NACFB Magazine - September 2017 by NACFB

Issue 50 September 2017

The magazine for the National Association of Commercial Finance Brokers

Peer-to-peer:

Thereâ&#x20AC;&#x2122;s always a seat at the table for brokers

In this issue

Could build-torent overtake buyto-let?

A shift in preference may be on the horizon

Guiding clients through due diligence Brokers must get involved

The future of EIS investments The effects of an uncertain economic environment on taxefficient schemes

LOGO

SPECIALISTS IN GOOD SENSE

REGULAR SHAWB ROOK B ANK LIMITED SHAWB ROOK GROUP PLC

Our business is built on relationships, and we rely on the support of our Broker Partners to deliver transparent lending solutions to the professional investor, landlord and SME community. A flexible approach to both client and security: n

Short Term lending from 0.55%

Term lending from 2.99% above 3 month LIBOR*

Ltd companies, LLPs & Individuals

Broad range of security including HMOs & multi-lets

Welcome | NACFB OFFSHORE

By the time you In this September issue start reading this welcome, we will be NACFB News Ask the Expert making real progress 4-6 In the news 32 Tahir Ahmed, head of 6 Dates for your diary short-term business at UK into a programme 7 Notes from our sponsor Export Finance Commercial Finance Special Features I N T E R N A T Iwith ONAL ( JERSEY SUBSIDIARY ) of meetings 8-9 Essential news bites 34-36 Could build-to-rent S H AW B R O O K I N T E R N AT I O N A L L I M I T E D overtake buy-to-let? Members and Top Story 38 The future of EIS 10 Business confidence in investments Patrons. negative territory

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

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

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

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

I hope that many of you will be attending, because these events are a great opportunity for you to tell us what is on your mind. It is also invaluable to me and my colleagues in Hamilton House, as well as the board, when we approach the task of really thinking about our vision and strategy. As a trade association, it is absolutely vital that our direction of travel accurately reflect what our Members want from the organisation. By the time the board get together to debate this important subject, I am confident that we will have arranged a number of events embracing our many stakeholders. The other milestone event that I hope that you all have in your calendar is the gala dinner. This is our 25th year and so we are planning to make the dinner a really memorable event to celebrate this important anniversary in the history of the Association. The dinner is being held at the Westminster Plaza on 30th November and tickets have been selling fast. Lastly, we have decided to hold our AGM on the same day and at the same venue as the gala dinner. We have a full agenda and I am looking for good turn-out to make sure we can progress a number of important matters that will help change the future shape of the organisation for the better. Warm regards,

www.shawbrook.co.uk

Graham Toy CEO NACFB

Graham Toy CEO, NACFB

Introducing 12

Mint announces summer sale with free valuations

Case Studies 14

Record facility funds new Manchester development 16-18 Two complex deals hinge on broker relationship 20 Hire purchase enables instant profit margin growth 22 Broker’s knowledge helps canal boat business onto the water

40-42 A looming rate rise

Industry Guides 44-46 Guiding clients through the due diligence process 48 Mezzanine: the final layer

Opinion & Commentary 50 52 54

Time to deploy bridging nationwide SMEs must regain confidence in asset finance Is P2P the stable pillar in uncertainty?

Cover Story 24-28 Peer-to-peer: There’s always a place at the table for brokers

Patron Profile 30-31 Credit4 – A personal style of funding

For further information Kieran Jones, communications manager 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

THIS ADVERTISEMENT IS INTENDED FOR INTERMEDIARY USE ONLY AND MUST NOT BE DISTRIBUTED TO POTENTIAL CLIENTS

NACFB Magazine | 3

LOGO

SPECIALISTS IN GOOD SENSE

REGULAR SHAWB ROOK B ANK LIMITED SHAWB ROOK GROUP PLC

Short Term lending from 0.55%

Term lending from 2.99% above 3 month LIBOR*

Ltd companies, LLPs & Individuals

Broad range of security including HMOs & multi-lets

Welcome | NACFB OFFSHORE

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

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

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

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

www.shawbrook.co.uk

Graham Toy CEO NACFB

Graham Toy CEO, NACFB

Introducing 12

Mint announces summer sale with free valuations

Case Studies 14

40-42 A looming rate rise

Industry Guides 44-46 Guiding clients through the due diligence process 48 Mezzanine: the final layer

Opinion & Commentary 50 52 54

Time to deploy bridging nationwide SMEs must regain confidence in asset finance Is P2P the stable pillar in uncertainty?

Cover Story 24-28 Peer-to-peer: There’s always a place at the table for brokers

Patron Profile 30-31 Credit4 – A personal style of funding

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

THIS ADVERTISEMENT IS INTENDED FOR INTERMEDIARY USE ONLY AND MUST NOT BE DISTRIBUTED TO POTENTIAL CLIENTS

NACFB Magazine | 3

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

Celebrating five years in London The NACFBâ&#x20AC;&#x2122;s head office in London is now five years old.

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

Having officially moved to the capital during August 2012. In that period, it has grown from five to 12 full time staff and has doubled its floor space as the Association continues to expand its reach and influence.

Share your thoughts on the magazine Have you got feedback to share on our monthly magazine? Or did a particular feature capture your attention this month? Feel free to reach out to us via email or any of our social channels, and weâ&#x20AC;&#x2122;ll publish your letter in the next issue of the magazine.

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

Updating the regulator CEO Graham Toy, MD Norman Chambers and Roger Deane, MD of NACFB Compliance Services recently met with the FCA, continuing to ensure that the industry regulator understands the position of the commercial finance broker.

Online calculators Product guides Case studies

Members update

Dedicated events

At the time of going to print, we count a total of 821 Member firms and 138 Patrons. Our newest Patrons include West One Loans and Greenfield Capital.

The Association seeks Member input on potential SM&CR extension In July 2017, the FCA published proposals to extend the Senior Managers and Certification Regime (SM&CR) to almost all regulated firms.

The NACFB and NACFB Compliance Services are asking all our Members to comment on the consultation paper. Please provide your responses by 1st October 2017. Any submissions after this date may not be counted towards the final feedback presented to the FCA. Head to www.nacfbcompliance.co.uk to submit your response. LendInvest is registered at 8 Mortimer Street, London W1T 3JJ (Company No.08146929). 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 September 2017

Celebrating five years in London The NACFBâ&#x20AC;&#x2122;s head office in London is now five years old.

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

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

Online calculators Product guides Case studies

Members update

Dedicated events

At the time of going to print, we count a total of 821 Member firms and 138 Patrons. Our newest Patrons include West One Loans and Greenfield Capital.

The Association seeks Member input on potential SM&CR extension In July 2017, the FCA published proposals to extend the Senior Managers and Certification Regime (SM&CR) to almost all regulated firms.

4 | NACFB Magazine

NACFB NEWS

Our new events manager Andrina Dhillon joined the NACFB on 8th August as events manager. Andrina previously organised international events at the British Educational Suppliers Association, where she assisted members in developing their exporting activities in a range of overseas markets. Andrina has worked in the trade association industry for seven years and has experience in organising a wide variety of events across a number of sectors. She has also worked on website development, marketing, communications and design.

Compliance update You might recall that the Association promised to undertake a compliance audit for every one of our Members and to have this exercise completed by the end of this year. While this seemed like quite a daunting task, the good news is that we have made significant progress and are well on track to have this completed before the end of the year. From a logistical point of view, arranging the visits has been, at times, quite challenging, but if that is because our Members are busy helping their clients, from an industry perspective, this is a good problem to have. We have been really pleased with the engagement we have received from our Members. They have clearly understood the value of this type of initiative and they have worked hard to help us look at all the elements of their business.

NACFB NEWS

Dates for your diary NACFB Compliance Workshop When: 12th September Where: Leeds Broker day - London When: 19th September Where: St James Court Hotel, London Patrons’ day When: 26th September Where: Radisson Vanderbilt Hotel, Kensington, London LendInvest Broker Academy Course When: 27th September Where: LendInvest, Two Fitzroy Place, London Broker Day - Birmingham When: 9th October Where: Lloyds Bank, Colmore Row NACFB and Barcadia Commercial Finance Roadshows When: 18-19th October, 1-2nd November Where: Newcastle, Barnsley, Reading, Derby Broker Day - Manchester When: 22nd October Where: Lloyds Building, Manchester LendInvest Broker Academy Course When: 22nd November Where: LendInvest, Two Fitzroy Place, London 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

6 | NACFB Magazine

Notes from our sponsor

Karen Bennett Managing director of commercial mortgages Shawbrook Bank

ith the summer (almost) over, kids going back to school and parents gradually regaining their sanity, September drags us back into the real world with the PRA’s second tranche of changes to underwriting standards, impacting portfolio landlords from the 30th of this month. While I commented on this in my August column, I want to touch on this key topic again in more detail. I cannot stress how important it is for landlords to be aware of which bracket they fall into – non-portfolio being one to three properties, portfolio being four or more – and it’s the responsibility of lenders to provide educational content to both the intermediary channel and property investors themselves. I was pleased to see many lenders specifying back in June and July

how they will approach underwriting portfolio landlord applications from 30th September. This provided valuable material for both intermediaries and investors about the considerations they will have to address in this new landscape. Here at Shawbrook, we created a range of educational content and, in particular, a guideline document on the 30th September changes and their potential implications. We are doing all we can to promote this throughout the market, but please feel free to contact us if this has not yet reached you. A snapshot would indicate that lenders will need to assess their customers’ portfolios in light of a variety of issues, such as how highly geared the portfolio is, how thorough the longterm business plan is for their property business and how the customers’ return models cope with the rising tax costs across their portfolio. Many lenders will need to add a manual underwrite into their current online process and it’s therefore likely that intermediaries will have to provide more information prior to

receiving first-stage approval. These changes have limited impact on how Shawbrook transacts as our business model has always been based on underwriting each deal on its own merits, making for a smooth transition at this end. In an ideal world, all landlords would have sought professional advice on how these changes to underwriting standards will affect their portfolios. However, with my ‘real-world’ hat firmly on, it’s inevitable that some landlords will be sleepwalking into potential difficulty. Therefore, it’s vitally important that lenders and intermediaries work together in the coming months, continuing to discuss what the changes mean for the many different types of property investors. We will need to keep these issues open and up for debate, and support investors wherever possible. This will help with transitioning for those who need to restructure their portfolios moving forward, while ensuring that we act responsibly and shepherd investors through this period of adjustment.

NACFB Magazine | 7

NACFB NEWS

6 | NACFB Magazine

Notes from our sponsor

Karen Bennett Managing director of commercial mortgages Shawbrook Bank

NACFB Magazine | 7

MFS doubles funding drive

Commercial Finance

62% of financial firms have supported female career progression

Brightstar Financial has relaunched its Private Label brand with new residential and buy-to-let mortgage products. The products will be funded by specialist lenders, including Kent Reliance, Saffron Building Society and Castle Trust. A number of building societies are also involved with the mortgage tailor product, including Family Building Society, Bath, The Mansfield and Penrith building societies.

