NACFB Magazine - August 2017 by NACFB

Issue 49 August 2017

The magazine for the National Association of Commercial Finance Brokers

The new shape of lending

Are complex loans pushing vanilla deals out of the spotlight?

In this issue

The Brexit effect on trade finance

Consequences for UK SMEs during and after the negotiation period

The London charm

A look at why property investment in the capital continues to be attractive

Green energy Talking points for the North funding

What are Whatâ&#x20AC;&#x2122;s driving the benefits the increasing and risks ofinterest investing in in this market? renewable energy?

Welcome | NACFB I

have been reading the NACFB’s magazine in all its forms for 10 years now, but this is the first time I have been called upon to write an introductory piece for it.

Development redeveloped 60% LTGDV – rates from 6.5% pa 65% LTGDV – rates from 8.0% pa 70% LTGDV – rates from 10.0% pa Property finance the way it should be

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

As you may know already, I took over the role of CEO of the NACFB on 1st July. My new commute from Liverpool Street station to Hamilton House takes me right past Bucklersbury House, where I started my career with Barclays 40 years ago. Having subsequently worked in and out of London in a range of roles, I find the city feels familiar and I’m recognising many faces right from the start. Having spent the last four decades learning the art, science and nuances of commercial lending in all its guises, I am fascinated by the prospect of spending my time putting all that experience and knowledge into a role and organisation which plays such a vital part in the provision of commercial lending. There will inevitably be more changes ahead but I want to make sure that the course we navigate will deliver tangible benefits that will make a valuable contribution to the success of our Members and their operations. We shouldn’t forget the sterling work undertaken by our interim CEO, Rob Lankey, over the last six months. There is no doubt in my mind that a significant amount has been achieved in a short space of time, and since arriving at Hamilton House, my first impressions have been excellent. When I started reading this publication, it was just a handful of pages with around 40 lenders; now it’s a heavy, glossy, monthly magazine supported by 139 Patrons. This is a remarkable testimony to the size and the growth of this Association. My job is to grow that influence and momentum, as well as driving up engagement with Members, Patrons and key stakeholders. It’s a challenge I relish! Best regards, Graham Toy CEO, NACFB

Graham Toy CEO NACFB

In this August issue NACFB News 4-6 7

In the news Notes from our sponsor

Commercial Finance 8-9

Essential news bites

Top Story 10

Awareness of finance options for SMEs slows in growth

Introducing 12

InterBay announces market-leading rates

Case Studies 14-15 Balancing the LTV on a restaurant freehold purchase 16 Syndicated fit-out deal enhances broker relationship 18 Fast completion is the enabler for repeat bridging loans

Special Features 30 32

The London charm The Brexit effect on trade finance 34-36 Soliciting the bridging process

Industry Guides 38-40 The intricacies of green energy funding 42-44 Co-financing: an option in support of collaboration

Opinion & Commentary 46 48 50

Putting in real face time The answer to inflexible financing Busting P2P misconceptions

Cover Story 20-24 The new shape of lending

Patron Profile 26-27 Signature Private Finance

Ask the Expert 28

James Hinch

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

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

NACFB Magazine | 3

Welcome | NACFB I

have been reading the NACFB’s magazine in all its forms for 10 years now, but this is the first time I have been called upon to write an introductory piece for it.

Development redeveloped 60% LTGDV – rates from 6.5% pa 65% LTGDV – rates from 8.0% pa 70% LTGDV – rates from 10.0% pa Property finance the way it should be

Graham Toy CEO NACFB

In this August issue NACFB News 4-6 7

In the news Notes from our sponsor

Commercial Finance 8-9

Essential news bites

Top Story 10

Awareness of finance options for SMEs slows in growth

Introducing 12

InterBay announces market-leading rates

Case Studies 14-15 Balancing the LTV on a restaurant freehold purchase 16 Syndicated fit-out deal enhances broker relationship 18 Fast completion is the enabler for repeat bridging loans

Special Features 30 32

The London charm The Brexit effect on trade finance 34-36 Soliciting the bridging process

Industry Guides 38-40 The intricacies of green energy funding 42-44 Co-financing: an option in support of collaboration

Opinion & Commentary 46 48 50

Putting in real face time The answer to inflexible financing Busting P2P misconceptions

Cover Story 20-24 The new shape of lending

Patron Profile 26-27 Signature Private Finance

Ask the Expert 28

James Hinch

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

NACFB Magazine | 3

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

Graham Toy takes office On 1st July, Graham Toy became the chief executive officer of the NACFB. Graham joins the advisory board and our operations board.

Welcome to your dedicated lending toolkit. intermediaries.lendinvest.com

Each working week now begins with a conference call between our chairman, vice-chairman and CEO. This process was instigated in order to keep lines of communication reliable and rapid.

Get a quote for your next bridging loan online in seconds, as well as:

New hire at Hamilton House

Online calculators

We have a new member of staff joining the Hamilton House head office imminently, working on a temporary basis for our accounts team.

Case studies

Product guides Dedicated events

Compliance Services adds more documents NACFB Compliance Services has added five new documents to its library. The documents are: Compliance monitoring programme

Compliance Services is taking subscriptions now!

Compliance monitoring report Compliance plan Know your customer Non-disclosure agreement

Head over to: www.nacfbcompliance.co.uk

for more details

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

4 | NACFB Magazine

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

Graham Toy takes office On 1st July, Graham Toy became the chief executive officer of the NACFB. Graham joins the advisory board and our operations board.

Welcome to your dedicated lending toolkit. intermediaries.lendinvest.com

Each working week now begins with a conference call between our chairman, vice-chairman and CEO. This process was instigated in order to keep lines of communication reliable and rapid.

Get a quote for your next bridging loan online in seconds, as well as:

New hire at Hamilton House

Online calculators

We have a new member of staff joining the Hamilton House head office imminently, working on a temporary basis for our accounts team.

Case studies

Product guides Dedicated events

Compliance Services adds more documents NACFB Compliance Services has added five new documents to its library. The documents are: Compliance monitoring programme

Compliance Services is taking subscriptions now!

Compliance monitoring report Compliance plan Know your customer Non-disclosure agreement

Head over to: www.nacfbcompliance.co.uk

for more details

4 | NACFB Magazine

NACFB NEWS

Notes from our sponsor

CFE 2018

Karen Bennett Managing director of commercial mortgages Shawbrook Bank

The date for our 2018 Commercial Finance Expo is now set!

hope you are enjoying a great summer so far and have managed to spend some quality time with friends and family alike. I don’t know about you, but for myself and the team this year seems to be on fast forward and it’s been a strange couple of months, politically and in terms of current events.

20th June at the NEC Birmingham

With all the political focus, it’s easy to forget that there is a significant event very close on the horizon: the changes in the underwriting standards for portfolio landlords, which are due to be implemented at the end of September.

Watch this space to keep up to date with news.

Our new Patrons and Members Relendex has joined the NACFB as a Patron. The P2P lender recently launched its Innovative Finance Isa after receiving full authorisation from the FCA in March. Relendex focuses on loans for residential and commercial development projects, incomeproducing commercial

6 | NACFB Magazine

properties, residential investment portfolios as well as loans for bridging finance purposes. Specialist master broker Clever Lending is now a Member firm of the Association. Launched in 2014, Clever Lending focuses on delivering second charge, commercial and bridging loans.

This follows on the back of the January 2017 changes to interest cover ratios and greater stress testing, designed to ensure rigorous underwriting standards that protect investors from becoming too highly leveraged. Shawbrook – along with our contemporaries in the specialist lender market – were quick to react to these changes and began consulting with our key stakeholders almost a year ago on what the implications might be.

Registered individuals completed Having completed a full review of NACFB registered individuals, we have found the number has stayed steady at approximately 1,600 within 818 Member firms at time of going to press.

We also conducted additional research in this area with the recent release of our BTL report commissioned by Shawbrook Bank and produced by the economics agency Centre for Economics & Business Research. This is available to download from the Shawbrook website. However – to stick to the most relevant information – it became apparent that the changes in underwriting standards for portfolio landlords have received less attention in the media than the increase in stamp duty or the reduction in mortgage interest tax relief. It’s often assumed the ‘typical’ BTL borrower is an individual with one or two BTL properties only; but this is not always the case. Therefore, assuming that stricter rules for lending to borrowers with multiple BTL properties would only impact a

minority of customers is inaccurate. From a Shawbrook perspective, a clear majority of borrowers count as portfolio landlords both among private investors and those with limited company structures. The PRA has not been prescriptive around what defines a ‘specialist underwrite’. Ultimately they will be looking for the lenders to evidence that they have considered the full picture for the client – considering their wider exposure and looking at the overall affordability of their portfolio. Potential borrowers will have to look for a reliable lender who is capable of performing this specialist underwrite with adequate speed and accuracy. This is where an organisation such as the NACFB becomes critically important, as it provides intermediaries with a wealth of information on the different lenders who can provide funding for their clients. The NACFB’s impartiality and expertise is a vital tool, and we recommend that all of our intermediaries use their educational services wherever possible. Lenders, on the other hand, will need to complete thorough assessments on their processes and how fit for purpose they are come 1st October. At Shawbrook, the changes are minimal as we already complete a specialist underwrite on all cases. However, we understand the need for educational support in the market, and we are working on providing more guidance within the coming weeks. Whether

Dates for your diary Broker Day When: 19th September Where: London, venue TBC Patrons’ Day When: 26th September Where: 280 Bishopsgate, London NACFB and Barcadia Commercial Finance Roadshows When: 18-19th October, 1-2nd November Where: East, various locations TBC AGM at the Park Plaza When: 30th November Where: Park Plaza Westminster Bridge, London Gala Dinner and Industry Awards When: 30th November Where: Park Plaza Westminster Bridge, London Commercial Finance Expo 2018 When: 20th June 2018 Where: NEC Birmingham

you are a broker or a lender, being transparent and planning ahead for the benefit of the customer has never been more important.

NACFB Magazine | 7

NACFB NEWS

Notes from our sponsor

CFE 2018

Karen Bennett Managing director of commercial mortgages Shawbrook Bank

The date for our 2018 Commercial Finance Expo is now set!

20th June at the NEC Birmingham

Watch this space to keep up to date with news.

6 | NACFB Magazine

you are a broker or a lender, being transparent and planning ahead for the benefit of the customer has never been more important.

NACFB Magazine | 7

Commercial Finance

Nucleus reveals apprenticeship product

P2P lender Nucleus Commercial Finance has launched a new product designed to ease the burden of the apprenticeship levy for training providers. The product pre-pays the 10% employer contribution directly to the provider, removing the wait for staged, monthly instalments. It also ensures the remainder of the government contribution from the Education and Skills Funding Agency is secure.

