Proudly different THIS ADVERTISEMENT IS FOR INTERMEDIARIES ONLY AND SHOULD NOT BE DISTRIBUTED TO POTENTIAL CLIENTS

Opinion | & commentary

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FOR THE SMALL TO THE VERY BIG, FROM THE ORDINARY TO THE EXTRAORDINARY

Colin Sanders CEO Tuscan Capital

hen I began my career in financial services more years ago than I really care to remember – it’s over three decades, actually – the office-based business environment was markedly different to the one encountered today by fresh-faced, eager millennials. Back then in the ‘80s, the ‘Thatcher revolution’ was sweeping away old attitudes and ways of doing business. In came Big Bang and meritocracy and out went executive loos, directors’ dining rooms and the old-school tie. Or so we like to think. Some believe the changes have gone a little too far. Take business dress, for example. In my early days the suit and tie were de rigueur. Visit a fintech start-up now in Clerkenwell and you could be forgiven for thinking you’d stumbled upon an indoor beach party. But one area in which I believe we’ve definitely made sensible progress is in how we make ourselves available for doing business. I’m not speaking generally here – poor productivity continues to be a real challenge for the UK economy – but in terms of the specific market in which we all operate: lending via professional intermediaries.

Where once lenders operated on a pretty rigid nine-to-five basis, brokers now rightly expect and demand a more modern approach. Providers that don’t or won’t comply are in danger of losing competitive advantage. Don’t get me wrong. I’m not for one moment suggesting we all need to be hanging on the end of the phone 24/7, 365 days a year. I’m as big an advocate for the work-life balance as anybody I know. But I do believe that people in senior, decision-making positions need to be available and accountable outside the usual hours of business. This has become more apparent and selfevident to me following my entry into the bridging market back in 2011. Previously used to working with mortgages and secured loans, I soon discovered that to lend successfully in this sector requires a different approach and mindset. I think many of my broker colleagues reading this might agree, particularly those who, like me, have chosen or been forced by circumstances to make the journey from long-term to short-term lending.

pecialist products merit special treatment. Bridging, along with its more complex development finance cousin, is not a mass-volume product – nor should it be. What it does is serve a particular purpose for a particular audience. Speed can be an important consideration – particularly in regulated ‘broken chain’ cases – but I’ve discovered that it’s more important to get

Build on sound foundations with certainty of funding and rates from 0.7%. Lendy offers a complete range of property finance solutions for every type and stage of project

the fundamentals right to ensure all parties benefit equally from a successful outcome.

• 75% LTV • 70% LGDV • Loans from £50,000 to £5m • Flexible rates to match individual requirements • Potentially unlimited funds from new funding line • Over £400m lent to date

This means communication. And communication in my experience doesn’t begin at nine in the morning and end at five in the evening. It is an essential component of the entire lending process that transcends any fixed notions of ‘hours of business’. Were I, or any of my broker-facing team, to down tools each day at 5pm on the dot with no further contact permitted, I don’t think we’d be around long enough to stump up our next annual Patron dues to the NACFB. And, of course, none of us need any longer to be slaves to the office desk to ensure good communications. Technology has taken care of that. While the summer has doubtless borne witness to countless furious arguments around the hotel swimming pool about working while on holiday, smartphones and pads are generally more a boon than curse. So, is nine-to-five dead? Yes – or at least it should be for those of us in mandated, senior positions. Perhaps the seemingly relentless (and slightly chilling) rise of artificial intelligence will one day put paid to us all, lender and broker alike, but I judge that time’s still a way off and certainly not in my working lifetime. Before then, I anticipate further good times ahead for bridging and its competent practitioners. Consider us, for one, to be open all hours (just don’t tell my wife I said so).