8 | NACFB Magazine

43% of bridging lenders positive about UK’s long-term prospects

More than half of UK business leaders (58%) have cited having the right trade arrangements with the EU as top priority for Brexit negotiations, according to the latest research. A survey by finance company MarketInvoice has found that only 18% of leaders stated that access to EU workers was a priority, while just 7% saw the stability of sterling as key.

Flat fees for buy-to-let mortgages are at their lowest for more than 12 months, according to a recent survey. The latest Buy to Let Mortgage Costs Index by Mortgages for Business has revealed that the average flat fee fell by more than 5% in Q2 to £1,370 (Q1: £1,446). Consequently, landlords may save an average of £76 in fees on every mortgage.

Small businesses in Northern Ireland report growth

Together has launched a partnership with SDL Auctions that will cover all the latter’s auctions across the UK each year. This marks the first exclusive deal that SDL Auctions has made with any of its suppliers. This arrangement means that Together will be the only finance provider in attendance on auction days.

Business leaders name trade as top priority for Brexit negotiations

BTL mortgage flat fees drop

Some 62% of financial services firms have taken specific action to support female career progression since signing up to the Treasury’s Women in Finance Charter, according to a new report. Research conducted by think-tank New Financial found that over two-thirds of firms believed that signing up to the charter will lead to a permanent and sustainable change in gender diversity at senior levels.

Together reveals exclusive partnership with SDL Auctions

Brightstar relaunches Private Label brand

Market Financial Solutions has doubled its FlipFinance2017 funding drive from £20m to £40m. The lender has seen a remarkable surge in interest from aspiring property investors from across the UK. The fund was launched to support fledgling property investors and landlords in need of finance, with applicants able to receive bridging loans ranging from £200,000 to £1m.

Building society launches exclusive product

European banking group partners with iwoca

Furness Building Society has strengthened its partnership with BuildLoan by announcing a solution for self-builders who are seeking an advance stage payment mortgage. This recent announcement will offer greater choice to intermediaries looking to help their clients, especially those for whom the management of cash flow during their self-build project is particularly important.

FundingKnight granted full FCA authorisation

GLI Finance has announced that its P2P lending platform FundingKnight has secured full FCA authorisation. FundingKnight has been operating under interim permissions since 2014. Andrew Whelan, CEO of GLI Finance, said: “It is our intention to move FundingKnight into the Sancus BMS Group of companies operating alongside Sancus Finance, our specialist working capital finance provider.”

Intesa Sanpaolo and iwoca have teamed up to provide SMEs with credit products to bridge the funding gap and support growth. The partnership will look to support the Italian banking group’s SME clients. The alliance will leverage iwoca’s SME lending platform and Intesa’s expertise in building banking operation across Italy, central Europe, eastern Europe, the Middle East and north Africa.

Zorin eyes commercial bridging market

Zorin Finance has revealed it is looking to break into commercial bridging lending as it focuses on releasing new products. The development finance lender is planning to expand its existing stretched senior lending platform, which benefits from a funding line from P2P Global Investments.

Almost half of small businesses (46%) in Northern Ireland have increased sales in the past 12 months, a recent survey has revealed. Ulster Bank’s Boost Index – which researched the growth performance of small firms in Northern Ireland – found that 21% of respondents claimed to be enjoying moderate growth. The survey also revealed that 38% described their business as stable.

Bridging lenders remain positive about their own business prospects and that of the sector as a whole, despite the current political uncertainty, according to the latest sentiment survey from the Association of Short Term Lenders. Some 43% of members claimed to be positive in this survey, down from 45% in March, but up on the 6% figure recorded after the EU referendum.

NACFB Magazine | 9

MFS doubles funding drive

Commercial Finance

62% of financial firms have supported female career progression

8 | NACFB Magazine

43% of bridging lenders positive about UK’s long-term prospects

Small businesses in Northern Ireland report growth

Business leaders name trade as top priority for Brexit negotiations

BTL mortgage flat fees drop

Together reveals exclusive partnership with SDL Auctions

Brightstar relaunches Private Label brand

Building society launches exclusive product

European banking group partners with iwoca

FundingKnight granted full FCA authorisation

Zorin eyes commercial bridging market

NACFB Magazine | 9

Top | story Our pick of the latest Patron news

Business confidence in negative territory despite temporary upturn to grow by more than 10% in Q3 2017, down from a quarter (27%) in Q2.

on-year. In addition, 46% of surveyed SMEs expect no growth or a decline in exports.

Mathew called for businesses to invest in talent, new products and services and explore new markets in order to take advantage of opportunities that may arise following Brexit. He said: “If they haven’t already, businesses need to look beyond the next few months to a future where innovation and investment now will create a longer term return.”

Falling from 6.7 in Q2 to -8 in Q3, the shake in confidence was mainly attributed to the snap general election, the resulting hung parliament and hesitant ongoing negotiations with the European Union with regards to Brexit. Due to uncertain conditions, the survey also found that businesses are not investing at the level needed to generate faster UK economic growth.

Edward Hardy, economist at WorldFirst, said: “Our data supports recent assertions by economists that the UK economy is slowing down with less businesses expecting revenue growth over the coming year. Furthermore, with nearly half of all SMEs believing there is no international growth to be had in 2017, the UK government’s ambitions to reduce the trade deficit seem unlikely to be met this year.

ICAEW’s monitor also found that the depreciation in the value of Sterling wasn’t enough to stimulate faster growth in UK export. Although UK Export Finance reported a 60% increase in finance provided for exports, WolrdFirst also noted a sharp decline in the number of SMEs trading in the average month – falling by nearly half year-

Vera Sugar Editor NACFB Magazine usiness confidence has dropped into negative territory again after showing a temporary upturn in Q2, according to the latest ICAEW Business Confidence Monitor.

Mathew Rideout, director of business at ICAEW, said that businesses currently couldn’t see through the “haze of uncertainty” and that they were “struggling to look further than the end of the next quarter in terms of their decision making.” As we have seen in 2016 as well, uncertain conditions also often cause businesses – and especially SMEs – to revise their investment strategies and adopt a more careful approach. According to the monitor, expectations for investment growth are to remain below the rates of 2014 and 2015. WorldFirst’s Global Trade Barometer, published in August 2017, also reported waning business confidence, with less than a fifth of UK SMEs (18%) expecting

10 | NACFB Magazine

“There has been a slight pickup in trade with Europe nevertheless making it even more vital that we secure an apt trade deal with the EU that suits the interests of the small businesses that keep our economy thriving.”

Approximately how much, if anything, does your business plan to grow its revenue by?

23%

13%

18%

BUSINESSES HAVE MANY DIFFERENT GUISES We believe in tailoring funding to every business, regardless of appearance

Less than 5%

Between 5-10%

Between 10-20%

Between 20-30%

32%

Fleximize offers flexible funding from £30,000 to £500,000 and can turn around a deal within 48 hours. Interest is charged on a reducing balance, good news for your clients, while our competitive commission is based on the total loan amount, good news for you.

To join our panel, sign up at brokers.fleximize.com/apply Less than 30-40%

Less than 40-50%

More than 50%

No growth

or give our broker support team a call on 0207 100 0110

Top | story Our pick of the latest Patron news

Business confidence in negative territory despite temporary upturn to grow by more than 10% in Q3 2017, down from a quarter (27%) in Q2.

on-year. In addition, 46% of surveyed SMEs expect no growth or a decline in exports.

Vera Sugar Editor NACFB Magazine usiness confidence has dropped into negative territory again after showing a temporary upturn in Q2, according to the latest ICAEW Business Confidence Monitor.

10 | NACFB Magazine

Approximately how much, if anything, does your business plan to grow its revenue by?

23%

13%

18%

BUSINESSES HAVE MANY DIFFERENT GUISES We believe in tailoring funding to every business, regardless of appearance

Less than 5%

Between 5-10%

Between 10-20%

Between 20-30%

32%

To join our panel, sign up at brokers.fleximize.com/apply Less than 30-40%

Less than 40-50%

More than 50%

No growth

or give our broker support team a call on 0207 100 0110

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

Innovative loan solutions you can design to suit your clients Just Cashflow is giving professional brokers and intermediaries the ability to work with their clients to design the loan product that best suits their business needs and growth plans.

Just Cashflow has successfully been supporting SMEs with its Revolving Credit Facility (RCF) that acts exactly like a traditional bank overdraft. This is a great solution for shorter term funding needs. Now it is introducing a new loan product with flexible features that allows you to design funding to suit your clients needs. Busineess Builder provides a 2 to 3 year loan facility for businesses that need funds over a longer period and gives them certainty on their monthly or weekly repayments. Other features that can be worked into the design include payment holidays, early repayment without penalties and loan extensions.

Mint announces summer sale with free valuations Andrew Lazare Managing director Mint Bridging

pecialist lender Mint Bridging has announced a summer sale offering for September after allocating £30m of funding for the month, encouraging brokers to bring in new business. The lender is attracting both new and existing commercial finance broker partners by offering free valuations on all new loan enquiries received, on loans that are fully completed before 30th September 2017. The summer sale offer will credit back all valuation fees to the borrower’s account, following completion of the loan. Paul Wertheim, operations director at Mint, said: “Mint consistently lends to brokers and introducers - a testament to the work we produce.

“This has resulted in existing brokers coming back to us time and time again as they know we’re flexible, have a wide scope of expertise and can turn around completions fast. Brokers work with us as they are assured by the quality of work and know their clients are in good hands.” Sinead Moynihan, head of sales at Mint, said the lender was looking forward to rolling out the new offering to brokers, hoping it would be “well received”. She said: “We have a lot of money allocated to lend in September for new business, and we are confident in achieving this lending target. “It is testament to the team’s dedication and expertise that we are able to consistently lend these volumes. “With a maximum loan size of £5m, we are looking forward to

some high value opportunities.” Andrew added: “I am delighted with the progress we have made this year, and we’ve been steadily developing our business month on month. Mint is a privately funded bridging lender offering first charge bridging & re-bridging loans on non-owner occupied residential and commercial properties. The lender operates with a commonsense approach to underwriting and specialises in handcrafted deals. Loans range from £27,500 to £5m, with terms between one day and 18 months. The announcement follows the news of Mint relocating its entire sales and business development team to MediaCityUK in Salford in August and having expanded its team across all divisions by 88% over the past year.

“We appreciate that businesses have different finance needs that reflect their growth plans, seasonality of income

and a range of other factors,” says John Davies, Director, Just Cashflow.

“This has driven the creation of our new product along with recognition that professional brokers and intermediaries are ideally placed to work with their business customers to design the most suitable loan facility.

“We have taken on board feedback from existing customers and the brokers we regularly deal with. A strong theme has been that our Revolving Credit Facility works really well when businesses have to prepare for inevitable bumps in the road that will impact their all important cash flow. However, this isn’t always the ideal solution when capital expenditure needs to be made,” John explains.