Assetz Capital unveils property secured investment account

Major banks add crowdfunder to alternative lender panel Seedrs has been invited to join NatWest and RBS’s select panel of alternative funding solutions. The crowdfunder has become an equity funding partner in the banks’ Capital Connections programme. The panel allows NatWest and RBS relationship managers to offer UK business and commercial customers an alternative solution if their standard finance offerings aren’t suitable.

8 | NACFB Magazine

HSBC launches £10bn SME fund

Lendy almost doubles investors

UK labour productivity declines

UK labour productivity – as measured by output per hour – has fallen by 0.5% from Q4 2016 to Q1 2017, according research from the Office for National Statistics. Data showed over a longer time-period growth has been lower on average than prior to the economic downturn. Unit labour cost grew 2.1% in the year to Q1 2017.

HSBC has launched a £10bn lending fund to support SMEs across the UK. The fund has been designed to ensure SMEs in England, Scotland, Wales and Northern Ireland are able to access finance as the bank looks to increase its commitment to UK businesses. Last year, HSBC approved 91% of small business lending applications.

P2P platform Lendy has revealed it has almost doubled its number of investors over the past 12 months. Investor numbers grew from 9,000 in June 2016 to nearly 16,500 to date. The platform has also grown its lending from £150m to £323m over the past year, having added nearly £80m since the start of 2017.

New challenger bank appoints chairman

Over 3,500 firms give up permission to advise on P2P

A total of 3,555 firms have voluntarily given up the permission to advise on P2P agreements by cancellation or variation of permissions since April 2016. The FCA revealed that around 15,000 firms were originally authorised to advise on these agreements. There had been no cases in which the FCA had cancelled a firm’s permission to advise on P2P agreements only.

Aldermore acquires 48% stake in AFS Group Holdings

Aldermore has announced the acquisition of a 48% minority equity stake in AFS Group Holdings Limited (AFS), subject to regulatory approval. AFS, one of the largest introducers to asset and commercial finance funders in the UK, is split into three divisions: Asset Finance Solutions, AFS Compliance and Synergy Commercial Finance. In 2016, AFS generated net revenues of approximately £1.3m.

Zopa completes £32m funding round to build bank

Redwood Bank has appointed a new chairman ahead of its launch later this year. David Buckley will also serve as non-executive director following previous experience as chief executive of Morgan Stanley Bank International and European head of the global banking group for Goldman Sachs. The new UK SME business bank secured its banking licence earlier this year.

‘Fear of funding’ threatens UK businesses

Almost half (48%) of SMEs believe British businesses are missing out on opportunities because of a reluctance to borrow, new research claims. A survey published by Ultimate Finance revealed 27% of SMEs were holding back business growth due to a fear of funding, despite 45% of them being concerned that the economy is being stifled as a result.

Business Growth Fund expands into Ireland

Assetz Capital has launched a property secured investment account, adding to the four other specialist accounts available through the P2P lender. Customers can invest in property-backed loans with the target rate of 5.5% gross per annum loan interest and the added protection of a discretionary provision fund. Investors can automatically invest any sum upwards of £1.

The Business Growth Fund (BGF) has expanded its investment team into the Republic of Ireland with the appointment of Leo Casey, expected to join in September. Leo will lead efforts to expand the Dublin-based team, in alignment with increased investment and involvement in the Republic. BGF has invested over £1.2bn since 2011 and experienced a record year in 2016.

New cloud-based valuation panel software launches Valuation Audit Services (VAS) has launched VAS Software, a new cloud-based technology allowing lenders to manage or create a valuation panel from any location. The new product is aimed at lenders of all sizes, allowing them to add their own criteria, including property sector, minimum and maximum values, and distances that valuers can travel from their offices.

SME lender launches new funding platform

SME lender Sancus Finance has launched a new platform targeted at investors looking to finance businesses online. Sancus specialises in providing short-, medium- and long-term finance solutions for businesses which need working capital finance to realise their growth plans. The platform matches funders with businesses looking for fast financing options.

P2P lender Zopa has completed a £32m funding round in preparation for the submission of its banking licence application. The investments were led by India-based Wadhawan Global Capital Pvt Ltd and European venture capital fund Northzone, who join four existing backers. Zopa will use the funds to develop its bank infrastructure before applying for a licence later this year.

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

To power your business call us today

01784 227322

hitachicapital.co.uk/business-finance

NACFB Magazine | 9

Commercial Finance

Nucleus reveals apprenticeship product

Assetz Capital unveils property secured investment account

8 | NACFB Magazine

HSBC launches £10bn SME fund

Lendy almost doubles investors

UK labour productivity declines

New challenger bank appoints chairman

Over 3,500 firms give up permission to advise on P2P

Aldermore acquires 48% stake in AFS Group Holdings

Zopa completes £32m funding round to build bank

‘Fear of funding’ threatens UK businesses

Business Growth Fund expands into Ireland

SME lender launches new funding platform

To power your business call us today

01784 227322

hitachicapital.co.uk/business-finance

NACFB Magazine | 9

Top | story Our pick of the latest Patron news

Awareness of finance options for SMEs slows in growth Vera Sugar Editor NACFB Magazine

he British Business Bank reported measuring 50% awareness of finance options in the UK SME community in its 2017 annual report – increased by only 2% compared with the previous financial year. One of its key performance indicators, the Bank measures awareness of types of funding sources it currently supports or intends to do so, alternative to bank borrowing. These include leasing/hire purchase, venture capital, business angels, P2P lending, crowdfunding and mezzanine finance. Although the Bank has contributed significantly to raising awareness through its Business Finance Guide, which it has also made available online in June 2016, awareness of alternative finance options within the SME community demonstrated slow growth in the past financial year. The Guide, produced jointly with the Corporate Finance Faculty of the Institute of Chartered Accountants in England and Wales, along with a further 21 partner organisations, serves as a comprehensive overview of finance options available to smaller businesses. Keith Morgan, CEO of the British Business Bank, said there was “still more work to be done”. “Our Small Business Finance Markets report shows that over two thirds of smaller businesses seeking finance only ask one lender and, if rejected for finance, many simply give up on investment rather than seek alternative options.” In addition, the report also demonstrated a slowing pace in the growth of awareness of different finance products.

10 | NACFB Magazine

Faster, simpler short term lending You can now get a quote in under 60 seconds and an offer in 2 minutes.

The government-led Bank Referral Scheme, launched in November 2016, also aimed to raise awareness of alternative finance options; however, six months after its launch, the HM Treasury announced the appointment of Professor Russel Griggs to review the service after lower than expected volumes of referrals have been recorded.

Mike Cherry, national chairman of the FSB, said: “We need to create an environment where small businesses are fully aware of all the finance options available to them and understand exactly what they’re signing up for when they take out a loan. Information asymmetry is, quite simply, bad for business.”

In July 2017, the Federation of Small Businesses called for an extended mandate for the Bank in order to enable it to collect data on the supply and demand for SME finance in all areas of the UK, which would in turn help target specific areas to raise awareness within SME circles.

Besides raising awareness of finance options, the Bank’s other targets include increasing the supply of finance in the UK, helping create a more diverse finance market for smaller businesses and achieving these while managing taxpayers’ money efficiently.

Awareness of different forms of finance (%) 60 50 40

The Bank has demonstrated a 24% increase in its stock of finance, from £7.5bn to £9.2bn, during the past financial year, seeing a significant growth in its delivery of its programmes to support small businesses. It provided 94% of its support through non-bank lenders, smaller banks, alternative lenders and equity investors.

om r f s Rate

% 5 6 0.

The Bank also helped over 59,000 SMEs to receive a loan or investment through its programmes, while it committed over £580m to providers of finance to UK SMEs via its commercial arm, British Business Bank Investments Ltd.

40 20 10 0 2014/15

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This advertisement is intended for professional intermediary use only and must not be distributed to potential clients.

Top | story Our pick of the latest Patron news

Awareness of finance options for SMEs slows in growth Vera Sugar Editor NACFB Magazine

10 | NACFB Magazine

Faster, simpler short term lending You can now get a quote in under 60 seconds and an offer in 2 minutes.

Awareness of different forms of finance (%) 60 50 40

om r f s Rate

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40 20 10 0 2014/15

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This advertisement is intended for professional intermediary use only and must not be distributed to potential clients.

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

P R E S E N T S

“With Athena we have developed the simplest yet most advanced broker system in the market.”

THE

FINANCE JOB

Systems and Tools:

InterBay announces marketleading rates InterBay Commercial, part of specialist lending group OneSavings Bank, has announced its launch into the bridging sector with rates starting from 0.44% per month. Darrell Walker Head of commercial sales InterBay

he lender will be offering residential and commercial bridging loans, initially through a selected broker panel, and will incorporate its existing range of shortterm lending options. InterBay’s entry into the bridging market has been keenly awaited. The lender said it intentionally partnered with brokers who are experts within this field during the initial period, but that it would review its bridging distribution down the line. The low rates have rapidly placed the lender into the spotlight of the sector. Chris Treadwell, head of specialist mortgage brokerage Enness Commercial, noted the 0.44% rate was “most certainly market-leading”,

12 | NACFB Magazine

adding: “Their new products add a further dimension to a complex market and we’re sure, with their underwriting abilities and keenness to do business, we’ll do a fair amount on these new products.” InterBay’s bridging products will be available with a gross LTV of up to 75% on residential investment property and 70% on commercial property. Terms will range up to 18 months. Additional features include: 2% arrangement fee, no ERC Fast, efficient service, including AIP within four hours Roll-up interest only, with daily amount charged on net initial loan plus fee. The lender will be targeting several types of borrowers, including: Property investors looking

to raise capital against existing buy-to-let, houses in multiple occupation (HMO) or commercial property quickly

Proposal management system Compliant quotation functionalit y De al audit and reporting capabilit y Calculation tool Funder information database CRM system Direct links to funder ʻs systems PII cover Company reports Credit checks

“The AFS systems are essential in providing a fast and efficient service for my introducers.” SYSTEMS

I.T.

Brokers interested in joining the selected panel are advised to contact InterBay’s business development team. The news comes after InterBay announced changes to its valuation fees and procedures in June 2017, including extending its valuation panel, and after strengthening its buyto-let product range in January.

YOU

FUNDERS

COMPLIANCE

Those planning to acquire or remortgage a residential property with the intention of refurbishment and refinancing on to a standard buy-to-let/ HMO mortgage, or alternatively sell the property for a profit Those wanting to exit more expensive residential development finance upon completion

Gavin Houghton Joined 2010

TOOLS

“I have everything I need at my fingertips which plays a huge part in the success of my business” Debra Grimshaw Joined 2012

MEMBERSHIPS

INDEPENDENCE

SUPPORT

To gain access to Broker in a Box visit brokerinabox.finance

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

P R E S E N T S

“With Athena we have developed the simplest yet most advanced broker system in the market.”