Get a quote today. Contact Lendy on 0800 779 7706 or go to lendy.co.uk/borrow We always look for a reason to say yes! Regulated by the FCA The AWARDS 2018

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Opinion | & commentary

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FOR THE SMALL TO THE VERY BIG, FROM THE ORDINARY TO THE EXTRAORDINARY

Colin Sanders CEO Tuscan Capital

Build on sound foundations with certainty of funding and rates from 0.7%. Lendy offers a complete range of property finance solutions for every type and stage of project

the fundamentals right to ensure all parties benefit equally from a successful outcome.

• 75% LTV • 70% LGDV • Loans from £50,000 to £5m • Flexible rates to match individual requirements • Potentially unlimited funds from new funding line • Over £400m lent to date

Get a quote today. Contact Lendy on 0800 779 7706 or go to lendy.co.uk/borrow We always look for a reason to say yes! Regulated by the FCA The AWARDS 2018

50 | NACFB Magazine

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OPINION & COMMENTARY

Have you considered going further? For decades, the route to finance for SMEs in Scotland has been dominated by three big banks, which between them account for an estimated 90% of the business lending market. Adrian Innes Head of origination LendingCrowd

s a result, other market participants have been crowded out and the broker network has not developed as widely in Scotland as it has south of the border. This may also be due to the rather conservative nature of Scottish borrowers, who have tended to think of banks, solicitors and accountants as the first port of call for their funding needs. I believe that Scottish businesses have been missing a trick by overlooking brokers, who can work with P2P lenders to offer a highly professional and personalised alternative to the high street banks – the oldest of which predates the United Kingdom.

I would be delighted to see more brokers establishing a foothold in Scotland, as increased competition can help drive innovation and improvements 52 | NACFB Magazine

Until the early 17th century, Scotland and England were two entirely independent kingdoms. That all changed when the English crown passed to James VI, king of Scotland, following the death of Elizabeth I in 1603. James may have held the thrones in both Scotland and England, but both countries maintained their own parliaments until 1707. The Acts of Union spelled the end of the Scottish parliament, but separate legal systems continued on both sides of the border. Scotland regained its own parliament in 1999 as a result of devolution.

The union has endured amid ongoing upheaval, with voters in Scotland rejecting independence in 2014. However, renewed calls for separation, sparked by the Brexit vote two years ago, show that the political landscape continues to evolve. Attitudes are also changing among SMEs, which are increasingly willing to think outside the bank when it comes to their options. Competitive rates and rapid loan turnaround times mean that more borrowers are turning to specialist P2P lenders such as LendingCrowd. According to research published by the British Business Bank in February, net bank lending remained relatively flat in 2017, while P2P business lending volumes rose by 51% to almost £1.8bn. This rise in demand for P2P funding highlights the huge opportunity that exists for those brokers who can stand out in the financial landscape. LendingCrowd has secured many loans for Scottish businesses working with English brokers, and I would be delighted to see more seeking to establish a foothold in Scotland, as increased competition can help drive innovation and improvements in borrower outcomes. Access to finance remains a challenge for many SMEs – the powerhouse of the economy – but we’re increasing our lending significantly this year. In March, we completed a £2m external funding round, with the proceeds earmarked for ramping up our sales and marketing activities.

Our efforts are already bearing fruit, with a record level of deal volumes and values during the first half of this year, exceeding our drawdowns for the whole of 2017. More and more SMEs are turning to us for affordable loans tailored to suit their needs, benefiting from direct access to our expert colleagues at every step of the way. The growth in our lending is the result of an improvement in our processes and a great working relationship with our community of introducers. Being headquartered in Edinburgh, we have in-depth knowledge of the Scottish market and our location makes it easy for many borrowers and brokers alike to meet us face to face. While uncertainty over Brexit and the possibility of a second Scottish independence referendum may cause traditional lenders to restrict their appetite for funding, we have a target to more than treble our lending to Scottish SMEs in 2018. For the UK as a whole, we’re on track to more than double our loan origination. SMEs make up 99% of the business population. They need – and deserve – greater access to a wide range of funding sources to ensure they can continue to thrive in these changeable times. The political and economic outlook is as uncertain as ever, but one thing is clear: increased competition and the emergence of more brokers in Scotland will drive huge benefits for the country’s vital business community.