“It might be a new vehicle, printing press or lease on another shop where the business wants to have certainty about the term of the loan and what the monthly repayments are going to be. “Seasonality of income was another strong theme and a lot of businesses

know how this is going to impact them and would welcome the flexibility and relief that payment holidays can provide. “Businesses rely on the expertise of professional brokers and intermediaries and our flexible financial solutions will allow them to work with their clients to provide a tailored product. We are committed to providing fast and flexible funding so our application process is straightforward.

“The most successful businesses are ones that can quickly adapt to new challenges and opportunities and our thinking is that our finance facilities should reflect and encourage this. For example if things change and a business has the ability to repay their loan early why should they be penalised for it ?” For more information on how Just Cashflow’s solutions are ideally placed to help build businesses, call our Broker Support Team on 0121 418 5037 or visit justcashflow.com/partner

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

0121 418 5037

FS668057

Alternatively, find out more

justcashflow.com/partner

BCMS668054

Just Cash Flow PLC is registered at 1 Charterhouse Mews, Farringdon, London EC1M 6BB under Company number 08508165 © Just Cash Flow PLC 20 17

12 | NACFB Magazine

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

Mint announces summer sale with free valuations Andrew Lazare Managing director Mint Bridging

“We appreciate that businesses have different finance needs that reflect their growth plans, seasonality of income

and a range of other factors,” says John Davies, Director, Just Cashflow.

The final piece in the puzzle

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

0121 418 5037

FS668057

Alternatively, find out more

justcashflow.com/partner

BCMS668054

Just Cash Flow PLC is registered at 1 Charterhouse Mews, Farringdon, London EC1M 6BB under Company number 08508165 © Just Cash Flow PLC 20 17

12 | NACFB Magazine

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

Record facility funds new Manchester development The development – now underway – will consist of the construction of six blocks in two phases. Phase one consists of three blocks – totalling 160 units – with the remaining 208 units being delivered in phase two of the scheme.

THE BRIDGING LOAN EXPERTS

Founded on private rented sector (PRS) principles and evolved in association with the Home Office PRS Task Force, Downtown will offer hotel-style communal facilities, including high-grade landscaped grounds and roof terraces, 24-hour concierge services, cold and dry post rooms, an on-site gymnasium, business centre and media room. Downtown plans

Aldwyn Boscawen Senior marketing manager Wellesley Finance

arlier this year, Wellesley Finance confirmed its largest facility since its inception four years ago. The funding package was provided for McGoff Group’s new development project, Downtown, on the border of Manchester and Salford. Adding to the McGoff Group’s growing facilities of nearly £100m, Downtown is a Manhattan-inspired development that is situated on the banks of the River Irwell, and will comprise 368 apartments, complemented by high-end communal facilities. The group required funding for the full running of the project to be able to meet planned timelines and ensure the smooth running of the two phases. The deal was introduced to Wellesley Finance by a broker, while experienced underwriters

14 | NACFB Magazine

Daire McCarthy and Jay Patel were responsible for structuring the deal that best accommodated the needs of the borrower. It’s due to the ability of Wellesley to structure the deal to suit the borrower that ultimately led to McGoff choosing us as its lender. The lending team at Wellesley is experienced in the structuring of large development projects and has the funding available to provide solutions to borrowers, even if there are multiple stages in a project. Therefore, we were able to propose a funding structure throughout the ongoing development that used equity, debt and also deposits from sales. At the point of funding, 200 units in the development had been sold, which is testament to the well thoughtout design of the development. Thanks to a package totalling £39.9m over a four-year period – funding the delivery of the entire project in multiple stages – McGoff Group celebrated the project’s groundbreaking ceremony in April 2017.

Wellesley is committed to serving medium-sized property developers who are denied reasonable funding by banks in order to build new homes for ordinary, working families and first-time buyers struggling to get on the property ladder. The Downtown development provides new homes in the Salford City Council area, where the five-year housing plan and current development pipeline suggests there are still not enough units currently in development, as the stock to be delivered over the next two to four years only accounts for 1.7 years’ supply. Wellesley provides innovative structured finance solutions for experienced real estate professionals seeking substantial funding for property investment and development purposes. Over the past four years, Wellesley has grown as a business with over £475m loaned since its inception. Our specialist team works with borrowers and intermediaries to design personalised, affordable loans between £2m-20m in areas where buyer demand is high. We are committed to long-term relationships – today, tomorrow or 10 years down the line.

Business Product Innovation of the Year

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

THE BRIDGING LOAN EXPERTS

Aldwyn Boscawen Senior marketing manager Wellesley Finance

14 | NACFB Magazine

Business Product Innovation of the Year

CASE STUDIES

Two complex deals hinge on broker relationship

Paul Fenton Sales director Nucleus Commercial Finance

As lenders, we rely hugely on the broker community when it comes to expert sourcing of new business. At Nucleus Commercial Finance, we pride ourselves on building great relationships with our introducers. 16 | NACFB Magazine

any of our property finance customers approach us having found it hard to secure other options, whether that’s because they are low in fixed assets, do not fit standard lending criteria or are brand-new businesses. As a result, they change tack and explore using property as collateral. One of our newest relationships paid off recently when we were able to provide two businesses with their required secured business loans – referred by the same introducer – in a matter of weeks. The recent deals came in from Goodman Corporate Finance. In both cases, the introducer was unable to secure funding elsewhere – but for totally different reasons. The first deal – a virtual product manufacturer based in Essex – was a new start business. This, in itself, meant that the directors were finding

Deal one – close up Industry: Virtual product manufacturer Since: 2017 Amount: £75,000 Loan type: Second charge, five years

manufacturing high-end furniture. What it does is incredibly bespoke and tailored, and it already had some great clients lined up, including Harrods. Because we always work closely with all of our introducers to ensure they are familiar with our criteria and preferred deal types, the Goodman team knew it was likely we would be able to help. After the initial call, we spent time getting to know the

company and saw business plans, cash flow forecasts and looked at securing the loan against the director’s property. We were able to put a longterm solution in place for the client and tried to be flexible, so the client borrowed £75,000 on second charge, repayable over five years. Affordability was really key because it was a startup and cash flow was very tight - the term length gave them flexibility. Our solution also meant it could start

trading. Without a secured business loan from Nucleus within a short timeframe, this would never have been possible. Stefan Radymski, sales director at Goodman Corporate Finance, said: “The deal was completed in two weeks even though it was pretty difficult. For Nucleus to handle the complexity and co-ordinate it all in that time is impressive. That is the reason we work

Introducer: Goodman Corporate Finance Challenges: Start-up, no track record or filed accounts, affordability it hard to find finance without the proven track record or invoice book. In addition, the solution needed to fit their requirements and be affordable. They needed working capital to kickstart the business – designing and

Because we always work closely with all of our introducers, the Goodman team knew it was likely we would be able to help

NACFB Magazine | 17

CASE STUDIES

Two complex deals hinge on broker relationship

Paul Fenton Sales director Nucleus Commercial Finance

Deal one – close up Industry: Virtual product manufacturer Since: 2017 Amount: £75,000 Loan type: Second charge, five years

Because we always work closely with all of our introducers, the Goodman team knew it was likely we would be able to help

NACFB Magazine | 17

CASE STUDIES

Deal two – close up

interest only to help with cash flow as there was a viable exit strategy at the end of the term.

Industry: Manufacturing Since: 2002 Amount: £250,000 Loan type: Second charge, two years, interest only Introducer: Goodman Corporate Finance Challenges: Bumpy cash flow, not currently profitable with them – because they are experts.” The second client had a completely different story. It had been trading since 2002 and is a leading manufacturer of component parts for vehicles. It has production contracts with clients such as Mercedes and McLaren – summer is always a busy season for them. Its main issue was bumpy cash flow. Because it had made a loss in its last accounts, it had a big cash flow gap and was finding it hard to get funding. The business had been profitable before and has been trading a long time – additionally, there was a big pipeline of upcoming work. It had been working with a different introducer prior to calling Goodman Corporate Finance, but after six weeks it still hadn’t secured the required funding. The client was frustrated – it had been waiting a while and, as a result of the prior negative experience, was unsure if it would be able to get finance. At this point, it was introduced to Nucleus by the Goodman team. We were able to solve its problem quickly – the whole deal was completed from start to finish in three weeks – via a £250,000 second charge loan, secured against the property of the director and repayable in two years. We also arranged for the payments to be

Banks have been historically known for their slow decisionmaking processes. They often have to navigate a lot of red tape and generally require much more information than alternative lenders, occasionally still giving businesses a ‘no’ after a long wait for an answer. A loan application that takes ages to approve can be detrimental to any business and add more risk to an already stressful situation. At Nucleus, we are known for our responsiveness and bespoke solutions. Both of these clients had a timesensitive situation for very different reasons, and we worked hard to turn both deals around in the short timeframe required. We provide answers quickly and can also combine our products to provide the best solution.

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

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

masthaven.co.uk Your property, provided as security for the loan, may be repossessed if you do not keep up with payments. Masthaven Bank Limited is a company registered in England & Wales with registration number 09660012 and whose registered office is at: 11 Soho Street, London W1D 3AD. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Firm reference number 719354). The “Masthaven” name and logos and all other brands, names, logos, marks and slogans on this document are the trademarks or service marks of us or our licensors.

18 | NACFB Magazine

CASE STUDIES

Deal two – close up

interest only to help with cash flow as there was a viable exit strategy at the end of the term.

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

18 | NACFB Magazine

CASE STUDIES

Hire purchase enables instant profit margin growth Ian Aitchison Managing director Close Brothers Business Finance

FAST BRIDGING IN PARTNERSHIP WITH INTERMEDIARIES OFFERING 1.5% COMMISSION

s the lending market continues to diversify and grow, many businesses are still unaware that alternative forms of finance are available. The high street banks remain the first port of call for 39% of UK SMEs when looking for additional funding. We know this because we survey over 900 SME business owners every quarter about a variety of issues that are affecting them. While high street banks are still understandably a popular choice for many, there has been a strong rise in the role of alternative finance. Taking asset finance as an example, the latest figures released by the Finance & Leasing Association (FLA) showed that asset finance for new businesses grew for the sixth consecutive year, with FLA members providing £30bn in 2016 to the business sector and public services. What we’re hearing from business owners is that one of the biggest appeals of asset finance is its flexibility and the fact it gives them access to the equipment they need without incurring the cash flow disadvantage of an outright purchase. One of our latest cases is a prime example of this flexibility, and also demonstrates how we work with our brokers to achieve the desired outcome for their customers.

ntroduced to us by one of our broker partners, their client is a small but fast-growing company based in Sutton Coldfield in the heart of the West Midlands. The business is recognised locally, but is used by construction firms nationwide.

therein lay the problem. They found themselves in the position where they were unable to meet the increased expectations of customers, who they feared would look elsewhere. To satisfy requirements, the business hired machines from third parties, which led to an increase in pricing. To mitigate this, the business decided to invest in a new fleet of machines. A strategy was agreed to gradually reduce the number of machines it was sub-hiring and replace them with machines bought on a hire purchase basis. Working closely with the broker, we reviewed the business requirements and discussed suitable finance options to enable new machines and plant to be purchased immediately and sent out on hire. Through Close Brothers’ services, the finance applications were reviewed within hours and due to the fast underwriting and support, finance acceptances were quickly achieved.