THE

FINANCE JOB

Systems and Tools:

12 | NACFB Magazine

to raise capital against existing buy-to-let, houses in multiple occupation (HMO) or commercial property quickly

“The AFS systems are essential in providing a fast and efficient service for my introducers.” SYSTEMS

I.T.

YOU

FUNDERS

COMPLIANCE

Gavin Houghton Joined 2010

TOOLS

“I have everything I need at my fingertips which plays a huge part in the success of my business” Debra Grimshaw Joined 2012

MEMBERSHIPS

INDEPENDENCE

SUPPORT

To gain access to Broker in a Box visit brokerinabox.finance

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

While the market value of the site was £2.35m (slightly more than they were paying), it reduced significantly if a quick sale was required

Balancing the LTV on a restaurant freehold purchase

David Foster Relationship manager Ortus Secured Finance

s an established secured lender in the short-term sector, we have learnt over the years the benefits of making the most of data we receive and taking an analytical, down-to-earth approach to each case. In this instance, we were approached by an established sushi restaurant based in east London, which had been operating on a leasehold basis for 13 years, paying £25,000 per annum in rent. They had long wished to expand their business by opening a second site. Three months before approaching us, they had taken on an additional lease at a larger, nearby venue.

14 | NACFB Magazine

They had committed to paying £137,000 per annum on a 15-year lease and had invested £200,000 into a complete refurbishment. They were then approached suddenly by their landlord who stated his intention to sell the larger site. He was prepared to give them an option to purchase the site for £2.05m. This was a material discount on the £2.35m he was seeking on the open market and was conditional upon them moving very quickly – just three weeks to complete. The case was brought to us by one of our top introducers who had already built up a good understanding of the case. We quickly began putting together a plan.

Our plan of action On the day of the introduction, we met with the restaurant owners on site and discussed their past activities and future plans. It was clear they were extremely hard-working people with a great knowledge of their industry. Immediately after the meeting, we instructed our lawyers to commence work. We arranged with our panel of valuers for an inspection within 36 hours and, at the same time, contacted the restaurant’s accountant so the business analysis – which formed part of the valuation – could be undertaken seamlessly based on accurate information.

The data provided by the accountant showed that the smaller, established site in east London was performing at or near the Fair Maintainable Trade (FMT) levels provided by our valuer. This suggested the restaurateurs were genuinely efficient operators. We only had two months of trading data for the new site and this covered the very earliest phases of the business. Based on our valuer’s assessment of FMT, management accounts were well on track for good performance given the early-stage nature of the business. We therefore decided to back the restaurateurs and help them purchase the freehold of their new site.

owever, our valuer then warned that while the market value of the site was £2.35m (slightly more than they were paying), it reduced significantly if a quick sale

was required. Indeed, the 90-day value was only £1m. There was also the possibility that VAT would be charged on the purchase which would add a further £400,000 to the borrowing requirement. Fortunately, the restaurateurs had a further £500,000 available, but it still left the LTV at more than 100% based on a time-restricted sale.

The introducer continued working with the restaurateurs and arranged a refinance of the facility within nine months with a high street lender. While the total financing costs were slightly higher than the £137,000 rent during our short-term financing phase, the rate they subsequently secured with the bank made it a profitable exercise (compared with continuing to rent) within only 14 months of completing the freehold purchase.

We therefore met with them and agreed to take second charges over a series of buy-to-let properties which resulted in an acceptable LTV. It also enabled us to provide a stand-by VAT loan facility (on a four-month term) so they knew they were funded if VAT turned out to be payable. The loan facilities we offered totalled £2m, which enabled them to complete the purchase of the freehold of their premises.

NACFB Magazine | 15

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

While the market value of the site was £2.35m (slightly more than they were paying), it reduced significantly if a quick sale was required

Balancing the LTV on a restaurant freehold purchase

David Foster Relationship manager Ortus Secured Finance

14 | NACFB Magazine

owever, our valuer then warned that while the market value of the site was £2.35m (slightly more than they were paying), it reduced significantly if a quick sale

NACFB Magazine | 15

CASE STUDIES

Syndicated fit-out deal enhances broker relationship

A mortgage that doesn’t take the biscuit

Mike Day Sales manager Kingsway Asset Finance

ingsway’s foundations are built on solid broker relationships. As we approach our 20th anniversary, we pride ourselves on continuity of credit decisions and customer service. While we adopt traditional lending values and underwrite every proposal on a case-by-case basis, it’s fair to say that we’ve seen pretty much everything over the years. A good example of a Kingsway deal is a proposal that we received earlier this year from one of our longestsupporting, established introducers: a serviced office company had recently acquired a new building that was in desperate need of modernisation. As a funder that’s well established in the fit-out sector, Kingsway was naturally the broker’s first port of call – not only because of the soft asset element of most deals in this asset category, but also because we’re able to provide payment in advance for strong suppliers.

between funders. And, while price was important, the broker also knew that the majority of tier 1 funders would insist on only funding the more tangible hard assets. Additionally, given the bespoke nature of the fit-out, 25% payment in advance was essential; the ability for the borrower to meet this demand also enabled them to negotiate better terms overall with the supplier. The broker advised us that this is why a diversified panel of funders is essential

Given the size of the project, the broker was aware that the deal would undoubtedly have to be syndicated between funders Although the borrower had been trading for over 10 years with a healthy balance sheet, the broker was struggling to find a funder interested in a large portion of the assets, which included reception seating booths, partition walling, flooring, LED lighting and the finishing touches such as artwork for the walls and signage. Given the size of the project, the broker was aware that the deal would undoubtedly have to be syndicated

to their brokerage, and why Kingsway is one of their secret weapons. He knows that on almost every fit-out deal, there’s a hole in the asset list that Kingsway will happily plug.

ue to the high quality of the credit, the strength of the supplier and the quality of the proposal forwarded by the broker, Kingsway was happy to take a look at the assets offered and provide a £100,000 hire purchase facility over a five-year term without guarantees.

While our maximum individual deal size is £150,000, we can have up to £200,000 exposure with any one borrower/group. Due to our understanding of the fit-out sector, commonsense approach to our underwriting and ease of documentation, the broker has since approached us for an additional loan of £75,000 for the same customer on a sale and hire purchase back agreement. This supported the borrower in carrying out a smaller fit-out refurbishment, which they completed some 24 months ago knowing that Kingsway could provide funding on assets up to three years old. This release of cash flow back into the business has enabled the customer to leverage from their own balance sheet, and put them in a stronger position to gain access to funding and acquire more property in the near future. Kingsway is always looking for new and innovative ways to differentiate ourselves in a competitive market; however, what always comes out from speaking to our extensive broker network is that while tweaks and improvements can always be made, the key to a long and successful broker relationship is service and flexible underwriting.

A more individual approach to lending Wouldn’t the world be a boring place if everyone was the same? Unfortunately, to get a mortgage, other bank lenders expect your clients to fit a standard list of specifications. So we’ve created a more flexible decision process for people who stand out from the pack.

The property used as security for the loan may be repossessed if repayments are not kept up on a mortgage or other loan secured against it. For intermediary use only

masthaven.co.uk/mortgages 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).

16 | 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.

CASE STUDIES

Syndicated fit-out deal enhances broker relationship

A mortgage that doesn’t take the biscuit

Mike Day Sales manager Kingsway Asset Finance

to their brokerage, and why Kingsway is one of their secret weapons. He knows that on almost every fit-out deal, there’s a hole in the asset list that Kingsway will happily plug.

The property used as security for the loan may be repossessed if repayments are not kept up on a mortgage or other loan secured against it. For intermediary use only

16 | 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.

CASE STUDIES

Fast completion is the enabler for repeat bridging loans

A FS GROU P

All businesses can find themselves faced with the pressures of financing a deal in a tight timeframe, especially when it comes to property transactions. Whether purchasing at auction or raising the capital to fund a renovation or refurbishment project, organising the necessary long-term finance can be a stressful challenge for SMEs.

Liam Cavanagh Operations director Ashley Finance

ridging loans are designed to do exactly what they say: bridge the gap in the purchase cycle. There’s no such thing as copy and paste in the world of business deals and bridging loans can be tailored to a business’s individual needs, providing them with funds to keep cash flowing in an awkward, interim period. One of our recent cases is the perfect example for this capability. We’ve been working closely with the owner of a property development company who – after raising some cash from a traditional lender – was under time constraints to get an extra £200,000 in place to complete the purchase of a piece of development land. He was at the stage where the issue was proving detrimental to the success of his company and its ability to grow any further. After applying for a bridging loan with Ashley Finance, the funds he requested were in his bank account within two weeks, giving him the quick fix of cash he needed to complete the project without any upfront or hidden costs. Our in-house solicitor also made sure the borrower

wasn’t faced with any conveyancing costs. Following a speedy turnaround, the owner has decided to take out a further three bridging loans. He received a second loan of £300,000, under more pressing circumstances, in order to purchase shares from a company that owned land with development opportunities. The loan was due to be repaid within three months, but the owner was unable to make these payment terms. After meeting with our team, however, and talking through requirements, we renegotiated the facility to accommodate this change in circumstance. Here at Ashley, we understand that, as with any project, circumstances sometimes change. Increasing the repayment period allowed the borrower to proceed with the project without any additional worry. The owner said: “I’m now on my fourth loan in 12 months and I can confidently say Ashley are a top, reliable provider. I met Liam last year – it’s been great to have him as my main point of contact from start to finish. He has a great understanding of the projects I’m working on and responds to my queries in record time! Ashley has enabled me to complete a number of projects, from the purchasing of the freehold of land [to] funding development. They have

Following a speedy turnaround, the owner has decided to take out a further three bridging loans

always listened to my circumstances to try to find a solution.” The owner has found that the personal service from Ashley and repayment flexibility of the loan – not often available with banks – has alleviated stresses. It’s also allowed him to take on and complete a number of projects that would not have otherwise been possible for his business, and given him the confidence to plan future projects. He now feels free of the cash flow worries that many businesses face, giving him breathing space to make plans, and stability in his finances that is helping to make his business even more successful.

ompanies that use bridging loans can reap the benefits of cash flow, as well as a tailored service. Those who might not qualify for loans from the bank can grow with the reassurance of a cash injection when needed, which can often be a make-or-break issue for smaller property companies. At Ashley Finance, we know that operating a business isn’t always straightforward and there can sometimes be a few hiccups along the way. For us, it’s really important that each and every bridging loan we deliver is adapted to suit every customer’s individual circumstances. It’s not about offering just loans – it’s about offering businesses access to money they need, in a way that suits them. Because we know that for SMEs, a helping hand can equal a problem solved.