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OPINION & COMMENTARY

I would be delighted to see more brokers establishing a foothold in Scotland, as increased competition can help drive innovation and improvements 52 | NACFB Magazine

NACFB Magazine | 53

OPINION & COMMENTARY

SPECIALIST LENDING SOLUTIONS BRIDGING FINANCE

BTL landlords are picking themselves up

It’s no surprise that portfolio landlords’ confidence has taken a hit over recent months. Since the introduction of stricter underwriting assessments last September, there’s now barely a week that goes by without a new headline in the media about how buy-to-let is finished and landlords are exiting it in their droves. Indeed, in a recent report, the National Landlords Association suggested up to 380,000 landlords intended to offload property in the coming year. Combined with the introduction of the stamp duty surcharge and the phased reduction in mortgage interest tax relief starting to bite, many landlords are struggling to secure the finance they need and are reducing the number of properties they own, while potential new investors are looking at the diminishing profit margins and thinking it’s not for them. However, as with most things in life, there are two sides to every story.

For example, landlords wanting to diversify their portfolio and maximise their yields are increasingly setting their sights on areas away from the traditional hotspots of London and the South East. Cities such as Birmingham, Leeds, Liverpool, Manchester and Nottingham, as well as areas in the North East, are all now recognised as places where landlords can still return a decent yield due to reasonable property prices and large student populations. Experienced investors are realising they can boost their rental income by letting one property to multiple tenants. As houses of multiple occupancy (HMO) attract multiple tenancies, gross rental income tends to outstrip single lets and rental income is more secure, even if a tenant leaves a void.

any portfolio landlords are also considering incorporating their buyto-let business into a limited company. According to research by BDRC, 38% of landlords say their next buy-to-let purchase will be made via this structure. As limited companies are unaffected by the tax relief changes, owners can continue to deduct interest from the rental

income to calculate the profit on which tax is levied. Limited companies also pay a lower tax rate than individuals with corporation tax currently standing at 19%. It’s worth remembering that dividends taken by company directors are taxed based on their tax band. Landlords should always seek professional tax advice before deciding whether setting up as a limited company is the right option for them. All of the above means there’s still plenty for landlords looking to rebalance their portfolio to be optimistic about. This is where brokers and specialist lenders can help rebuild portfolio landlords’ confidence. With many high street lenders exiting the market because they can’t accommodate the extra work that’s now required for portfolio landlord applications, it’s essential customers get the right support to help them navigate the buy-to-let landscape, as well as access to a range of products from specialist lenders designed to help them take advantage of the new opportunities. At Precise Mortgages, we offer a range of HMO and limited company buyto-let mortgages designed to help portfolio landlords develop their buyto let-business. We’ve also set up a dedicated portfolio team who will do the heavy lifting for brokers by keying in the additional information that’s now required by the new regulations.

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

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Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549). Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.

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he saying ‘when one door closes, another one opens’ wasn’t written with portfolio landlords in mind, but it’s certainly something many landlords should bear in mind when considering their future.

While the buy-to-let landscape has certainly changed over the last couple of years, there are still plenty of opportunities for landlords who are prepared to adapt their strategy.

Get in touch

Alan Cleary Managing director Precise Mortgages

OPINION & COMMENTARY

SPECIALIST LENDING SOLUTIONS BRIDGING FINANCE

BTL landlords are picking themselves up

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

FOR INTERMEDIARY USE ONLY. 54 | NACFB Magazine

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While the buy-to-let landscape has certainly changed over the last couple of years, there are still plenty of opportunities for landlords who are prepared to adapt their strategy.

Get in touch

Alan Cleary Managing director Precise Mortgages

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