A solution of a five-year hire purchase facility was offered with the option of VAT deferrals, which meant the customer’s cash flow was not affected. The increase in profit margins was instant and the company now has a fleet of brand new machines. Our broker partner ensured us of their client’s complete satisfaction. He said: “Our client was delighted with the outcome and plans to use the facilities offered by Close Brothers again in the near future.” At Close Brothers Business Finance, we always work in partnership with business finance brokers to provide personalised asset finance solutions to businesses across a variety of industry sectors. We make it our business to fully appreciate each of the industries we work in, understanding the challenges they face and how we can help overcome them.

• LOANS FROM £200K TO £10M

020 7060 1234

• 75% LTV

info@mfsuk.com

• RATES AS LOW AS 0.75% PER MONTH

www.mfsuk.com

• BESPOKE BRIDGING WITH NO HIDDEN COSTS

Berkeley Square House, Berkeley Square, Mayfair, London W1J 68D

• SIMPLE APPLICATION PROCESS

“EXCELLENCE IS NOT AN ACT BUT A HABIT” A S R E C E N T LY F E AT U R E D I N

Associate Lender

The business hires plant, tools, powered access and operators to meet the large demand for the type of service required by its customers, but

MFS

Association of Bridging Professionals

20 | NACFB Magazine

CASE STUDIES

Hire purchase enables instant profit margin growth Ian Aitchison Managing director Close Brothers Business Finance

FAST BRIDGING IN PARTNERSHIP WITH INTERMEDIARIES OFFERING 1.5% COMMISSION

• LOANS FROM £200K TO £10M

020 7060 1234

• 75% LTV

info@mfsuk.com

• RATES AS LOW AS 0.75% PER MONTH

www.mfsuk.com

• BESPOKE BRIDGING WITH NO HIDDEN COSTS

Berkeley Square House, Berkeley Square, Mayfair, London W1J 68D

• SIMPLE APPLICATION PROCESS

“EXCELLENCE IS NOT AN ACT BUT A HABIT” A S R E C E N T LY F E AT U R E D I N

Associate Lender

The business hires plant, tools, powered access and operators to meet the large demand for the type of service required by its customers, but

MFS

Association of Bridging Professionals

20 | NACFB Magazine

CASE STUDIES

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. Castlerose Boat Stay

Broker’s knowledge helps canal boat business onto the water Paul Mak Broker development manager NatWest

atWest operates under the maxim of ‘we are what we do’. This means our dedicated relationship managers and specialist broker teams are helping many SME businesses make the right decisions on how to finance growth and development, maximizing great opportunities. The NatWest broker team was instrumental in helping canal boat holiday business Castlerose Boat Stay onto the water.

to six people with two bedrooms, two bathrooms and a fully fitted kitchen. Upon completion, all that was left was to secure funding and get things underway. This latter aspect proved somewhat troublesome as the Kitts had never run this type of business and, as a consequence, two other banks declined funding their project. Not sure where to go next, local relationship manager Peter Haykin recommended NatWest’s broker team. Enter broker development manager, Paul Mak.

Manchester-based canal cruising enthusiasts Steve and Stephanie Kitt began their business journey three years ago, when they spotted a traditional hotel boat. It was a lifechanging moment. They decided that bringing this luxury concept to Manchester, offering clients a different city break experience, represented a great business opportunity.

The NatWest broker team typically structures commercial or investment deals between £50,000-500,000. These are often detailed, complex, tailored and unique, as it proved to be the case here. Paul took time to fully understand the Kitts’ needs, helped them build a development plan and diligently researched the competition in this niche market and how it had performed over the last five years. What was particularly important here was to establish how often the houseboat would be occupied, to ensure a steady flow of income.

They constructed a luxury widebeam canal boat hotel after securing a contract with a local boat builder. The finished guesthouse offers stylish self-catering accommodation for up

Paul’s attention to detail was spot on – a unique and challenging venture requires significant planning, and working really close with the customers. All appropriate planning

permissions were quickly received and the right finance options discussed. The local knowledge of Peter and introducing accountant Lee King was also invaluable to the process. Paul suggested a boat company to secure a contract with, and helped structure a commercial property deal that was affordable both in terms of monthly instalments and provided essential working capital to get the business going. When it came to arranging security over the lifeboat, Paul sought out experts in other areas of the bank, such as credit documentation, as well as the Registry of Shipping to ensure this was done meticulously. Steve Kitt was overjoyed with the result. “NatWest has absolutely delivered for us. The hardest part in starting the business was finding the financing. Paul was unbelievably fantastic in securing the right arrangement for us. It’s taken a lot of time, effort and business help to get to this point.” Castlerose now has a mooring in the centre of Manchester and is successfully attracting customers from all over the world, helping to boost the local economy and ensuring that the Kitts’ business venture is an ongoing success.

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.

22 | NACFB Magazine

CASE STUDIES

Broker’s knowledge helps canal boat business onto the water Paul Mak Broker development manager NatWest

They constructed a luxury widebeam canal boat hotel after securing a contract with a local boat builder. The finished guesthouse offers stylish self-catering accommodation for up

Paul’s attention to detail was spot on – a unique and challenging venture requires significant planning, and working really close with the customers. All appropriate planning

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.

22 | NACFB Magazine

Cover Story | feature

Peer-to-peer:

Thereâ&#x20AC;&#x2122;s always a place at the table for brokers By Vera Sugar, Editor

Cover Story | feature

Peer-to-peer:

Thereâ&#x20AC;&#x2122;s always a place at the table for brokers By Vera Sugar, Editor

COVER STORY

There has been considerable movement in the P2P market in recent months, especially when it comes to broker relations. Some P2P lenders are increasingly relying on their introducer channels, while others are moving to a mix of direct and brokerbrought business. Lenders, however, were quick to point out there was no cause for alarm - brokers, they said, are here to stay.

noticeable retreat from the P2P market came in June 2017 when LendInvest confirmed it had cancelled its application to the FCA to operate a P2P lending platform, stating it currently had “no need for these permissions”. In early July 2017, RateSetter announced the ramping up of its direct strategy to attract borrowers to its platform, claiming it intended to build more direct relationships with its borrowers. Peter Behrens, chief operating officer at RateSetter, claimed that “by extending our direct distribution network we build closer relationships with our borrowers and create more opportunities for future growth”. Although the news caused some alarm, Paul Marston, managing director of commercial finance at RateSetter, was quick to reassure the market, stating the announcement wasn’t about replacing intermediaries, but instead about “diversifying and finding different origination sources”. He added: “We continue to invest in our relationships with brokers – we place a significant value on our broker networks,

26 | NACFB Magazine

and using a good broker is a fantastic way for a small business owner to ensure that he or she is getting the most appropriate deal on their finance.” Meanwhile, Assetz Capital announced its intention to reinforce its nationwide broker network after completing a record month in June. Stuart Law, CEO of Assetz Capital, said the lender would “love to hear from more brokers”. P2P lender Growth Street officially launched into the introducer market in July, with a new commission model, providing brokers with payments throughout the

client’s time borrowing from the lender as opposed to upfront payments. Chris Weller, commercial director at Growth Street, said: “Since the formal launch of our broker channel earlier this year, we’ve been privileged to work with brokers who use their market knowledge to connect us with the businesses we can serve really well. This creates an unbeatable experience for the customer.” Brokers still wary Within broker circles, many are still taking a somewhat cautious approach to P2P funding. A poll conducted by Bridging & Commercial in May 2017 showed that 92%

We’ve been privileged to work with brokers who use their market knowledge to connect us with the businesses we can serve really well

of financial advisers weren’t confident advising on P2P products, which shows that this sector has still some way to go until it becomes mainstream in adviser circles. Paul Riddell, head of marketing and communications at Lendy, said: “It’s still a relatively new sector, so understandably some brokers have been cautious. In addition, not many P2P platforms have the capacity yet to make deals across a broad range of sizes or property types.” There are a few key aspects that have led to this careful approach, including: – the P2P marketplace is still relatively new, with Zopa – often considered the UK’s first P2P lender – only having launched in 2005. Many brokers would prefer to see it tried and tested before fully immersing themselves in the intricacies. However, with recent fluctuations in sterling and some trying political and economic changes (including general elections and Brexit), it could be argued that the sector has so far done a good job in withstanding challenges.

Total UK Online Alternative Finance Raised Between 2013 and 2015 84%

Growth Rates

161%

£666m

£1.74bn

£3.2bn

2013

2014

2015

Source: Cambridge Centre for Alternative Finance, Nesta

NACFB Magazine | 27

COVER STORY

26 | NACFB Magazine

We’ve been privileged to work with brokers who use their market knowledge to connect us with the businesses we can serve really well

Total UK Online Alternative Finance Raised Between 2013 and 2015 84%

Growth Rates

161%

£666m

£1.74bn

£3.2bn

2013

2014

2015

Source: Cambridge Centre for Alternative Finance, Nesta

NACFB Magazine | 27

COVER STORY

For professional intermediaries only. Not to be relied upon by retail clients.

The relationships brokers are able to build with their clients are absolutely key for us as a P2P platform – with a growing number of P2P lenders in the marketplace, some brokers prefer playing the waiting game until clear winners of the sector emerge. For example, out of the ‘big three’ (Funding Circle, Zopa and RateSetter), the latter has not yet secured full FCA authorisation. On the other hand, P2P lenders have already made a significant impression on the UK specialist finance sector, having provided nearly £8.5bn of cumulative lending by Q1 2017, according to the Peer-to-Peer Finance Association. – advising on P2P loans requires the broker to carry out extensive due diligence on the platform – a responsibility that deters many. Especially in cases where loans are auto-selected as opposed to manual portfolio building, brokers must carefully research which type of investment they are recommending to their clients. They also must be clear on whether the loans are secured or unsecured, whether loans are for individuals or businesses, what repayment terms are in place and much more. As with any loan, the key to this is knowing the lender that is being recommended, and carrying out extensive research. There are, however, undeniable benefits for brokers who decide to enter into the sector, such as ensuring they are knowledgeable about one of the most rapidly growing types of lending. Chris pointed to technology as a key advantage for brokers. “Cutting-edge tech gives P2P platforms increased agility, meaning that brokers can bring more deals to the table in less time, presenting an enticing opportunity.” Paul said: “Quite simply, the P2P sector has a huge capacity and appetite to lend. In addition, we can provide funding much quicker than traditional lenders,

28 | NACFB Magazine

which is obviously critical in the property market – if there’s a property a buyer wants at an auction, turnaround times for due diligence need to be measured in hours, not months.” James Lovett, business development manager at Funding Circle, highlighted benefits on both sides. “We provide personalised, efficient finance for their clients while they’re key to raising awareness of the choice small businesses have when looking for funding. Growing and maintaining these relationships means more small businesses are able to access the capital they need to take their business to the next stage, helping to boost the economy and create much-needed jobs.”