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STRONGER TOGETHER

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Asset Finance Solutions (UK) Ltd and Synergy Commercial Finance Limited are an Appointed Representative of AFS Compliance Ltd, which is Authorised and Regulated by the Financial Conduct Authority under number 6 2 5 0 3 5 .

CASE STUDIES

Fast completion is the enabler for repeat bridging loans

A FS GROU P

Liam Cavanagh Operations director Ashley Finance

Following a speedy turnaround, the owner has decided to take out a further three bridging loans

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STRONGER TOGETHER

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Cover Story | feature

The new shape of lending

Are complex loans pushing vanilla deals out of the spotlight?

20 | NACFB Magazine

NACFB Magazine | 21

Cover Story | feature

The new shape of lending

Are complex loans pushing vanilla deals out of the spotlight?

20 | NACFB Magazine

NACFB Magazine | 21

COVER STORY

In today’s market, commercial finance brokers are used to an ever-changing and expanding landscape. The sector has demonstrated rapid growth since the financial crisis, and with specialist products ranging from refurbishment to marketing bridges, there have never been so many types of offerings and products.

ith a complex market came complex requirements. Tailoring is slowly becoming the new norm, and there is no end to solutions created to meet individual borrowers’ needs. We know the specialist market strives to replace rigid funding sources, and we hear lenders protesting about ‘one-size-fits-all’ solutions on a daily basis. This, perhaps, is an important factor in the recent rise of complex loans – and, potentially, in the future retreat of vanilla lending.

access the funding required. In other words, their requirement sits outside the lender’s predefined criteria. This could mean, for example, complex income sources, seeking funding against multiple properties or non-traditional assets, or even international requirements. Lenders, as much as brokers, often shy away from these types of deals – without precedent the funding will often require a fresh approach, in-depth research, additional resources and potentially also drawing up paperwork from scratch.

Defining the complex A complex deal is often explained as a case in which the borrower’s needs are not straightforward or whereby they can’t easily

In an uncertain economic environment and with Brexit negotiations underway, there are several reasons why complex loans have seen a significant rise. These include:

22 | NACFB Magazine

Due to a weaker pound following Brexit, many foreign investors and expats are looking to invest in property in London and regionally. If the company they’re purchasing through is incorporated outside the UK, this could cause a set of challenges, with many niche lenders restricting their offering to UK borrowers. Self-employment could be another complicating factor, due to what is often considered an unreliable income source. With over 4.7 million workers self-employed in early 2016 (an increase

from 3.8 million in 2008) it’s possible that brokers will be dealing with more of these types of clients. With the percentage of the UK population that is aged 65 or older growing projected to grow to nearly a quarter of the population by 2045 – the need for lending into retirement is rising; a factor that lenders often consider complex. Movement in the market It’s clear that an increasing number of specialist lenders are showing flexibility when it comes to providing funding. A good example of this is Octane Capital, which launched in May 2017 with a specific focus on complex loans. Octane entered the market without a product sheet in order to avoid pricing based on LTV, which the lender explained is “formulaic and does not work for anyone”. Octane instead decided to take a risk-based approach to each deal. In all cases where a tailored approach is taken, manual underwriting remains a firm pillar in a process otherwise prone to innovation and automation,

which also enables brokers to build meaningful relationships. Paul Wertheim, operations director at Mint Bridging, explained: “In this business, if you’re not human and treat clients with a dismissive ‘once the loan is confirmed, we’ll see you at the end’ attitude, you’ll absolutely suffocate your business. We have clients that have never invested in the property scene before and they need help throughout. Since Mint only provides hand-crafted loans, clients and brokers are assured that there are true humans behind our team.” The benefit for brokers The complex market remains a challenging landscape for both brokers and lenders alike – however, many agree there are significant benefits in tapping into this sector. By taking on complex deals, brokers are able to demonstrate confident knowledge of the market and gain an opportunity to collaborate with an extended circle of lenders.

side, according to Mark Posniak, managing director at Octane Capital: “…There’s no doubt that being able to service clients with more complex financing requirements can be a real differentiator. “The reality, of course, is that brokers do not need to know every technicality of the most complex loans, some of which can leave me scratching my head, too. Leave the most complex stuff for the underwriters and lawyers. But by being able to point a borrower with complex circumstances in the direction of a lender who can help, the broker is doing his or her job.” Sarah Jackson, underwriting manager at Pivot Finance, agreed complex loans can give brokers a competitive edge: “Reputation is vital and promoting a USP of being able to consider and place complicated deals can only be advantageous in a crowded sector. There is then the possibility of additional revenue to cover the time taken to understand, consider and find an appropriate funder, which will inevitably be far longer than a standard vanilla deal.”

Another advantage for brokers is that much of the heavy lifting is done on the lender’s

NACFB Magazine | 23

COVER STORY

Defining the complex A complex deal is often explained as a case in which the borrower’s needs are not straightforward or whereby they can’t easily

In an uncertain economic environment and with Brexit negotiations underway, there are several reasons why complex loans have seen a significant rise. These include:

22 | NACFB Magazine

Another advantage for brokers is that much of the heavy lifting is done on the lender’s

NACFB Magazine | 23

COVER STORY

In response to increased pricing competition and shrinking margins, a lot of bridging lenders are looking to gain competitive advantages in the non-vanilla bridging sector However, there are some considerations to be taken into account, as Paresh Raja, CEO at Market Financial Solutions, explained: “Like any loan, pitfalls occur when the information provided is not adequate or not transparent enough … Also the time taken to retrieve the information and chasing the client for the right information can be time consuming. “There is a probability of defaults, as with any loan, and no broker wants to ruin their reputation – but a commonsense approach and by working closely with the client, plus understanding the whole case in depth, will minimise any potential risks. Knowing each lender’s appetite allows the broker to match the loan with the appropriate lender.”

The case for vanilla lending Low-risk, straightforward deals remain desirable to lenders less comfortable with risk factors that may impact repayments – but waiting for the ideal borrower and conditions will leave many out in the cold. Nonetheless, many banks and high street lenders continue to orientate towards borrowers with good credit backgrounds and reliable income sources. Sarah pointed out that bridging lenders are moving away from this type of lending: “In response to increased pricing competition and shrinking margins, a lot of bridging lenders are looking to gain competitive advantages in the non-vanilla bridging sector where transaction risks are assessed at a more detailed level and priced accordingly. “In some cases, the complexity of transactions written may be restricted by the risk appetite of the lender’s funders, so there will always be lenders that are focused solely on vanilla bridging loans.” Vanilla lending provides lenders with the benefit of being able to offer lower rates, due to the low-risk profile of the deal. However, with the recent ‘rate war’ in the specialist sector, many are worried about what happens when rates hit rock bottom. Mark commented: “There will always be a need for vanilla loans, and the lenders that provide them, but that’s not where we want to be. Our view is that the sheer volume of vanilla, me-too lenders that have entered specialist finance has caused a dangerous race to the bottom on rate. “Are these lenders pricing for risk and, in many cases, do they have the necessary skills and experience to adequately assess risk? A shakedown at the vanilla end of the specialist lending market is a real possibility if things carry on as they are.”

Complex future The complex market has full potential to keep expanding, and most lenders agree that the already visible increase will continue in the near future. “The complexity of loans seen in the bridging sector will continue to be influenced by the banking sector; as banks become more risk-adverse and regulation is tightened, the more complex loans will be seen in the bridging sector,” said Sarah.

Market Financial Solutions Bridging with finesse

WE PROVIDE SOLUTIONS FOR OUR CLIENTS THAT ARE FAST, FLEXIBLE AND EFFICIENT

“We are already seeing the effect of the high street refusing to look at complicated titles, ownership structures and unconventional assets, so borrowers are looking to the bridging sector for a solution.” According to Paul, ‘standard’ deals have become scarcer: “…We are seeing much more ground-up, massive refurbishment projects and quirky properties. Such projects provide us with a sense of pride once completed.” Although this doesn’t mean the end of vanilla lending, lenders have to be prepared for a market that may yet increase in complexity in a short time span. However, Paresh highlighted that an improved grasp of risk factors will create confidence and gear the complex market for growth: “With a better understanding of the markets and with the experience of the financial crisis, this has given us a better understanding of the risk exposure and the solutions to be able to deal with this.” Although he doesn’t see complex deals becoming the new norm, Mark sees significant potential: “Complexity will always remain the exception rather than the rule, but then that’s still a vast, vast market to tap into. “In the months and years ahead, we expect to see steady growth in loans that require more than just box-ticking.”

Expertise

in assisting clients seamlessly

Transparency from the outset

Simplicity

Speed

of application process

in providing a decision

Flexibility

Efficiency

tailored to the client

get things done fast

CONTACT A MEMBER OF THE MFS TEAM TO FIND OUT HOW WE CAN SUPPORT YOUR BRIDGING STRATEGY

T: 020 7060 1234 | E: info@mfsuk.com | W: mfsuk.com Berkeley Square House, Berkeley Square, Mayfair, London W1J 6BD, United Kingdom

Vera Sugar Editor NACFB Magazine Associate Lender Association of Bridging Professionals

24 | NACFB Magazine

COVER STORY

Market Financial Solutions Bridging with finesse

WE PROVIDE SOLUTIONS FOR OUR CLIENTS THAT ARE FAST, FLEXIBLE AND EFFICIENT

Expertise

in assisting clients seamlessly

Transparency from the outset

Simplicity

Speed

of application process

in providing a decision

Flexibility

Efficiency

tailored to the client

get things done fast

CONTACT A MEMBER OF THE MFS TEAM TO FIND OUT HOW WE CAN SUPPORT YOUR BRIDGING STRATEGY

T: 020 7060 1234 | E: info@mfsuk.com | W: mfsuk.com Berkeley Square House, Berkeley Square, Mayfair, London W1J 6BD, United Kingdom

Vera Sugar Editor NACFB Magazine Associate Lender Association of Bridging Professionals

24 | NACFB Magazine

Patron | profile Signature Private Finance Putting our money where our mouth is

The Esplanade, Penarth

Signature Private Finance is a principal lender with a genuine understanding and experience of the property market. Offering an extensive range of flexible products, our aim is to ensure funds are ready when needed; on time, every time.

business prepared to put its money where its mouth is, Signature offers residential and commercial bridging, light and heavy refurbishment, revolving trading facility, auction finance and more. Signature offers rates from as low as 0.45% per month, with an LTV of up to 75% of open market value, and loans from £50,000 to £1m, based on a genuine understanding and experience of the property market. Financial solutions are tailored to the exact needs of every client, with Signature business development managers available across the UK to bring a new level of personal customer service to each application. All lending decisions are made in-house, backed by a fast, responsive, personal service. Signature has assembled an experienced team, all with direct personal experience of every aspect of the property market, from purchase and development through to refurbishment and disposal.

