Commercial Broker (NACFB Magazine) November/December 2021 by NACFB

Issue 95

Broker

NOVEMBER/ DECEMBER 2021

COMMERCIAL

The award-winning magazine for the National Association of Commercial Finance Brokers

28 AN UNRELIABLE BOYFRIEND Predicting when interest rates will rise

38 MILKING THE OPPORTUNITY Cattle finance, to be seen and herd

The long haul Is industry grinding to a halt?

42 IN THE MOMENT Instilling greater confidence in SME clients

48 THE HIDDEN VALUE OF IP Finance secured against intangible assets

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Contents

In this issue NACFB News

Special Features

4 6 8 10 12-14

22-23 24-26 28 30-31 32 34

Note from Norman Chambers Updates from the Association Note from headline sponsor, Lloyds Bank Industry news round-up Membership news

Precise Mortgages: Dispelling bridging myths NACFB: The long haul Ultimate Finance: An ‘unreliable boyfriend’? Lloyds Bank: A Net Zero future? iwoca: Back on track NatWest: Incentivising growth

Industry Insight 36 38-39 40 42

CBI: Slow but solid Haydock Finance: Milking the opportunity Black & White Bridging: Face-to-face funding Reward Finance Group: In the moment

Opinion & Commentary

16 Patron Profile 16-17

Hope Capital: From the ground up

44-45 Direct Asset Finance: Where there’s a will there’s a way 46 Anderson, Wilde & Harris: Commercially sound 48 FRP: The hidden value of IP 50 NACFB Patron Awards 2021: Lending excellence 52 Listicle: Supporting NACFB Members in 2021 54 Five minutes with: Steve Smith, National Sales Manager, Roma Finance

Hickman Shearer: In the round

KIERAN JONES Editor & Feature Writer

33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk JENNY BARRETT Communications Consultant

33 Eastcheap | London | EC3M 1DT Jenny.Barrett@nacfb.org.uk LAURA MILLS Graphic Designer

33 Eastcheap | London | EC3M 1DT Laura.Mills@nacfb.org.uk

Magazine@nacfb.org.uk

NACFB: More than just hot air

Ask the Expert

Further Information

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NACFB | 3

Welcome

Norman’s Note

t would be fair to say that 2021 has been a rollercoaster of a ride. If I were asked to name this fairground attraction, I'd pick The Bucketing Fluctuator because the pandemic and Brexit have spawned more ups and downs and erratic turns at which one could shake the proverbial stick. The downslopes of supply chain chaos and chronic labour shortages in particular have been terrifying, eye-closing, and exhausting. The journey has impacted all aspects of our lives.

Norman Chambers Managing Director | NACFB

This includes the UK commercial finance sector which chose to do more than simply cling on for dear life. Instead, it raised its arms and embraced the race to the bottom secure in the knowledge that there is always an upside. Modus operandi were adjusted to incorporate the government-backed loan schemes, criteria were expanded to adapt to the borrowing needs of business, processes were flexed to accommodate new technology, sustainability began to be integrated into all aspects of corporate thinking, and perhaps more than ever before, lenders and brokers alike worked furiously together to cradle the country’s SMEs. And what of 2022? My guess is that we’re already queuing up to ride the ride again. But this time, we’ll be better prepared. When I say we, I mean the NACFB community. We’re wiser now. And stronger. The safety bar will have more padding. So when the light on the track switches from red to green, and the carriage starts its chug uphill, we will all be focused on Moving Britain Forward. Together.

4 | NACFB

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NACFB News

Association updates for November/December 2021

NACFB News A winning night out at the Patron Awards

Member fee freeze proposed at NACFB AGM

The NACFB Patron Awards & Gala Dinner 2021 took place on 25th November at the Westminster Park Plaza, some 728 days after the last time this flagship event was held in-person under the same roof. And what a night, with nearly 800 attendees all dressed up to the nines, ready and willing to party as well as find out which Patrons would be the lucky recipients of the awards.