Lenders’ perspective Lenders also admit there are significant benefits to be had from an extensive introducer channel. Chris pointed to brokers’ experience and market knowledge as key benefits. “The relationships brokers are able to build with their clients are absolutely key for us as a P2P platform. Being introduced to businesses by an authoritative, trusted third party is a fantastic asset to a growing platform like Growth Street.” James also praised brokers’ relationships in the lending space: “Through our team of business development managers we have built strong, long-lasting relationships with a large broker community and, as a result, have seen a 105% year-on-year growth in the number of businesses we’ve supported.” Paul highlighted the benefit of confidence in the co-operation as a factor that helps reduce time scales. “The broker will have laid the groundwork and made sure that the information needed to assess the opportunity is there. For example, the broker will be able to give us the information we need about the property and the borrower’s plans. “Essentially, working with a broker we trust, such as those accredited by the NACFB, means we know that the first layer of the due diligence process has been completed before the opportunity even comes across our desks.” Stuart highlighted the benefits of accessing a wider range of deals, adding: “Brokers can provide a quality service for P2P lenders, helping filter enquiries and passing on the ones that suit the credit policies of the platform. “You can’t beat on-theground knowledge and networks.”

Get paid for referring your clients to Octopus Choice At Octopus, we pride ourselves on creating fast and flexible solutions, powered by solid underwriting. What if you could use in your investment portfolio, too? Octopus Choice lets everyday investors invest in secured loans that have been carefully selected by the Octopus Property team. Now we're giving loyal brokers a chance to refer their clients – and earn money for doing it...

Octopus Choice: the benefits 1 A great rate A variable rate of around 4% per year (gross) – paid monthly.

2 Bricks & mortar Maximum LTV of 75%, current average of around 60%.

3 Skin in the game We invest 5% in every loan. Your money's protected ahead of ours.

4 Simple & flexible Get up and running fast. Ask to withdraw at any time.

Earn your referral fee! If you have any clients – individuals or businesses – that you think will be interested in Octopus Choice, just email us at brokers@octopuschoice.com with the following details: • Your name, company name and company number. • Your client’s name, date of birth and the amount they intend to invest. We'll then pay you 0.5% of that amount, once the investment's been held for three months. Note, to qualify for the referral reward, there must be a minimum investment of £10,000. Investors' capital is at risk and instant access can't be guaranteed. Read our risk statement for more info.

Visit octopuschoice.com to find out more

Past performance is not a reliable indicator of future results. It’s important that investors read and fully understand the risks involved before deciding to invest. Any decision to invest should be made on the basis of the information contained in the Octopus Choice terms and conditions: www.octopuschoice.com/terms. This financial promotion has been issued by Octopus Choice – a trading name of Octopus Co-Lend Limited, 33 Holborn, London EC1N 2HT, which is fully authorised and regulated by the Financial Conduct Authority (reference number 722801). All information is correct at 10 August 2017 and sourced to Octopus unless otherwise stated. Octopus-Choice-NACFB-advert-professional-67-1708

0800 294 6848 support@octopuschoice.com octopuschoice.com

COVER STORY

For professional intermediaries only. Not to be relied upon by retail clients.

28 | NACFB Magazine

Octopus Choice: the benefits 1 A great rate A variable rate of around 4% per year (gross) – paid monthly.

2 Bricks & mortar Maximum LTV of 75%, current average of around 60%.

3 Skin in the game We invest 5% in every loan. Your money's protected ahead of ours.

4 Simple & flexible Get up and running fast. Ask to withdraw at any time.

Visit octopuschoice.com to find out more

0800 294 6848 support@octopuschoice.com octopuschoice.com

Patron | profile

Credit4 A personal style of funding H Mark Johnson Chief operating officer Credit4

It was a pleasant surprise when the NACFB asked us to put forward our Patron profile. Many NACFB Members will know of Credit4, having met us at the NACFB Expo or through David Culverhouse, our BDM. 30 | NACFB Magazine

owever, we are aware that some intermediaries may have forgotten about our flexible approach to SME funding. After reading this profile, I hope you will have a good introduction to Credit4, and for those Members who may have forgotten about what we do, this may jog your memory. We are a small team (although growing steadily) generating business from the intermediary market. This is predominantly because we personally underwrite the deals and, as such, require the benefit of a professional adviser to collate the information required. This may appear to be an old-fashioned approach, but we know intermediaries welcome the personal touch with David, and the clients we speak to have, without exception, advised that being able to talk to humans, rather than typing information on to a web site, makes for a “refreshing change”. Having said that, we do believe that the efficiencies brought to the sector by fintech innovation have been

extremely beneficial by providing excellent processing capabilities, and we are incorporating a blend of fintech and brainpower into our offering. So, what do we do? We are an FCAauthorised SME lender (more micro and small than medium) dealing with UK businesses, including sole traders and small partnerships. We concentrate on businesses that have a real growth opportunity, but don’t fit traditional lending policy. We offer unsecured funding backed by suitable personal guarantees from the directors. The products we offer are aimed at providing flexibility to growing businesses. We believe they need the right product at the right time of their life-cycle, and in many cases access to the wrong type of product can be more detrimental than no funding. We focus on the £15,000-100,000 range over three to 24 months. The key to our business is the relationship with the borrower and we will always listen when the borrower has a story. We class ourselves as product-driven

and are currently developing new products to pilot in the near future. We listen to our key brokers in respect of market gaps and look to develop appropriate offerings accordingly. We believe in utter transparency and our product pricing is fixed. If you quote a repayment from our online calculator, that’s the repayment your client will pay, allowing you to ensure affordability for them. Transparency was very important to us when the business was set up in 2013 as we felt that the ‘apply and then we’ll tell you what it’ll cost’ way of doing business was not where we wanted to be. As well as being an active Patron of the NACFB, we are also a founding member of the Association of Alternative Business Finance. This is something we are passionate and proud of as the principles of the Association are the principles that feature in so much of what we do. We also felt that playing a part in shaping our sector was a privilege we couldn’t pass up.

Currently we have two core products (with a third one coming very soon). Many of you will know the team, but even if you don’t, please do not

The Flexible Facility

hesitate to call us to talk through any aspect of our business, or any clients you think may benefit from our personal style of funding.

Dual Growth Funding

£15,000-30,000 over three to 12 months

Trading for a minimum of 12 months

Interest is serviced fortnightly, with the outstanding principal being payable by bullet payment at the end of the term

Flexible facility and term loan in one contract

Repay and draw capital during the term with no additional costs or transaction fees No maximum number of drawings or repayments A suitable personal guarantee from all directors is required.

£30,000-100,000 over 12 to 24 months For funding up to £60,000, the loan is split: half as flexible and half as a term loan For funding between £60,000100,000 the funding split is £30,000 flexible with the residual funding as a term loan A suitable personal guarantee from all directors is required.

NACFB Magazine | 31

Patron | profile

Credit4 A personal style of funding H Mark Johnson Chief operating officer Credit4

Currently we have two core products (with a third one coming very soon). Many of you will know the team, but even if you don’t, please do not

The Flexible Facility

hesitate to call us to talk through any aspect of our business, or any clients you think may benefit from our personal style of funding.

Dual Growth Funding

£15,000-30,000 over three to 12 months

Trading for a minimum of 12 months

Interest is serviced fortnightly, with the outstanding principal being payable by bullet payment at the end of the term

Flexible facility and term loan in one contract

Repay and draw capital during the term with no additional costs or transaction fees No maximum number of drawings or repayments A suitable personal guarantee from all directors is required.

NACFB Magazine | 31

THE TEAM FOR BRIDGING LOANS

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

Cross-border thinking Tahir Ahmed, head of short-term business at UK Export Finance (UKEF), explains how government-backed finance and insurance through UKEF can help achieve exporting potential.

COMMERCIAL

RETAIL

INDUSTRIAL

SHOPS

ASTs

INVESTMENT

RESIDENTIAL

HOTELS

OFFICES

INVESTORS

ALL!

Q A

What is UKEF?

UKEF is the UK’s export credit agency, working alongside colleagues in other parts of the Department for International Trade to deliver export finance and insurance as an integral part of the government’s offer of support to exporters. UKEF exists to complement the private sector, ensuring that no viable export fails for lack of insurance or finance available from private providers. We remove a measure of risk from private sector sources and enable firms of all sizes and sectors to achieve their potential by exporting successfully. New doors are opening every day for UK businesses, and an increasing number are seizing the means available to make the most of these opportunities. In the last financial year alone, UKEF has helped 221 businesses meet the increasing global demand for UK goods and services, and four out of five of these were SMEs.

Q A

What’s the commercial finance broker’s role in export?

For both new and established exporters, selling overseas can have huge benefits. It can result in business volumes and economies of scale unattainable domestically. It can also spread business risk. But, as we all know, beginning a new business activity can require new financing arrangements. Exporters might wish to offer more competitive payment terms while protecting cash flow, or require specialist bond support in order to satisfy a customer in a new market.

As commercial finance brokers, you provide your customers with specialist guidance on meeting these objectives, with a wealth of knowledge around both your clients’ businesses and the commercial finance market. We want to help you deliver even more comprehensive support to your exporting customers.

Q A

What are the benefits of partnering with UKEF?

Partnering with UKEF means your clients gain access to tailored support, whether it’s providing access to finance as part of a comprehensive package for overseas buyers, working capital support through loans and bond guarantees or export insurance to guarantee payment in new and emerging markets. We can help you help your clients to meet the growing demand for UK business in over 200 markets. UKEF’s national network of export finance managers (EFM) are ready to work with your clients to fill that gap. Regardless of company size or sector, EFMs can work with you to offer free, impartial guidance on specialist trade finance and the range of government and private sector support available.

Q A

How can brokers get in touch?

CMY

FACTORIES

OWNER OCCUPIERS

Let’s Talk!

If you want to find out more about how we can help you help your clients, we welcome you to get in touch with an EFM to learn about the support we provide. The NACFB is an active partner of ‘Exporting is GREAT’ and we want to make sure that Members are aware of the huge benefits of exporting to businesses.

COM M ERCIAL

•

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

RESIDENT I AL

•

A PRINCIPAL LENDER 32 | NACFB Magazine

DEVELOP ME N T

THE TEAM FOR BRIDGING LOANS

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

Cross-border thinking Tahir Ahmed, head of short-term business at UK Export Finance (UKEF), explains how government-backed finance and insurance through UKEF can help achieve exporting potential.