26 | NACFB Magazine

New office to meet demand Our recently opened office in the centre of Cardiff will help us build on recent growing demand for our products and services in the principality, supporting property developers, brokers and their clients. We have worked hard to build broker relationships across the UK, but we have enjoyed particular success in Wales in recent years and we are now seeing that hard work turn into deals. The new office in Cardiff anchors our business at the heart of a dynamic market that, despite all the Brexit uncertainty, will flourish in the coming years. As the only principal lender based in Wales, we are supporting a range of projects, large and small, from simple buy-to-let refurbishment loans to major bridging loans that have enabled projects to move forward. The recent multi-million-pound transformation of a historic Edwardian

property on the Esplanade in Penarth – by experienced property developer RH Properties – is a perfect example of where Signature is supporting developers in Wales. Developer Richard Hayward acquired the property in 2007 and, following a six-year fight to overcome a host of complex planning, construction and design problems, the project to create six unique, luxury homes, a café and a restaurant with a nine-bed boutique hotel above has reached the final phase.

deadline only for their funding to suddenly become unavailable, often for little or no clear reason. It’s in these moments that Signature really proves to be the lender to beat, able to bring deals in on time when there appears to be no hope. We work hard with brokers and their clients to hit deadlines, even the very short ones. As an example, a recent request came from a broker whose client – an experienced professional property developer – had lost funding at the last minute despite months of preparation.

To create such a successful transformation and achieve the remarkable quality of finish on display requires not only developers with vision, ambition and determination, but also funders with the imagination to back them.

A loan term of only three months was required as both the client and their broker were confident the refinancing would be achieved within this period, with the property already owned by the company.

Short-term loans, quickly Despite the best intentions of all those involved, there will be times when brokers and their clients arrive within days of the

We had only 72 hours in which to act and still had to undertake a valuation of the property, assess the other properties offered as security, undertake investigations,

facilitate the necessary legal work and release the funds. The company portfolio was satisfactory in terms of gearing and delivering an impressive gross annual yield. All the necessary paperwork and credit checks were available quickly and passed with flying colours to ensure our decision to lend was an easy one. It’s important to remember that we make all our lending decisions in-house. As an NACFB Patron, Signature Private Finance can guarantee brokers a fast, reliable service, based on a commitment to find ways to lend, not turn deals down – even the last-minute ones.

Tony Gilbertson CEO Signature Private Finance

NACFB Magazine | 27

Patron | profile Signature Private Finance Putting our money where our mouth is

The Esplanade, Penarth

26 | NACFB Magazine

A loan term of only three months was required as both the client and their broker were confident the refinancing would be achieved within this period, with the property already owned by the company.

Short-term loans, quickly Despite the best intentions of all those involved, there will be times when brokers and their clients arrive within days of the

We had only 72 hours in which to act and still had to undertake a valuation of the property, assess the other properties offered as security, undertake investigations,

Tony Gilbertson CEO Signature Private Finance

NACFB Magazine | 27

Ask | the expert Your questions answered by the most knowledgeable NACFB associates

Q A

What is compliance monitoring?

The FCA state within their Senior Management Arrangements, Systems and Controls that it ‘requires a relevant firm to take reasonable care to establish and maintain appropriate systems and controls for compliance with its regulatory obligations and to counter the risk that it might be used to further financial crime’. A compliance monitoring plan works towards achieving this.

Q A

Planning for compliance James Hinch, compliance consultant at NACFB Compliance Services, outlines what makes a solid monitoring plan for businesses

What are the benefits of a good plan?

Depending on the size and complexity of a firm, the compliance function is generally responsible for oversight of a firm’s activities, ensuring that these are being carried out in accordance with the relevant legislation and regulations. Smaller firms may have a single employee who will conduct oversight themselves or may outsource this function. Either way, a monitoring programme is applied and provides management with some assurance that regulatory risks are being sufficiently managed within their business. Results of monitoring can provide useful management information (MI) on how well your obligations are being met, which might steer the decisions that your business takes. MI is very important in analysing trends, helping you forecast the future and solving any problems you identify. Firms should use it to monitor customer treatment, expectations and outcomes. You can improve your service and business performance with good MI – how you use and collect information is down to you. A monitoring plan also provides a platform for your business to identify gaps within any processes and controls you have in place – these could be excessive processes or procedures as well as any unsatisfactory ones identified.

What should be considered when setting up a compliance monitoring plan?

Your monitoring plan should always cover the main business activities; it may not, however, cover emerging risks to your business such as future regulatory changes like the General Data Protection

Regulation which is fast approaching in 2018. Crystallising or crystallised risks may be added or removed at any phase of a monitoring plan so it’s always advisable to keep up to date with any changes which may impact your firm, and update your plan accordingly. Remember - a compliance monitoring plan should always be proportionate to the scale, complexity and size of the business. When developing a compliance plan, ensure that you are being as comprehensive as possible. Describe what testing or checks are to be conducted; how often; who will conduct the testing (such as the compliance officer or director of a limited company) and finally, ensure records of each review are kept, evidencing findings and what testing was conducted.

Q A

So how does a business know what the risks are?

The focus of your plan should be the greatest risks posed to your business. Consider casting a ‘high level’ net in the first instance when assessing risk. Some standard examples may be: Reputational Financial Strategic Compliance (eg regulatory and business requirements) Operational These can then be sub-categorised

(economic, political, human, anti-money laundering etc) or you could list potential internal and external influences/risks as a next level and so on. A commercial broker may have more specific and defined risk areas depending on their business model and may not be as detailed. For example, a sole trader may not necessarily have a requirement to review their T&C scheme as they are the only staff member and conduct regular refresher courses, whereas a principal firm with numerous appointed representatives (AR) may have a scheme in place, and part of the monitoring plan provides assurance that the ARs are acting appropriately.

Q A

Now that you have identified the risks, how will you review them?

You may choose to develop a monitoring plan that will see detailed reviews of your main risks and a high-level, light-touch approach for your low risks. Don’t forget that within an ever-evolving environment these may change as some low-level risks can become high-level and vice versa. The FCA does not prescribe a format or layout for how to conduct your monitoring, as each method or methodology may produce the required outcomes. It’s for businesses to review, test the controls or processes and identify whether they remain robust and fit for purpose. If you need any help or support with compliance monitoring or any other compliance matter, feel free to visit www.nacfbcompliance.co.uk Associate Lender Association of Bridging Professionals

28 | NACFB Magazine

Helping Fund UK Business

Ask | the expert Your questions answered by the most knowledgeable NACFB associates

Q A

What is compliance monitoring?

Q A

Planning for compliance James Hinch, compliance consultant at NACFB Compliance Services, outlines what makes a solid monitoring plan for businesses

What are the benefits of a good plan?

What should be considered when setting up a compliance monitoring plan?

Your monitoring plan should always cover the main business activities; it may not, however, cover emerging risks to your business such as future regulatory changes like the General Data Protection

Q A

So how does a business know what the risks are?

Q A

Now that you have identified the risks, how will you review them?

28 | NACFB Magazine

Helping Fund UK Business

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

The London charm London has been the well-established and much sought-after home for property investment for years and, with reports that commercial property investment in the capital experienced record activity at the start of 2017, it remains a market which provides numerous and varied opportunities for investors.

Many NACFB members will already know Wayne Martin, Broker Relations Manager, but now the team has grown to meet growing broker demand as their product range increases.

and Battersea, Stratford, Southbank and Silicon Roundabout, all of which are now established destinations. In addition, London is home to a number of high-profile properties that provide investors with an opportunity to own a small section of a building offering ultra-fine architecture, beautiful ambiance and unmatched quality. The charm and status attached to some London properties in areas such as the City, West End and King’s Cross also plays into the attractiveness for some investors. Major transport and infrastructure investment – such as Crossrail and HS2 – continues to improve London’s connectivity as well as fuelling regeneration and creating new development and investment opportunities. It has also led to the expansion of central London, with areas such as Stratford being considered as ‘core’ thanks to the impending arrival of super-fast connection to the City and West End.

Further pressure on London’s housing market continues to be felt, yet this only serves to give an investor longer-term security as demand from both a rental and sales perspective will remain high. While the current market is more uncertain, it also means that over the longer term the value of these assets will tend to go up or at the very least remain flat. The investors also play an important role in providing rental properties for those who cannot or do not want to buy. It is increasingly important in this fast-paced London market to be ready to move quickly when real estate opportunities arise. We strongly believe specialist banks such as Hampshire Trust Bank can provide flexible, fleet-of-foot decisions to our investor customers, which ensures speedy delivery of lending decisions.

“During my first weeks with the team I have noticed how pleasantly surprised brokers have been with our PortfolioBuilder facility with comments like ‘there is nothing else like this on the market”. “This normally comes when I explain we look at the strength of the business / proposal which allows us to be able to offer 100% LTV.” Lucy-Jayne also has extensive brokerage and mortgage experience and enjoys a reputation for being ‘tenacious’. “I have earned this because I really enjoy getting stuck into the detail and doing everything I can to smooth the process of getting a deal done,” she explains.

Fulton is well qualified for this role as he has over 17 years financial services experience that includes heading up brokerages, underwriting and property development experience. “I totally understand the frustrations poor communication can cause and I enjoy being the point of contact that moves things along. This is in everyone’s interest and from a broker’s perspective it helps them get paid more quickly” explains Fulton.

“I have a passion for helping brokers support small businesses that are trying to get ahead and in my new role, I love taking ownership and being the key point of contact.” Wayne Martin says, “Fulton and Lucy-Jayne are great additions to the Broker Relations Team and their knowledge and experience will become even more invaluable as we look to expand the range of products we offer.” The team at Just Cashflow know it is important to provide fast and flexible funding for their customers to ensure that everyone is able to unlock more deals for business growth and success.

The final piece in the puzzle - a loan you can design yourself As a professional broker or intermediary you’ll be used to seeking fast and flexible funding for your clients. Just Cashflow knows that every business is different and our new loan products enable us to offer you tailored financial solutions to meet the requirements of your clients. Now you can design a loan with your Client that can give them access to funds from £10,000 to £500,000 in a way that exactly fits with their business needs. Blend a short term and long term loan, pay it off without penalties, add in a payment holiday - a Just Cashflow loan can do it all. The application process is really simple and straightforward and our underwriting team will support you and help you complete the picture for your clients.