This year’s NACFB annual general meeting (AGM) takes place online from 14.00 on Monday 20th December.

Competition was fierce with half of all Patrons entering an average of four categories including the new COVID Response Award. The evening was successfully hosted by comedians Marcus Brigstocke and Rachel Parris, who were so popular compering last year’s virtual ceremony, that the NACFB invited them back. The night included a silent auction and a game of heads and tails with all proceeds going towards the Association’s chosen charity Young Lives vs Cancer. The amount raised on the night was £20,000, bringing total membership donations so far to a staggering £50,000. Commenting on the event, Norman Chambers, NACFB managing director, said: “This event not only celebrates and recognises excellence in the commercial lending community, but it is also the Members’ way of thanking Patrons for their continued to commitment to both the NACFB and Moving Britain Forward.” The Association thanks all the evening’s sponsors. The full list of winners and those who were highly commended can be found on p.50. 6 | NACFB

Members can now vote for those Board Directors whose term is up for renewal, alongside a selection of new candidates. To help with the selection process, full biographies for each candidate can be found in the annual report, outlining their suitability for the role. In addition to considering the Association’s 2021 financial performance, this year’s proposed resolutions include the consideration and approval of both the 2022 subscriptions for Members and Patrons and the Group Budget, as well as the appointment of auditors. Fees for Members are to be frozen for another year, whilst a modest 5% increase has been proposed for Patron lenders. This year’s AGM will be presided over by the Association’s Chair, Paul Goodman. Other Board Directors will be in attendance to provide updates and reports of the year to date and look ahead to 2022. Members have the right to attend, speak, and vote at the AGM in alignment with the Association’s constitution. Details of the AGM, including the agenda and all the resolutions can be found in the annual report that has been sent to all Members with voting rights. Find out more at: nacfb.org/agm2021

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Note from our Sponsor

A sustainable commitment Navigating the road to Net Zero

Keith Softly Head of Commercial Banking Intermediaries Lloyds Bank

or many SMEs, the road to Net Zero is one that may not be fully mapped out, but when change happens together that is when the best results take place, and our research shows clearly that the best route to achieving our decarbonisation goals is through collaboration. We are supporting one in five SMEs in the country and are extremely proud to play our role in their Net Zero journeys. We do this through working with them and others, including brokers, to deliver the best solutions for sustainability and growth. In creating ‘From Now to Net Zero: A Practical Guide for SMEs’, we found that there is a will to act among SMEs, but the way forward is not always clear. The research showed that for many, barriers such as knowledge and resourcing gaps, not knowing the commercial benefits of the sustainability journey, and not having access to the appropriate finances, get in the way. While we can’t provide all the answers, we are working hard to create solutions that will benefit our SME customers:

•

For many SMEs, the most controllable part of their journey is the buildings they inhabit. That is why we have built our interactive Green Buildings Energy Efficiency Tool to allow businesses to assess the energy use and efficiency of their properties, identify actions that could reduce energy waste (and cost), and set targets and priorities for future investment.

• Working with Lex Autolease we support our business customers with the vehicles and tools to assist the transition to low emission vehicles. •

And finally, one of our most important commitments to our customers’ sustainability plans is our colleagues. More than 1,000 of our relationship managers have been trained in partnership with the Cambridge Institute for Sustainability Leadership to provide guidance and support to businesses which ensures our teams are equipped with the knowledge SMEs need.

Our ambition is to be a leading partner supporting other businesses along the road to Net Zero. Through collaboration and facilitation, we believe that despite its challenges, this journey can drive growth for businesses and the UK’s economy. For more information visit lloydsbank.com/sustainability

•

Knowing that knowledge and understanding are key barriers, we have built and continue to evolve our Sustainability Hub. It is a repository of tools and data that can help businesses build their own roadmap to sustainability.