COMMERCIAL

RETAIL

INDUSTRIAL

SHOPS

ASTs

INVESTMENT

RESIDENTIAL

HOTELS

OFFICES

INVESTORS

ALL!

Q A

What is UKEF?

Q A

What’s the commercial finance broker’s role in export?

Q A

What are the benefits of partnering with UKEF?

Q A

How can brokers get in touch?

CMY

FACTORIES

OWNER OCCUPIERS

Let’s Talk!

COM M ERCIAL

•

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

RESIDENT I AL

•

A PRINCIPAL LENDER 32 | NACFB Magazine

DEVELOP ME N T

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

Could build-to-rent overtake buy-to-let? Buy-to-let has proved to be a fantastic investment opportunity over the last 20 years, giving many landlords a way of capitalising on an ever-soaring property market.

34 | NACFB Magazine

Mark Holden Group managing director Ultimate Capital

ut the shine has rather come off this sector in recent years with tightening regulations, and a shift towards a new asset class is proving popular with both investors and tenants: the build-torent, otherwise known as the private rented sector (PRS). There are certainly ambitious plans in place for this sector and it’s got the full backing of the government. It’s estimated that there are over 83,000 build-to-let units either completed or planned, according

to the British Property Federation, and Knight Frank found that investors planned to commit £50bn to the sector by 2020. Build-to-rent assets are purpose-built properties designed specifically for renters. They benefit from longer tenancies, with communal areas, added value services and often onsite maintenance teams.

build-to-rent allows developers to keep hold of all the properties for rental and/ or enter into a strategic alliance with an institution. This means the owner has a steady rental income rather than recouping development costs through initial sales.

Unlike buy-to-let properties, which are traditionally on a residential street with owner-occupiers nearby, buildto-rent properties are often bespoke new builds, located close to city centres and public transport.

For brokers, this new addition to the fast-moving residential investment market offers the opportunity to provide invaluable access to capital and connections, while creating optimum value for clients. It’s another string to your bow from a macro level in knowing where the new growth hot spots are, and on a micro level in understanding the local markets in detail.

Rather than selling off individual units to buy-to-let landlords or owner-occupiers,

The sector also allows brokers to become specialists, enabling them to focus

NACFB Magazine | 35

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

34 | NACFB Magazine

Mark Holden Group managing director Ultimate Capital

Rather than selling off individual units to buy-to-let landlords or owner-occupiers,

The sector also allows brokers to become specialists, enabling them to focus

NACFB Magazine | 35

SPECIAL FEATURES

resources and maximise opportunities in specific areas. For example, student housing makes up a large proportion of the build-to-rent sector. It’s an attractive financial model, particularly for pension funds and organisations who require a regular return rather than a one-off payment.

hich is where we come to the crux – the funding of it. Regardless of whether you’re a developer looking to do buy-to-let or build-to-rent, often the biggest stumbling block you’ll face isn’t how you’ll be paid out at the end. What keeps most developers awake at night is how the project is going to be financed. Great developers always have more projects than funds available and, ideally, they need a model where they needn’t put in a penny upfront, yet take the majority of the profits. Too good to be true? Many think so, but it’s easily possible. This is where Go Develop’s unique joint venture proposition comes in. Our developer partners have no outlay with us; not a single penny. No deductions, no hidden fees, no costs. Instead, Go Develop provides full, 100% land and build funding for new-build property development from our own, substantial resources. In fact, when you include the stamp duty and soft costs, this can actually be 115% of loan-to-cost. No one else in the country does this. It’s all remarkably simple. Typically, we look for experienced developers focusing on new-build apartments and value family housing where housebuyer demand is at its strongest. But we also fund great development schemes that are under option, pending planning permission.

36 | NACFB Magazine

Build-to-rent supply, Q2 2017 Status

Build-to-rent homes

Complete

15,925

Under construction

20,618

In planning

47,107

Total

83,650

Type of organisations constructing build-to-rent stock (actual deliverers) 3% 12%

24% Major UK Developer Local Developer Contractor

18%

UK Housebuilder Registered Provider Major International Developer

24% 19% Source: British Property Federation

The GDV is usually between £2m-15m and the loan term is up to 24 months in duration. A project is swiftly appraised and a profit share agreed for the full purchase and development funding – usually 60% in the developer’s favour. Having a long, successful track record in property, rather than banking, we recognise the need for fast, flexible funding and transparency so that developers can complete their current project and spread their capital over a wider project mix – whether that’s in buy-to-let, build-torent or something totally different. Our aim is to allow our partners to increase

development capacity and accelerate business growth – a winning combination for both developer and funder. The future may well see a substantial shift towards build-to-rent. However, as we all know, the future is far from certain. Governments and government policy can change with the wind and the current flavour of the month may turn sour – quickly. When conditions are this unpredictable you need a funder that isn’t. With over 1,000 properties being built nationwide our partners can vouch that we offer funding certainty on time, every time.

SPECIAL FEATURES

36 | NACFB Magazine

Build-to-rent supply, Q2 2017 Status

Build-to-rent homes

Complete

15,925

Under construction

20,618

In planning

47,107

Total

83,650

Type of organisations constructing build-to-rent stock (actual deliverers) 3% 12%

24% Major UK Developer Local Developer Contractor

18%

UK Housebuilder Registered Provider Major International Developer

24% 19% Source: British Property Federation

SPECIAL FEATURES

The future of EIS investments In the face of fundamental political shifts and economic change, the UK economy has proven resilient. Since the EU referendum, consumer confidence – accompanied by targeted monetary and fiscal reform – has ensured sustained productivity and growth.

conomists at the World Bank expect UK GDP to grow by 1.7% by the close of 2017. The UK’s impressive record of economic performance can be attributed in no small part to the country’s expansive community of scaling businesses. Responsible for 99.9% of all private sector businesses, SMEs form the backbone of the UK economy, delivering a combined annual turnover of £1.8 trillion. As a consequence, a significant proportion of investors are positive towards the longterm growth potential of UK SMEs. IW Capital research recently revealed that over 6.6 million investors think entrepreneurs and business leaders will play a critical role in driving the economy forward over the next year. What’s more, the equivalent of 1.47 million people are considering investing

business focused on enabling its clients to reduce their energy and water bills. This high-growth scale-up has experienced an impressive 750% growth in four years and a multi-million-pound turnover. Its expanding client base includes global hospitality groups, retail and distribution centres, utilities companies, public sector organisations, healthcare, property ownership groups, corporate offices and SMEs. The enthusiasm shown by investors demonstrates the continued appetite to support UK businesses through taxefficient initiatives such as EIS and SEIS. Britain is globally renowned for its alternative finance industry. Since 2011, government and industry bodies have responded to mounting market demand for non-traditional sources of finance

companies boasting significant scale-up potential, ranging from new-age sectors such as fintech to staple industries such as engineering and manufacturing. As the UK prepares for its forthcoming withdrawal from the EU, Britain’s alternative finance industry must be prepared to meet the changing demands of an evolving market. In overcoming this challenge, debt and equity investments have the potential to meet future business demand for growth capital, should the government relax its policy on the types of companies able to qualify for schemes such as EIS. This is particularly pressing given the potential reduction in the number of loaning options that are going to be available for SMEs through European investment products as the UK revokes its EU membership.

Over six million investors hope that more will be done to support investor interest by way of furthering initiatives such as EIS as well as income tax policy through tax-efficient initiatives such as the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) in 2017/18. Evidently, large numbers of UK investors are looking to tax-efficient investment schemes as a means for acting on their positive sentiment. However, over six million investors hope that more will be done to support investor interest by way of furthering initiatives such as EIS as well as income tax policy in 2017.

38 | NACFB Magazine

ince 2011, IW Capital has provided finance to some of the UK’s leading SMEs through both EIS-equity funding, and more recently through our debt product. Supported by an executive team that has over 50 years of collective experience in SME investment, IW Capital prides itself on a sector-agnostic portfolio of unquoted

At the same time, the interests of investors must also be realised. IW Capital believes it’s vital for investors to act on their positive sentiment and be in a position to support UK businesses in this time of economic and political transformation through equity and debt investment opportunities. This requires enhanced industry awareness, supported by research and education.

Alan Armstrong Head of investment IW Capital

We offer short-term residential, commercial, refurbishment, development and auction finance solutions: Loans from £30k to £7m LTV up to 75% net c. £500m lent in 2016 In excess of £500m to deploy in 2017 Residential, Refurbishment, Development, Auction

For short-term property finance, talk to the specialists. London 020 3540 5120 Manchester 0161 696 6670

amicuspropertyfinance.co.uk

Part of the Amicus Group

For professional intermediary use only. Loans oﬀered subject to underwriting criteria. Amicus Property Finance is a trading name of Amicus Finance plc and Amicus Capital Limited. Both registered in England & Wales, no. 06994954 and 07713376 respectively. Registered oﬃce: 7 Air Street, London W1B 5AD. Amicus Capital Limited is authorised and regulated by the Financial Conduct Authority under reference number 613085.

Associate Lender

In May 2017, IW Capital successfully completed the first close of an EISqualifying £3m equity funding round for SaveMoneyCutCarbon – a UK-based

and successfully fostered an alternative finance ecosystem geared towards innovation and growth. Five years on, the alternative finance sector facilitated £3.2bn in investments, loans and donations in 2015 – an astounding 84% increase on the previous year’s figures.

Complex deal or quick bridge?

Association of Bridging Professionals

Helping Fund UK Business

SPECIAL FEATURES

38 | NACFB Magazine

Alan Armstrong Head of investment IW Capital

For short-term property finance, talk to the specialists. London 020 3540 5120 Manchester 0161 696 6670

amicuspropertyfinance.co.uk

Part of the Amicus Group

Associate Lender

In May 2017, IW Capital successfully completed the first close of an EISqualifying £3m equity funding round for SaveMoneyCutCarbon – a UK-based

Complex deal or quick bridge?

Association of Bridging Professionals

Helping Fund UK Business

SPECIAL FEATURES

A looming rate rise Could the Bank of England raise rates before the end of the year?

The Bank of England once again voted to keep the base rate at 0.25% in August. The Bank’s Monetary Policy Committee (MPC) voted six-to-two in its most recent meeting to maintain the base rate at its current level. However, in June, the MPC only just voted in favour of maintaining the rate at its current level by a five-to-three majority. This has led to speculation that – despite expectations earlier in 2017 – the base rate could increase before the end of this year. Here’s how the industry reacted. 40 | NACFB Magazine

What is the likelihood of an increase? John Davies, director at Just Cash Flow PLC, felt you didn’t have to be an economics genius to predict the next move would be upwards.