Just call us now

Alternatively, find out more

0121 418 5037

justcashflow.com/partner

FS668057

30 | NACFB Magazine

The two newest members are Fulton Hogan (left) and Lucy-Jayne Bloomer-Davies (right).

The survey revealed that 46% of respondents felt extremely frustrated with not being kept informed of case progress, closely followed by 38% who felt frustrated by the inability to talk directly to lenders and suffered from emails and phone calls not being answered.

Introducing the Just Cashflow Broker Relations team

ith the occupier base continuing to diversify and infrastructure links such as Crossrail and HS2 opening in the near-future, the opportunities for investment remain abundant. And with factors like these impacting the market, investors accept that they will pay a higher price for property than elsewhere in the country with the anticipation of an increase in the investment after a few years.

The diverse occupier base, much of which can be grouped into certain submarkets (eg insurance in EC3 and media tech in the north of the city), offers investors exposure to market-leading opportunities in banking, insurance, media, technology, fashion, education and industrial sectors. These occupiers require different-sized buildings with varying designs and specifications, which therefore cater to a range of investors. The dynamism of London is reflected by its ability to evolve and create new submarkets such as King’s Cross, Nine Elms

Recent research by Just Cash Flow PLC confirmed that commercial brokers’ major frustration with lenders is poor communication that leads to delays in getting their clients over the finishing line.

Just Cashflow didn’t need a survey to tell them this, as they employ staff with direct broker experience who understand these frustrations.

Colin Bell Managing director of commercial mortgages Hampshire Trust Bank

London is recognised by many as one of the largest and most dynamic cities in the world and, as such, offers a wide range of investment opportunities. The capital and, in fact, the UK as a whole, remains an attractive offer for investors as, despite events such as Brexit, it’s seen as a secure, well-regulated and stable market to operate within so long as the investment is over the medium or long term to avoid short-term fluctuations. This provides much-needed peace of mind to investors as they know the assets they purchase are safe and have been built to high standards.

How can lenders better support their broker customers?

BCMS668054

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

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

Many NACFB members will already know Wayne Martin, Broker Relations Manager, but now the team has grown to meet growing broker demand as their product range increases.

Just call us now

Alternatively, find out more

0121 418 5037

justcashflow.com/partner

FS668057

30 | NACFB Magazine

The two newest members are Fulton Hogan (left) and Lucy-Jayne Bloomer-Davies (right).

Introducing the Just Cashflow Broker Relations team

Recent research by Just Cash Flow PLC confirmed that commercial brokers’ major frustration with lenders is poor communication that leads to delays in getting their clients over the finishing line.

Just Cashflow didn’t need a survey to tell them this, as they employ staff with direct broker experience who understand these frustrations.

Colin Bell Managing director of commercial mortgages Hampshire Trust Bank

How can lenders better support their broker customers?

BCMS668054

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

SPECIAL FEATURES

The Brexit effect on trade finance More than a year on from the Brexit vote, the impact on our trading relationship with the EU and beyond is yet to be determined. change, the way lenders tailor their products to market also needs to adapt.

Mark McGuire Managing director Goldcrest Trade Finance

While we live in an unprecedented environment with liquidity levels and breadth of lenders as great as it has ever been, the number of lenders prepared to offer trade facilities remains low in number. This is mainly due to perceived weaknesses in the underlying security and complexities in managing a trade loan book.

egotiated trading agreements appear a long way away, but that doesn’t mean international trade has to stall. In the interim, what has the impact been on trade finance and how do UK SMEs deal with the ongoing uncertainty? It’s fair to say that, so far, there have been some winners and losers. The outright winners to date have been UK manufacturers with an export bias. Recent surveys show more than 60% of manufacturers who export to the EU are demonstrating a rise in the level of order books. While this is undoubtedly good news for the economy, let’s not forget that the UK remains primarily a net importer of goods – a position that is not likely to reverse any time soon. The impact on importers appears to have been largely overlooked in the general press. The immediate effect of the Brexit vote

of supply and onward sale of goods can be a lengthy exercise, and not always a successful one. An element of thinking outside the box is therefore necessary. We have seen traditional wholesale businesses adopting a mix of retail sales into their turnover in an attempt to improve the margin mix. Cutting down the number of parties in the supply chain between manufacture and retail provides the opportunity to bolster margins; however, it requires additional skill sets,

Let’s not forget that the UK remains primarily a net importer of goods – a position that is not likely to reverse any time soon was a rise in the cost of imported goods, as well as an immediate 10% fall in the value of sterling against the dollar and euro. It’s evident that as a nation with a substantial trade deficit these additional costs, albeit lagged, are passing into the supply chain and causing increasing levels of consumer inflation. This looks irreversible in the short term and with wage growth currently static, a knock-on effect on demand will surely hit at some point. For a consumer-led economy, such as the UK, this is a worrying trend. As far as Goldcrest’s borrowers are concerned, the currency impact has hit trading margins hard. Renegotiating terms

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notably IT and website capability to market directly to the public. Not all businesses are able or willing to enter the fray.

rom a lender’s perspective, financing stock and then considering retail stock requires a willingness to take additional commercial risk as the source of repayment is not from a commercial debtor, but via a borrower’s own cash flow. At Goldcrest, we have adapted our facilities to allow businesses to purchase stock for onward sale via a retail channel, thus appreciating the need for companies to change their approach to the current climate. As the channels to market

BRIDGING LOANS FOR TODAY AND TOMORROW

On the one hand, this isn’t an unreasonable view given the casualty list from the last couple of years of those who have tried but ultimately failed to make it work. On the other hand, the relative dearth of protagonists in trade finance offers an opportunity to expand and create working relationships with other lenders who may not wish to offer trade themselves, but equally would like a partner who will fill in the gap. Ultimately, working together can mean that opportunities to write new business are not missed. Goldcrest has active working relationships with other asset-based lenders and is able to offer trade facilities as part of a wider funding solution. Some businesses have already been caught out by the Brexit vote and have fallen into financial difficulties where they have been unable to adapt in time. While some lenders are put off by trading losses, or worse, insolvency proceedings, Goldcrest will take the time to understand whether a business can be supported through a restructure and offer financial support to either an existing entity going through a turnaround, or a new entity, should that be appropriate. Our experience in financing turnarounds over many years helps us to give some companies a second chance. So while the cards remain in the deck it’s hard to foresee the ultimate outcome of Brexit on the typical UK SME but, as ever, there will be winners and losers. As a general comment, those able to promote their products to foreign markets will do better; those importers who fail to adapt will suffer.

Business Products Innovation of the Year

SPECIAL FEATURES

Mark McGuire Managing director Goldcrest Trade Finance

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notably IT and website capability to market directly to the public. Not all businesses are able or willing to enter the fray.

BRIDGING LOANS FOR TODAY AND TOMORROW

Business Products Innovation of the Year

SPECIAL FEATURES

Soliciting the bridging process

- by Tom Belger, reporter

The important role of the solicitor in getting a bridging deal completed is undisputed in the industry. The bridging loan process requires a fast approach from all of those involved and lenders believe solicitors can make the difference as to how long it takes for a deal to be completed. “A solicitor can make the difference between a loan being completed in two days or two weeks – or even longer,” claims Jonathan Sealey, CEO of Hope Capital. Steve Smith, business development manager at Roma Finance, added: “Solicitors are a key factor in the bridging process and a good solicitor with

“[Additionally] a solicitor will have crucial input in assessing the property security that is being offered, highlighting any areas of risk, which ultimately can have a direct impact on the valuation that forms the basis of the deal.” Claire Wasbrough, head of underwriting for short-term lending at Masthaven,

favouring the use of an in-house legal team and others turning to external law firms. Mint Bridging works with an in-house legal team, headed up by Anthony Akka. Paul Wertheim, operations director at Mint, felt having a hands-on legal department was vital for brokers and clients: “Borrowers and solicitors have often never dealt

The solicitor’s role is critical in translating the commercial deal into an accurately documented transaction extensive knowledge of property law is a huge plus factor in getting the deal completed and the funds paid quickly.” Meanwhile, Mike Strange, managing director of Funding 365, stated: “We frequently find that bridging loan delays occur where the borrower’s legal counsel are simply not used to operating in the timeframes required for a bridging transaction.” Adding value in the process Solicitors play key roles in a wide number of areas in commercial lending, and lenders point to several stages where legal involvement adds real value to the bridging process. Amit Majithia, principal at Avamore Capital, said: “The solicitor’s role is critical in translating the commercial deal into an accurately documented transaction, which provides the lender with adequate security.

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also pointed to the aversion of risk during the bridging lending process: “… We rely on our select panel heavily to protect us and to advise us of the risks associated with the case.” Mike highlighted swift completion as the area where solicitors can add the most value: “From Funding 365’s perspective, solicitors undertake one of the two critical components in successfully (and rapidly) completing a bridging loan. The first component requires swift underwriting of the loan, while the second is efficient execution of the loan on the agreed terms. It’s on this second component that the burden falls squarely on the solicitors.“ In-house vs external Bridging lenders tend to use different approaches when taking care of the legal requirements of the loan process, with some

with a bridge previously and will usually require assistance with the documents, and understanding the need for speed. “The in-house team will have a conversation very early into a transaction to set out the timeline for a timely and efficient drawdown. “Anthony and his team’s insights and expertise give us legal perspectives that we wouldn’t experience if we outsourced this task.” Paul added that external solicitors would always provide strong advice, but an in-house legal counsel brought in more information: “From the borrower’s perspective, an in-house legal team acts as the essential conduit between all parties, ensuring that the loan completes on time with as little drama as possible.”

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SPECIAL FEATURES

Soliciting the bridging process

- by Tom Belger, reporter

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NACFB Magazine | 35

SPECIAL FEATURES

Claire said the company had in-house legal advice, but at present used an external panel of carefully selected legal professionals. “We deliberately use solicitors who are very experienced in our market to ensure they have the deep knowledge and understanding of the risks and pitfalls associated with short-term lending.

Bridging loan delays occur where the borrower’s legal counsel are simply not used to operating in the timeframes required for a bridging transaction

“As we continue our expansion we will continue to monitor the legal process to further improve and streamline our procedures.” Mike said Funding 365 believed in an external counsel of solicitors: “An external law firm will always give you fully impartial advice and will not be swayed on their advice based on internal pressure to meet loan size or profitability targets. “Furthermore, we believe that an external law firm will always have a much greater depth of personnel than an internal team can provide – thus providing a more consistent and reliable service level.” Amit also preferred to use external solicitors: “…This is for a number of reasons, including the fact that our lawyers act for several other bridging lenders, so are aware of current best practices in the market. “External lawyers continue their professional education on a regular basis and are constantly exposed to new issues that they may not necessarily see if they were in-house.” Do they understand bridging? Jonathan felt that it didn’t matter whether an in-house or external solicitor was used – what’s crucial is that they understand the bridging process. “Many deals that should have a quick turnaround are held up by a high street solicitor who does not understand what is needed for a bridging case. “As a result, a bridging loan case can go to the bottom of the pile and be unnecessarily delayed, whereas a solicitor who knows what he or she is doing can transform a case and turn it around within hours.” Steve added: “I think as long as you have confidence in the solicitor and they have a proven track record in bridging, it does not matter if they are in-house or external. “It all comes down to trust and the working relationship you have with them.”