• Our Clean Growth Financing Initiative offers discounted lending to businesses that are investing in green assets which is directly helping SMEs to make a difference. 8 | NACFB

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Industry News

Industry News 1. Small firms to cut jobs ahead of NI hike

5. UK audit reforms and governance to be watered down

The Federation of Small Businesses (FSB) has warned that one in seven small firms plans to cut staff ahead of the 1.25% increase in National Insurance that comes into force next year, meaning 50,000 jobs could be lost. The FSB also revealed that eight in ten SMEs do not plan to take on extra staff this quarter. FSB national chair Mike Cherry said: “Tax rises will hit at the same time as a rise in the living wage, and against a backdrop of surging inflation and supply disruption.”

The UK’s long-awaited overhaul to auditing and corporate governance is to be scaled back after intense lobbying from business. One proposal set to be dropped is new legislation holding company directors personally liable for accounting failures with the threat of fines and bans. Instead, a provision is expected to be included in the UK corporate governance code, which only applies to companies with a premium listing and can be ignored by companies providing they explain why.

2 2. Shoppers spend more with firms online than in-person People commonly spend more if they shop with a small business online than they would if they were to spend with them in-person, according to a new study. The research from TalkTalk Business also reveals that 65% of SMEs say their customers started their festive shopping early. Meanwhile, 70% of SMEs say that their regular customers are finishing up their Christmas shopping with them online rather than in-person. 10 | NACFB

3 3. UK economy grew 1.3% in the third quarter Weak consumer spending and supply chain issues drove economic growth down in the third quarter, figures from the ONS show. Growth between July and September came in at just 1.3%, from a 5.5% rise recorded between April and June. This means the economy is 2.1% smaller than in the final three months of 2019. The latest growth figures were weaker than many economists had expected, and Paul Dales, chief UK economist at Capital Economics, said the data suggested “the best of the recovery is now behind us.”

4. Furlough fraud estimated at £1 billion Analysis of official data by The Times shows that 7,000 companies registered to only five addresses in London claimed up to £473 million from the Government’s furlough scheme between last December and June this year. The paper says HMRC will likely be scrutinising such “off-the-shelf” companies as it seeks to recover an estimated £1 billion in fraudulent or mistaken claims. One alleged fraudster is understood to have claimed £27.4 million over 14 months despite little evidence that their businesses had any staff or any substantial trade.

6. NIESR warns of stagnation risk from supply-chain problems The National Institute of Economic and Social Research (NIESR) has warned that persistent supply-chain bottlenecks risk stagnating Britain’s economy in the years ahead. The think tank predicts that inflation will reach around 5% next year and last longer than the Bank of England expects. Britain’s economy was set to grow by 6.9% in 2021 and by 4.7% in 2022, as it recovers from the COVID-19 pandemic, before slowing sharply to 1.7% in 2023 and 1.3% in 2024, NIESR said.

7. FCA accused of changing rules to avoid paying compensation The Financial Conduct Authority (FCA) has been accused of changing its complaints scheme in an attempt to avoid paying compensation to victims of failed funds or investment scams. The FCA reportedly changed its complaints scheme ahead of a wave of claims from savers who had lost more than £200 million in the collapse of investment firm London Capital & Finance in 2019. The financial watchdog denies acting unlawfully, saying it was “clarifying” the scheme’s guidelines.

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Membership News

Membership News Monument gains full banking licence

Record October for Think Business Loans

New Patron, Monument has announced that its licence has been extended by UK regulators allowing it to operate as a fully licensed, deposit-taking bank which is FSCS-insured.

Think Business Loans has announced it achieved record-breaking sales in October, through the deployment of more than £19 million in unsecured loans driven by the release of its new instant quoting iFunds platform, powered by Experian.