“Interestingly, three members of the Bank’s Monetary Policy Committee voted, unsuccessfully, for a rate rise in [their] June meeting – the first time three members have done this since May 2011. “However, any increases will be gradual and any alternative lender worth their salt will already have factored in the impact into their affordability assessments.” Stuart Law, CEO of Assetz Capital, added: “We think a rise this year of 0.25% maximum has only around a 20% probability of occurring at present – on balance, we’re not expecting one at all. “The Bank of England has worked on targeting specific perceived risk sectors or inflation sectors in other ways than the blunt instrument of base rates – such as car loans, BTL mortgages and the like.” Pete Tuvey, co-founder and managing director of Fleximize, said he would be very surprised if the Bank decided to raise the rate while there was still so much uncertainty surrounding Brexit. “Mark Carney himself said a ‘waitand-see’ policy is the best approach, and until we have clarity over the UK’s departure from the EU, that seems the most sensible way forward. “The more time that lenders and borrowers have to prepare for a rate rise, the better.”

Is the economy ready?

“The current low interest rate environment is unprecedented and, while the situation has to normalise at some point, I’m not sure the UK economy is ready,” said Jon Salisbury, managing director of Ortus Secured Finance. Greg Carter, founder and CEO of Growth Street, felt a rate rise would be a sign of significant confidence in the state of the UK economy and would follow increasing demand from businesses borrowing to invest. However, he didn’t expect a rate rise to be imminent and felt that while productivity remained low, the Bank was likely to keep rates low. “Productivity – and, therefore, interest rates – will increase if more businesses invest in giving their people the tools to work smarter and faster. “With the cost of borrowing set to remain low for longer, these investments shouldn’t cost the earth. “Brokers and lenders must give businesses the confidence to borrow and invest.” Neil McMyn, CFO of Ultimate Finance, added: “A rise in the base rate has been expected for some time, and many business owners – who will remember and successfully operated through higher rates – will already have prepared for this. “We know that our customers are astute, pragmatic business people who understand how shifts in the wider economy may impact their bottom line, so this news won’t come as a surprise to them.”

NACFB Magazine | 41

SPECIAL FEATURES

A looming rate rise Could the Bank of England raise rates before the end of the year?

What is the likelihood of an increase? John Davies, director at Just Cash Flow PLC, felt you didn’t have to be an economics genius to predict the next move would be upwards.

Is the economy ready?

NACFB Magazine | 41

SPECIAL FEATURES

Potential impacts

“The challenge for both commercial brokers and lenders is supporting these businesses whatever the interest rate environment,” said John. Jeremy Johnson, group treasurer at Hitachi Capital, added: “If the MPC has reacted to hints of a pick-up in wage rate growth, then by definition there must be growing demand in the economy calling for more labour. “In other words, the UK economy would be growing well and businesses would be investing – meaning higher demand for asset financing – a relatively positive situation for the commercial finance sector.” Neil felt that the cost of external funding could increase, which could mean

businesses are more hesitant to borrow, but the potential impact was dependent on why businesses were borrowing money in the first place. “A small increase in the base rate isn’t likely to hugely affect businesses, which need cash as a short-term solution. “However, those looking for more long-term borrowing solutions may see more of an impact – which is why it is important to work with funding partners that can offer ongoing support.” Neil also said financial lenders would be impacted by any rise. “As rates increase, some providers may find it hard to source funds, which will in turn impact SMEs’ access to finance.”

Stuart felt a change would do little to bank net-lending. “We don’t expect it to create a rise in savings account rates either, meaning that P2P lending will remain a strongly attractive alternative in terms of risk-adjusted returns. “In fact, we don’t think even a rise of 1% in base rate would lift savings rate averages more than 0.25% or so. “It will, however, directly feed through to higher borrower rates from banks.” Jon, however, saw a positive opportunity for the sector. “If an increase does occur, it may create opportunities for the agile lenders in our sector, who have generally coped well in uncertain times.”

The challenge for both commercial brokers and lenders is supporting these businesses whatever the interest rate environment

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42 | NACFB Magazine

SPECIAL FEATURES

Potential impacts

The challenge for both commercial brokers and lenders is supporting these businesses whatever the interest rate environment

SPEED MEETS CLARITY 020 7655 3388

42 | NACFB Magazine

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

Guiding clients through the due diligence process Faith Sylvia Business development manager The Route – Finance

Brokers are the matchmakers of the finance industry, the allknowing negotiators who can find your funding soulmate. They connect those entities that need funding with the networks that have money, both of which have very different, yet often incredibly specific needs. 44 | NACFB Magazine

lthough some so-called ‘aggregators’ have popped up on the internet to try to create what are essentially robotic introducers, fintech gurus are still far from being able to substitute the years of industry understanding, client familiarity and detailed project knowledge that together build a broker’s career. Indeed, each project has its own idiosyncrasies, and experienced brokers do much more than introduce a client to a funder – they stay actively engaged throughout the process. Here, we dive into the multi-faceted world of due diligence, where the broker’s role is incredibly valuable – certainly in the work done before a deal is

even put to lenders – but also in the many little, nuanced contributions made after a deal is embarked upon and assessed for lending. In considering the viability of a project, the burden of proof does ultimately fall on the underwriter, of course – so the broker’s role, more than anything, is that of being an effective facilitator. There are many approaches that brokers can take when getting involved in the process, but their role is absolutely necessary in three key ways: educating the client, providing third-party counsel, and understanding and predicting the needs of the funder.

Nobody can be an expert in everything, and most business owners don’t want to try to understand the complex world of financing in addition to their other, more important responsibilities. Brokers have made it their job to be a reliable compass for navigating funding options; but much more than that, after finding the right funder, they help their client understand the technical aspects behind their requirement. Even if a funding process seems simple on the surface, there are hundreds of cogs turning behind the scenes. The broker ensures that their client understands the project, or business, correctly, and that each box gets ticked along the way.

The broker is trusted that the client has been well placed, the information provided is complete and transparent, and that the deal is viable

NACFB Magazine | 45

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

Guiding clients through the due diligence process Faith Sylvia Business development manager The Route – Finance

The broker is trusted that the client has been well placed, the information provided is complete and transparent, and that the deal is viable

NACFB Magazine | 45

GUIDES

The client and the funder truly speak different languages and have different priorities – the broker serves as an interpreter to make sure nothing is lost in translation. Most importantly to the client, brokers provide sound counsel based on years of experience in the finance industry, but also based on familiarity with their networks of funders. A broker’s job is to understand each different process and then to advocate for the client throughout the due diligence assessment. When things are moving slowly – additional items are required, additional fees are being levied or questions come up – the broker steps in to explain why and how best to handle the situation with this specific funder.

inance brokers might work primarily for their clients, but they are just as valuable to underwriters, particularly during the due diligence assessment. A certain amount of trust is placed in the broker that the client has been well placed, the information that he or she provides is complete and transparent, and that the deal is viable. Once the process begins, the underwriter can trust that the project has already been vetted and has been correctly placed to a significant degree.

Deals proceed quickest when the broker can accurately predict the needs of the funder – indeed, the quintessential part of the broker’s role is knowing the distinct features and the flow of each process, often thinking a few steps ahead. Experienced brokers know how to package a deal perfectly for each different company in their network, which minimises back-and-forth communication and streamlines the process. They are also prepared – in advance – for the range of questions that the underwriter will ask, given the structure of the funding model and the style of due diligence, and can make sure to obtain the right information from their clients early on. At the Route – Finance, brokers sustain and expedite much of what happens day to day. They introduce the majority of the deals that the Route – Finance’s private debt platform funds, and can be thanked for what is today a very healthy pipeline of promising projects. To be sure, the role that they play in the due diligence process is one of omniscience, insight and trust, and their ability to carefully mediate the client-funder relationship throughout the proposal and assessment ensures that they won’t be exchanged for an algorithm for the foreseeable future.

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46 | NACFB Magazine

GUIDES

Regulated bridging Simply our best rate… ever

0.49%

Call us on 0161 933 7103 or visit togethermoney.com/intermediaries

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

* Rate available per month for first charge and first cross charge only. Fees and charges are variable based on loan amount. Together. Lake View, Lakeside, Cheadle, Cheshire SK8 3GW.

46 | NACFB Magazine

GUIDES

Mezzanine: the final layer M

ezzanine finance sits behind the senior (main) debt funder and is usually secured via a second charge, often completely subordinated to the senior lender’s security. As it sits higher up the risk curve, a mezzanine lender usually charges more for this type of loan.

interest will reduce the cash available and rolled up interest needs to be checked for the compounding regime

Why a developer would want to use mezzanine finance Possible answers include:

Can the senior and mezzanine lenders work together? Have they done so before and/or are their styles similar? It may be worth speaking to someone who has worked with them previously

Borrower has limited cash resources Borrower wants to spread available cash over more than one project Higher gearing enables lower equity contribution and potentially higher return on capital. Projects will need to have a strong enough profit margin in order to stand higher interest costs. Deals which are funded in this way become slightly more time- and cost-critical – the cash and profit are finely balanced so developers need to stay focused on bringing jobs in on time and on budget. When this is followed by timely sales/exits, the developer’s profit on the lower level of equity can be exponential. What should a broker look out for when sourcing this type of finance? The actual cash figure to be advanced – take care when reviewing offer letters for deductions from the principal sum How interest is charged – retained

Ideally, senior and mezzanine lenders should share professional costs (eg valuations), wherever possible, to keep costs down

What happens if mile posts and/or repayment dates are missed? Try to get an idea of a lender’s usual stance on this up front What’s the ‘blended cost’, or the combined price of all finance, and how does this compare with alternative funding options? What’s the cost? The cost of this type of funding depends on a number of factors: Risk – the smaller the borrower’s stake and the bigger the percentage of the project cost provided by the mezzanine lender, the higher the price will be The prospective sales/exit profile – an element of forward sale or pre-agreed refinance should bring the price down Market conditions – more lenders (of both types) chasing deals usually means competitive pressures bring the price down.

As with any type of finance, it’s important to annualise the total cost of interest and fees. This is sometimes easier with mezzanine as this money tends to go in first and come out last, after the senior debt is repaid. Total cost of 20-30% is not unusual, but overall price can be affected by fees linked to GDV and/ or profit share pricing structures. A good broker can always guide a client to appropriate lenders for their deal. Specialist lenders (both senior and mezzanine) will have relationships with other funders whom they have worked with before, so the right research will provide results efficiently. It’s usually worthwhile to get a recommendation from someone who has used a debt provider before – while the product (loan) is the same, the way it’s delivered can vary enormously. In a highly geared, debtladen deal, funders who deliver both day one cash and monthly stage drawdowns quickly are a necessity. Not all projects adhere to the plan and funders who can deal with variations quickly and commercially are worth seeking out. This is where the right financial advice is crucial. Sometimes the cheapest headline price doesn’t result in the highest profit.