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SPECIAL FEATURES

Bridging loan delays occur where the borrower’s legal counsel are simply not used to operating in the timeframes required for a bridging transaction

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SPEED MEETS EXPERIENCE 020 7655 3388

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

The intricacies of green energy funding

nvestors have typically funded solar photovoltaic (PV), wind power, hydro, anaerobic digestion and biomass projects, with location key to ensuring maximum exposure to the elements and resulting in energy generation. In the UK, the best sites are predominantly in the south and west of England and in Scotland, where wind turbines are the most favourable and lucrative to generate AC power.

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What makes green energy loans attractive to investors? To achieve its power generation targets, the government has introduced various subsidies designed to make the generation of

renewable energy attractive to both investors and operators. There are two principal subsidies – Feed-in Tariffs (FITs) and Renewable Obligation Certificates (ROC). ROCs are generally applicable to larger-scale projects. Generation FITs are payable based on the amount of power generated, no matter whether this is used on site or exported. Export FITs are calculated by reference to the power exported to the National Grid. FITs are required by law to be paid by the energy supplier companies and are recovered from a levy on all electricity consumers.

UK project finance by sector 20000.0

Green energy loans also appeal to ethically conscious investors who want to put their money towards projects that will benefit their surroundings. Risks Typically, the income stream from renewable energy projects is reliable. However, there are a number of potential risks that need to be considered: Government risk: In today’s unstable political climate, it’s difficult to predict which policies will be affected when Britain leaves the EU or if a new government is put in place. However, it’s very unlikely FITs will be affected. Technology risk: Both solar PV and wind turbines have been operating across the world for many years. New equipment is covered by manufacturers’

250

18000.0 16000.0

200

14000.0 12000.0

150

10000.0 8000.0

100

6000.0 4000.0

Number of deals

Stuart Law CEO Assetz Capital

To help fund these projects, Assetz Capital has a dedicated investment account, which in recent years has filled a funding gap left by traditional banks hesitant to financially support such businesses. The Green Energy Income Account allows investors to automatically invest in business loans to renewable energy projects.

From a lender’s perspective this provides a secure, index-linked income stream to support loans.

Deal value (£m)

In recent years, renewable energy projects have gained great interest from investors for a variety of reasons. While there remains a broad interpretation of what the renewable energy market consists of, it’s generally defined as energy that comes from resources that are naturally replenished, including sunlight, wind, rain, tides, waves and geothermal heat.

2000.0 0.0

2009

Biomass (£m) Solar PV (£m)

2010

2011

2012

2013

Offshore wind (£m) Number of deals

2014

2015

2016

Onshore wind (£m)

Source: The UK Renewable Energy Finance 2017 report, Clean Energy Pipeline

NACFB Magazine | 39

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

The intricacies of green energy funding

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What makes green energy loans attractive to investors? To achieve its power generation targets, the government has introduced various subsidies designed to make the generation of

UK project finance by sector 20000.0

250

18000.0 16000.0

200

14000.0 12000.0

150

10000.0 8000.0

100

6000.0 4000.0

Number of deals

Stuart Law CEO Assetz Capital

From a lender’s perspective this provides a secure, index-linked income stream to support loans.

Deal value (£m)

2000.0 0.0

2009

Biomass (£m) Solar PV (£m)

2010

2011

2012

2013

Offshore wind (£m) Number of deals

2014

2015

2016

Onshore wind (£m)

Source: The UK Renewable Energy Finance 2017 report, Clean Energy Pipeline

NACFB Magazine | 39

THE TEAM FOR BRIDGING LOANS

GUIDES

warranties of five years or more, while breakdowns are covered by insurance. Risk here is minimal. Construction risk: Fixed price contracts and short construction programmes ensure that there is minimal risk of cost or time overruns. Warranties are obtained from designers and contractors. Generation risk: Sophisticated programs are used to forecast the output of individual projects. When using these figures for lending purposes, an incredibly conservative attitude should be adopted. Security Projects are invariably structured using a special purchase vehicle (SPV). The land on which the project is sited is usually held on a lease for at least 20 years or sometimes may be freehold. Before any loan is contemplated, the site must have full planning consent and a valid grid connection offer. These consents are difficult and expensive to obtain – once consented they are valuable assets.

UK project finance deals by sector as a percentage of deal numbers (2016)

7% 18%

34%

Solar PV Onshore wind Biomass Offshore wind

41%

The government has introduced various subsidies designed to make the generation of renewable energy attractive to both investors and operators

WE C

COMMERCIAL

RETAIL

INDUSTRIAL

SHOPS

AST’S

INVESTMENT

RESIDENTIAL

HOTELS

OFFICES

FACTORIES

OWNER OCCUPIERS

INVESTORS

ALL!

The security package for these types of loan opportunities will generally be:

CMY

A first legal charge over the land and installation

A debenture over the SPV An assignment of income, permitting the lender to insist that all income – FITs and PPA income – be paid into an account under its control A specialist RICS-accredited valuer will obtain the value of the completed project on an open market basis. Typically the interest cover ratio will be 2.0 or better. Green energy loans remain a core part of Assetz Capital’s business, and strong demand from both investors and SMEs in the sector means that loan applications are likely to grow exponentially.

Let’s Talk! COM M ERCIAL

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•

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

RESIDENT I AL

•

A PRINCIPAL LENDER

DEVELOP ME N T

THE TEAM FOR BRIDGING LOANS

GUIDES

UK project finance deals by sector as a percentage of deal numbers (2016)

7% 18%

34%

Solar PV Onshore wind Biomass Offshore wind

41%

The government has introduced various subsidies designed to make the generation of renewable energy attractive to both investors and operators

WE C

COMMERCIAL

RETAIL

INDUSTRIAL

SHOPS

AST’S

INVESTMENT

RESIDENTIAL

HOTELS

OFFICES

FACTORIES

OWNER OCCUPIERS

INVESTORS

ALL!

The security package for these types of loan opportunities will generally be:

CMY

A first legal charge over the land and installation

Let’s Talk! COM M ERCIAL

40 | NACFB Magazine

•

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

RESIDENT I AL

•

A PRINCIPAL LENDER

DEVELOP ME N T

GUIDES

Co-financing: an option in support of collaboration A recent survey conducted by the Bank of England found that a fifth of UK firms are underinvesting as they struggle to secure sufficient funding for their business. Commercial finance brokers have always played a crucial role in helping businesses secure necessary funding and their work is becoming even more important as banks have started to tighten their lending criteria.

Kevin Vendel Senior partnership manager Spotcap UK

n order to help business clients secure the funding they need, itâ&#x20AC;&#x2122;s important that brokers are aware of new financing opportunities. Fostered by technological advances and digitalisation, there has been a wave of new alternative lenders entering the market. In the last two years, the number of new entrants offering unsecured online lending, peer-to-peer, crowdfunding and invoice financing has more than doubled. Over the next year, alternative finance is likely to become even more mainstream through increased collaboration with financial service providers, and also between alternative lenders themselves.

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Loan stacking vs co-financing Traditionally, when applying for financing, businesses have taken out multiple loans, resulting in unsecured loans or cash advances on top of existing obligations. This practice, also called loan stacking, normally involves multiple lenders who do not interact with each other. Although common practice among brokersâ&#x20AC;&#x2122; clients, this, in the worst case, could lead to rising loan obligations for the client and a deteriorating ability to pay.

An alternative to loan stacking, which has only recently become more popular among banks and alternative lenders, is to co-finance a deal. This means that either a bank and an alternative lender, or two alternative lenders work together to jointly finance a project. Although brokers have so far only made sparse use of co-financing, this concept can be helpful to speed up the application process.

By offering a co-finance solution to their clients, brokers can add another revenue stream to their firm for the same deal

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GUIDES

Kevin Vendel Senior partnership manager Spotcap UK

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By offering a co-finance solution to their clients, brokers can add another revenue stream to their firm for the same deal

NACFB Magazine | 43

GUIDES

Business-boosting loans up to £500,000 Fixed rate loans with no set up fees or early repayment charges Security may be required. Product fees may apply. Over 18s only. Business turnover of up to £2 million. Excludes reﬁnance and Commercial Real Estate Finance.

Example case study A client decides to expand their operations and needs an additional funding of £1m. However, the best possible deal the broker could secure from a bank or an alternative lender is an asset-based loan of £800,000, which only covers 80% of the total amount. The broker could now speak to the client to find out if the 80% is sufficient and look to apply for the additional 20% at a later stage. If that is not possible, the broker has to send out a new enquiry, which can be time-consuming and, if not secured swiftly, he/she might lose out on the deal altogether. As an alternative — and to secure the deal in full plus two commissions — the broker can look into a co-financing option with a partnering lender. In this case, this would preferably be a lender offering an unsecured loan for the outstanding 20%, or £200,000. This one-stop solution can help the main lender, as well as the broker, to push the financing deal over the finish line.

Secured vs unsecured An important distinction which should be made is whether the additional loan is secured or unsecured. Co-financing deals could be either between two secured lenders, eg two banks or a bank and an asset-based lender, or between one secured lender, who provides the lion’s share of the loan, and an unsecured lender. The disadvantage of the first option is that both lenders have a claim on the client’s assets, which could cause problems. The benefit of a co-financing deal with an unsecured lender is that they have no claim on the client’s asset and, therefore, complement the main lender. Compared to loan stacking, cofinancing offers various advantages: It can take traditional lenders, such as banks, several weeks or even months to process a loan application. If declined, a second application can be, again, time-consuming. However, most co-financing partners can provide the additional capital within a few working days due to the use of innovative technology. By offering a co-finance solution to their clients, brokers can add another

revenue stream to their firm for the same deal. Expanding the range of alternative funding options can help increase client satisfaction by going the extra mile to secure funding for them. The risk of maxing out clients with loan obligations from multiple loans can be avoided. This also strengthens the retention of brokers’ client base in the long term. For brokers, co-financing serves as an alternative solution when their clients cannot borrow all the funds they need from one bank or secured lender. To ensure that they are always able to offer their clients the best possible deal, brokers should continuously try to keep up to date about innovations in the lending space and be aware of new financing options. Rather than maxing out clients for short-term gains, brokers should ensure that they remain competitive in the long run. Offering co-financing deals to their clients will not only increase customer service, but also ensure strong relationships in the longer term. Only then will they be able to retain their clients and remain a crucial part of the credit cycle.