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 Steve Marsh Managing director Goldentree Financial Services

or visit our website on:

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

48 | NACFB Magazine

GUIDES

Mezzanine: the final layer M

interest will reduce the cash available and rolled up interest needs to be checked for the compounding regime

Why a developer would want to use mezzanine finance Possible answers include:

Can the senior and mezzanine lenders work together? Have they done so before and/or are their styles similar? It may be worth speaking to someone who has worked with them previously

Ideally, senior and mezzanine lenders should share professional costs (eg valuations), wherever possible, to keep costs down

01256 316 200 Steve Marsh Managing director Goldentree Financial Services

or visit our website on:

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

48 | NACFB Magazine

Opinion | & commentary Thought leadership from our Patrons and Members

A FS GROU P

Time to deploy bridging nationwide Jo Edwards Business development and marketing director United Trust Bank

he bridging finance sector has developed substantially over the last 10 years with both the product and the lending landscape evolving to serve a more diverse range of customers than ever before. Having been around in some shape or form for over 50 years, several lenders, including United Trust Bank, have set their sights on taking bridging beyond the traditional activity hot spots of London and the South East by developing their sales teams to cover a far wider swathe of the UK than ever before. In June we revealed our new mortgages and bridging BDM team, numbering six dedicated property finance BDMs, who will be introducing brokers from the South West of England, Wales, East Anglia, the North of England and Scotland to the mortgage and bridging products and services now offered by the Bank. And that, of course, is in addition to maintaining the excellent relationships we already have with brokers in London and the South East. So why now? Why, after all this time, are lenders starting to commit serious resource to developing their bridging business across the country? To answer that question, we need to look at a little recent history. Although bridging loans first appeared in the 1960s, it was during the 1990s that they developed as a truly bespoke funding solution. The loans offered were unique to each customer but the perception of many was that bridging was high risk and high cost. Despite the reputation, the sector continued to grow as a niche product and received another boost with the inception of the ‘self-cert’ mortgage. Investors bought and renovated houses with bridging loans and got a self-certified buy-to-let mortgage to pay off the bridging loan once the tenants had moved in. It was a straightforward solution and many buy-to-let portfolios were built upon it.

The credit crisis from 2007 onwards proved to be a turning point for the bridging industry. Many lenders withdrew from the sector and some specialist lenders seized the opportunity to secure an increased market share. As the industry developed, lenders and brokers came under greater scrutiny and professional standards were raised. Increased competition helped to push down prices and as prices fell, so the market grew. Brokers and borrowers who previously dismissed bridging saw that its versatility and speed were now complemented by increasingly competitive rates and charges. When the Mortgage Credit Directive came into force last year it was accepted as a positive, bringing with it additional transparency, standardisation of information and hopefully a better all-round experience for customers.

oans for sophisticated property professionals currently account for the majority of new bridging business and the lion’s share is generated in or around London. The huge growth in house prices and buy-to-let in London and the South East over recent years has enabled a community of brokers well versed in bridging products to flourish, and the largely London-based lenders have kept themselves busy serving this market, virtually on their doorstep.

Now though, investors, speculators and homeowners in other parts of the country are more frequently recognising that they have a need for short-term funding and are subsequently seeking help from brokers close by. That’s not to say there haven’t been experienced brokers north of Watford before. However, brokers from further afield have not received anything like the same attention from lenders. Until now. With bridging developing a far more professional image, greater regulation and rates and charges now lower than ever before, we’re confident that there’s a huge opportunity for lenders with the right skills, experience, resource and technology to help develop the market for bridging across all regions, and to a diverse range of customers. The percentage of brokers who regularly deal with bridging loans is still very small and a vital next step in developing the market is building relationships with those new to bridging. Lenders have a key role to play in explaining and demonstrating the benefits and uses of bridging and encouraging them to add this extremely versatile and competitive product to their consideration list when advising clients. UTB has recognised that you can’t do this half-heartedly by occasionally jumping on a train from Kings Cross to Leeds. It needs boots on the ground. People who know the area, understand the market and can give brokers the support they need, when they need it.

brokerinabox.finance WE’VE GOT YOU COVERED

STRONGER TOGETHER

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

50 | NACFB Magazine

Opinion | & commentary Thought leadership from our Patrons and Members

A FS GROU P

Time to deploy bridging nationwide Jo Edwards Business development and marketing director United Trust Bank

brokerinabox.finance WE’VE GOT YOU COVERED

STRONGER TOGETHER

50 | NACFB Magazine

OPINION & COMMENTARY

SMEs must regain confidence in asset finance

Anthony Persse Strategy director Ultimate Finance

ecent figures released by the former Asset Based Finance Association (ABFA) - now part of UK Finance – showed that in the first quarter of 2017, use of invoice finance and asset-based finance rose sharply by 14% to £21.9bn, up from £19.3bn at the same point a year earlier. It seems like the brokers in this space have been busy. UK Finance suggests that this significant leap is due to larger businesses – including many of the UK’s biggest companies – embracing non-traditional sources of finance to fund expansion or M&A activities. The figures certainly suggest that this trend is gaining pace among businesses with turnovers in excess of £100m, rising by nearly a quarter (23%) in a single year. Jeff Longhurst, head of commercial and asset based finance at UK Finance, commented: “More and more companies are having a ‘eureka’ moment … big business is developing a hearty appetite for asset-based finance.”

Of course, in the SME world, we had our ‘eureka’ moment a long time ago and at Ultimate Finance we’ve a proud history of helping smaller business owners access the cash they need in quick and convenient ways. It’s worth pointing out that despite rapid growth among bigger businesses, the SME market still accounts for the other two-thirds of the annual lending figures. That said, the rate of growth in the SME sector is notably slower than that among their larger contemporaries. So what could be happening here? Are SMEs – traditionally pioneers in the sourcing of invoice and asset finance – beginning to think twice about seeking these funding options when they need it? Given the breadth of diversity within the SME label, it’s probably ill-advised to generalise, but I do wonder if a slowdown in finance demand could be due to a ‘fear of funding’, a misconception that borrowing could be detrimental to business. We recently conducted research into this and found this fear to be on the rise. We are working to tackle this challenge which is partly due to economic uncertainty and partly due to deeply ingrained myths around funding.

I do wonder if a slowdown in finance demand could be due to a misconception that borrowing could be detrimental to business

You can certainly understand such reluctance. To the small business owner, borrowing can seem counterintuitive and debt something to avoid wherever possible. Throw in the ongoing uncertainty about the possible effects of Brexit on the UK economy and a significantly weakened minority government, and you’d be forgiven for thinking that it’s not the time to owe money.

Good funding does the world of good

However, this is where those of us in the finance industry have a duty to impart sound advice. We work hard at this in our business and we’re lucky to count some of the best brokers in the business as advocates for our products who do the same. As our brokers are well aware, SMEs shouldn’t be afraid to borrow money. Cash flow is essential to any business – a fact clearly evidenced by UK Finance figures – either for growth or maintenance. Big companies know this, and are obviously seeking new and innovative ways to access the money they need via asset-based finance options. It’s a safe and easy-to-understand way to get the cash you need to build your business. Whether you have outstanding invoices you can leverage for your immediate needs, or you want a quick cash injection to take advantage of a new contract, assetbased finance is a smart way to borrow.

Ultimate Finance knows how to relieve business owners from the pressures they’re under. It starts with a dedicated local team that wants to help, offering a wider range of products and a simpler online experience that gets your clients the cash they need quicker. Everyday we provide good funding that’s fast, fair and full of options – and it does the world of good for British businesses.

As the UK’s largest businesses increasingly recognise that asset-based finance products present a brilliant opportunity to help them grow bigger still, it’s important that SMEs don’t start to fall behind. After all, they knew the secret first.

ultimatefinance.co.uk The world of good 52 | NACFB Magazine

OPINION & COMMENTARY

SMEs must regain confidence in asset finance

Anthony Persse Strategy director Ultimate Finance

I do wonder if a slowdown in finance demand could be due to a misconception that borrowing could be detrimental to business

Good funding does the world of good

ultimatefinance.co.uk The world of good 52 | NACFB Magazine

OPINION & COMMENTARY

Greg Carter CEO Growth Street

ith the recent FCA approvals of leading P2P lenders Zopa and Funding Circle, the industry has reached a new stage of maturity. These regulatory breakthroughs show the strength of some of the sector’s leading lights. They also provide a landmark from which we can look back at how the sector has changed and evolved since Zopa – commonly held to be the UK’s first real P2P lender – was born in 2005. Having weathered a global recession and thrived in the ensuing recovery since then, it seems that P2P lending has proven its worth as an asset class. Indeed, it can be argued that P2P wouldn’t have made the strides it has if the crash hadn’t exposed the fragility of traditional financial institutions. Was it this that drove borrowers and investors to seek out alternative channels? It appears that – years on from the recession – questions remain regarding the long-term stability of the UK economy. With Brexit negotiations now underway, few people would be bold enough to predict the state of the UK’s business climate in a couple of years. However, the assumption that this uncertainty has impacted small enterprises isn’t necessarily accurate. In the last 12 months or so, Growth Street’s borrowers have demonstrated solid growth across a series of key metrics. Over the nine months to May 2017, Growth Street customers’ monthly reporting statements indicated decreasing working capital balances relative to sales. This wouldn’t necessarily be positive were it not for the fact that Growth Street’s borrowers also displayed solid aggregate growth in net profits over the year to May 2017 (an average of around 3.1%).

he success of the P2P model over the last few years has seen all sorts of different types of products emerge. We now have crowdfunding platforms, property finance specialists, invoice financers and many more bundled together under the P2P banner. It’s interesting to see so many variations on the P2P theme developing: we believe this demonstrates individuals’ and businesses’ confidence in the market and willingness to try different models of investment. The complexity of the P2P space may be why many prospective customers exploring P2P options benefit from the expertise of introducers, who aim to help them navigate the space and secure a good deal. But we think what differentiates Growth Street – and what attracts people to our marketplace – is not the way our product is funded; it’s in the product itself. To the majority of our lenders and borrowers, the P2P model may well be incidental. For lenders, Growth Street’s goal of providing a reliable return – proportionate to the risks associated with P2P lending – has always been paramount. And for our borrowing customers, flexibility and responsiveness to their situation and requirements are key. The last few years have bolstered the P2P model’s reputation as a legitimate financing option. But just offering a P2P marketplace model may not be enough to attract customers: the service provided to lenders and borrowers alike has to excel too. Meanwhile, we believe that widely reported economic uncertainties are – for now – not being felt by the small businesses borrowing through Growth Street. I’m certain that there are exciting times ahead for SMEs. Meanwhile, P2P offerings should continue to succeed as an alternative source of finance for ambitious companies.

Online bridging valuations in an instant 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. 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. 0800 116 4385

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

01848 (1)

Is P2P the stable pillar in uncertainty?

It appears that our borrowers have been able to improve efficiencies in their working capital balances while maintaining a solid bottom line. To me, this is immensely encouraging: business owners should not question their ability to run their business successfully and sustainably, even if commentators declare that the macroeconomic climate is unpredictable.

OPINION & COMMENTARY

Greg Carter CEO Growth Street

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54 | NACFB Magazine

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01848 (1)

Is P2P the stable pillar in uncertainty?

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