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

44 | NACFB Magazine

GUIDES

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

44 | NACFB Magazine

Opinion | & commentary Thought leadership from our Patrons and Members

Putting in real face time Philip Knight Credit & risk director Asset Advantage

e communicate more than ever by way of text messages, a multitude of direct messaging services and email. Less indirect communication happens through internet forums and postings on social media. People socialise more online than they do in person, so it’s perhaps not surprising that the way in which business is conducted has mirrored this. Indeed, inventors have worked hard over the years to reduce the need to meet people with everything from the telegraph or the telephone through to the conference call and the internet, including video conferencing over the internet using software such as Skype. The reasons for this are perhaps obvious. Travel time is expensive, both in terms of absolute cost and time. Those in charge of the cost centres focus, unsurprisingly, on the cost and perhaps, most cynically, many view the face-to-face meeting as an unnecessary luxury. When the meeting doesn’t directly result in a piece of business, the ‘cost’ of the meeting becomes even harder to justify. So, why do I value them so much and,

finance director I really want to speak to.

motivated and interested in the business?

A meeting encourages deeper engagement with the deal by the lender as the credit manager needs to research the industry sector and prepare questions to ask. Similarly, the customer becomes more engaged with the underwriting process.

Moreover, the meeting isn’t necessarily just about that meeting. Industry sector and competitor information is invaluable data. Bringing that information back to the office and sharing it – thus adding to the credit department’s general body of knowledge – can help with future proposals in that sector.

Linked to this engagement, in my view, is the important part the meeting takes in reducing the anonymity of the process. Suddenly the lender isn’t some remote office staffed by computer-wielding underwriters

Customers who are willing to commit time to a meeting are more likely to be committed to their business more specifically, in the credit underwriting process? Even before the meeting, the mere setting of a date can help validate a proposal. Time-wasters tend not to agree to meetings and fraudsters fear getting caught out. Customers who are willing to commit time to a meeting are more likely to be committed to their business. I, for one, don’t buy the customer who is too busy to have a meeting or can only arrange for junior members of staff to attend. Financial controllers, I love you to bits, but it’s the

who rarely see the light of day. The lender becomes a real person, and certainly in the case of Asset Advantage, a decision-making credit manager, with whom the customer can engage with, persuade and influence. A face-to-face meeting isn’t just about the face you are meeting. It gives you an opportunity to see the business site and validate some elements of the proposal. Does the site seem busy? Is it well maintained? Do the staff seem

The actual mechanics of the meeting can also tell you a lot about the business. Put quite simply, a customer that keeps you waiting for half an hour, can’t be bothered to offer you a drink and then conducts the meeting in a disinterested and slip-shod manner is, in my experience, likely to operate their finance facility in a similar way. Of course, meetings aren’t the easy option at all. They require the aforementioned preparation and commitment of time to attend. It can be difficult to balance ‘selling’ finance and gathering the information you need to underwrite the deal. Merely having a conversation and taking legible notes can be difficult, especially when you know the customer is watching what you write! In addition, the personal nature of the face-toface contact can make it difficult to decline a proposal. But, as I often say, if it was easy, everybody would do it. And anyway, you can always let them know by text.

FUNDING TO DEVELOP SUCCESSFUL UK BUSINESS Asset Advantage is an award winning, privately owned, finance business specialising in providing asset finance and loans to SME businesses throughout the UK via a premium panel of introducers. Our finance products utilise a combination of experience, expertise and uncompromising business processes to deliver the perfect solution to our clients. To find out more about joining our select panel of introducers and our award winning SME finance solutions please call Tracy Millsom on:

01256 316 200 or visit our website on:

www.assetadvantage.co.uk Efficient Finance is our Advantage Third Floor, Matrix House, Basing View, Basingstoke, Hampshire, RG21 4DZ

46 | NACFB Magazine

Opinion | & commentary Thought leadership from our Patrons and Members

Putting in real face time Philip Knight Credit & risk director Asset Advantage

finance director I really want to speak to.

motivated and interested in the business?

01256 316 200 or visit our website on:

www.assetadvantage.co.uk Efficient Finance is our Advantage Third Floor, Matrix House, Basing View, Basingstoke, Hampshire, RG21 4DZ

46 | NACFB Magazine

OPINION & COMMENTARY

The answer to inflexible financing The commercial sector has endured some tough times in recent years, with events such as the EU referendum, UK elections and Donald Trump’s presidency all having an effect on the market.

owever, in light of slowing growth in the residential market, investors are looking to opportunities in the commercial market and demand is continuing to grow. Commercial property is becoming more popular with private investors, many of whom are being driven away from the residential buy-to-let market by the increasing regulation and rising taxes. Auction house Allsop recently announced it had seen three times the number of buyto-let converts dipping into commercial property since the cuts to mortgage interest relief for residential buy-to-let properties were announced. Yet the sector is still greatly underserved by mainstream lenders, mainly because of the risks involved due to the volatility of commercial property prices. Commercial finance is a multi-faceted form of finance – each loan must be assessed individually and priced according to the risk. The underwriting process is complex and some lenders can be inflexible in their decisions. Borrowers seeking commercial finance need more innovative options tailored to meet their needs and one such source that has become a critical tool to fund this community is bridging finance.

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This sector has presented a real-time solution by providing a quick and flexible injection of liquidity to fulfil funding needs. A commercial bridging loan can be secured on many property types, including residential, semi-commercial, commercial property and land. In addition, many income sources, ranging from employed, selfemployed and sole traders to partnerships and limited companies will be considered. Funds can be used for all existing investments to refinance and improve cash flow, or to purchase businesses such as hotels, land or retail units. What’s more, because bridging loans are now much cheaper, they are more appropriate for a wider range of borrowers and circumstances. Our bridging loan products at mtf are designed to meet the many diverse needs of commercial property investors. As a non-status lender, we do not require evidence of trading history, accounts, proof of income or personal guarantees. This allows us to take a practical, commonsense approach to lending. As an example, a property development company needed funds to purchase a £4m commercial asset based in Peterborough, which they intended to convert into offices. The developers had a specific completion date and were unable to obtain a commercial mortgage in the timeframe required.

As time was of the essence, our broker partner approached mtf and we provided a £1.8m commercial bridging loan at 45% LTV based on open market value. Interest was retained at 0.95% over a 12-month term, with no exit fees or ERCs. In just under three weeks, the clients were able to purchase the asset and the 12-month term gave them plenty of time to refinance with a commercial mortgage. The bridging market is famed for constantly adapting to change and for its product innovation – for example, mtf recently introduced a commercial loan product with a 24-month term due to demand from brokers. Over the last 12 months, we have witnessed a renewed appetite to lend in the commercial finance market, with more and more bridging lenders entering into the commercial lending arena. What we are now seeing is merely a transition period. Undoubtedly, lenders will take a while to adapt to a new environment, but very soon increased innovation, experience and expertise will shine through and commercial bridging will become just as mainstream as residential bridging. Tomer Aboody Director mtf

OPINION & COMMENTARY

48 | NACFB Magazine

BRIDGING FINANCE OPINION & COMMENTARY

Busting P2P misconceptions Paul Marston Managing director RateSetter

am encouraged that awareness of alternative finance is rising: the March SME Finance Monitor found that 47% of respondents were aware of alternative products and that one-third would consider them. However, there remains lots of scope for improvement. P2P finance has made a huge impact in a short space of time because it has helped to fill the gap left by banks, who have reduced their exposure to SME borrowers. But most SMEs still approach their bank for a loan in the first instance and, if turned down, many give up on their search for funding at that point. This amounts to a big missed opportunity for SMEs who, as a result, may not be able to realise their plans. On a personal level, I am passionate about helping businesses improve their productivity and grow, and I know this is something that motivates brokers too. By working together, I am confident we can raise awareness, correct misconceptions and make a sustainable change to the take-up of P2P business finance.

he biggest misconception is that all types of alternative finance are the same. In fact, there are fundamental differences between, for example, equity crowdfunding and peer-to-peer lending. Crowdfunding involves the sale of shares in a business to investors, whereas P2P platforms provide loans. Investors in the former rely on the value of the shares appreciating, plus any dividends, for their return. People investing through a P2P platform get their invested capital back, plus interest paid by the borrower.

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Online bridging valuations in an instant

Another misconception is that the P2P proposition is no different to that from a bank’s. However, while our due diligence processes are just as thorough, we make decisions much faster, our terms and charges are clearer and we deliver funds in a matter of days as opposed to weeks or even months, as is typical with banks. The speed of the process is important – not just for brokers. It makes a huge difference to SME owners whose time can then be spent more effectively, putting the money to work and managing their business.

Our online Automated Valuations (AVMs) for Bridging Finance can be generated in an instant to help your customers seal the deal faster. At only £99 at the point of application, they could save money too.

At RateSetter, we also offer flexibility, with loan sizes ranging from £25,000 to £750,000 and terms of three months to five years with no early repayment fees. We do not lend to start-ups, but we are a great choice for businesses looking to invest, expand, purchase assets or stock, for working capital or simply to pay off more expensive credit.

Automated valuations available subject to criteria Quick decisions to meet tight transaction deadlines

Independent finance brokers are uniquely placed to help their clients find the finance that is most appropriate for their circumstances. Part of that is raising awareness of options such as P2P finance and helping clients understand the key features. As more SMEs are turning to finance brokers for advice – a trend that is being accelerated by cuts to business relationship managers in banks – the well-sourced information an independent and respected broker provides becomes increasingly compelling. We are delighted to work with brokers across the UK, and are always looking to extend our network.

Dedicated underwriter from DIP to completion If you wish to discuss a case please contact our Intermediary Support Team for more information. Call us

0800 116 4385

Visit us

precisemortgages.co.uk

FOR INTERMEDIARY USE ONLY.

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

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In today’s lending environment, P2P finance is one of the best ways to meet the needs of ambitious SMEs and fill the gap left by the banks in providing efficiently delivered funding. Therefore, addressing misconceptions is key to encouraging greater take-up by business owners.

BRIDGING FINANCE OPINION & COMMENTARY

Busting P2P misconceptions Paul Marston Managing director RateSetter

50 | NACFB Magazine

Online bridging valuations in an instant

Automated valuations available subject to criteria Quick decisions to meet tight transaction deadlines

Dedicated underwriter from DIP to completion If you wish to discuss a case please contact our Intermediary Support Team for more information. Call us

0800 116 4385

Visit us

precisemortgages.co.uk

FOR INTERMEDIARY USE ONLY.

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