As such, the lender will soon launch a range of easy access and fixed-term saving products. Savers who deposit money for a second fixed-term will get a better rate than a new customer, an approach that will also be utilised with loans – existing borrowers who renew their deal or take an additional loan will benefit from a better rate. Monument’s target audience is busy professionals including doctors, lawyers, accountants, entrepreneurs, and of course, property investors. It already offers buy-to-let mortgages and bridging loans aimed at experienced landlords looking to grow their portfolios. Commenting on the licence, Mintoo Bhandari, chief executive officer said: “We are looking forward to every opportunity to differentiate ourselves in the eyes of our clients. With our leading-edge technology and high calibre team, we will deliver services that delight our clients, but we are also certain that we will need to be responsive and evolve with the growing demands and opportunities we will face.” 12 | NACFB

The platform connects to over 5,000 data points, allowing the NACFB Member’s team to provide instant quotes to clients with a 95% accuracy rate using just a company’s registration number. The platform focuses on accuracy of lender scorecards and data legitimacy to drive a reduction in declines and defaults by building a robust picture of clients’ financial health to pass onto their lender partners. Jamie Stewart, managing director and founder said working with Experian was a huge milestone for the business enabling them to create a one-of-a-kind platform which provides customers with quotes consisting of accurate rates, amounts, and terms. Commenting on the platform, he said that it was “…the vehicle to drive our ambitious growth plans and sets us far apart from our competition, we see these results as the tip of the iceberg in terms of the platform’s potential.” Part of the Bionic Group, the NACFB Member has helped some 5,000 clients access £700 million in funding since inception.

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Membership News

Membership News SMEs can aim for sustainability says 365 Business Finance

Landlords need help to upgrade properties finds Shawbrook

365 Business Finance has published a guide which offers simple but effective tips for change to assist SMEs in becoming more sustainable and resilient. The guide entitled ‘How SMEs Can Adopt Sustainable Development Goals’ includes how SMEs can future-proof their business as climate change and other challenges become more prominent in the lives of the next generation.

Landlords have begun to take steps to improve the energy efficiency of their properties according to Shawbrook Bank’s research entitled The Changing Face of Buy to Let.

According to Andrew Raphaely, managing director at the NACFB Patron, some of the tips require little or no investment. Commenting on the publication he said: “The benefits for SMEs of developing and striving to achieve sustainability goals include improved brand image, reduced costs if lowering the consumption of resources in the workplace, and of course preparing for the future by keeping up with updated government commitments and the needs and visions of employees wanting to make a difference.”

One in ten private renters said that they would stay in their current property longer if their landlord made changes to the property which benefit the environment and would be happy to pay more rent.

The guide, which can be found on the Patron’s website, identifies the 17 sustainable development goals (SDGs) which are at the core of the UN’s 2030 Agenda for Sustainable Development. It also addresses the challenges faced by SMEs in achieving the goals, including limited access to finance, lack of appropriate knowledge and skills, and the pandemic, as well as offering SMEs workable solutions. 14 | NACFB

The report found that 17% of landlords had made efforts to improve the energy efficiency of their property, rising to 22% of portfolio landlords (landlords with four or more buy-to-let properties).

For landlords who own older properties – which are typically less energy efficient – the report found it would be harder to improve the rating. According to data from the Ministry of Housing, Communities and Local Government there are close to 13 million homes in England and Wales currently with an EPC rating of D or below. John Eastgate, managing director of property finance at the NACFB Patron said that some owners would “…need support from both lenders, and the government, to make these changes financially possible. Without this, we risk a substantial part of the private rental sector becoming unrentable and therefore unmortgageable and unsellable in 2025.”

Patron Profile

From the ground up The rise of specialist lending Jonathan Sealey Chief Executive Officer Hope Capital

ometimes we can take our own perception for granted, and from time to time it doesn’t hurt to share just how we got to where we are now. So, please permit me to step through the story of Hope Capital. Our story began as a one-man journey when I saw an opportunity in the specialist lending market. The team now consists of 23 experienced individuals, who all play a big part in making us a trusted and respected bridging lender with a reputation for service excellence. I am particularly proud that Hope Capital is regularly recognised as one of the most gender diverse companies, not only in the bridging market but across the wider financial services arena, with 66% of the senior management roles being held by women. Ten years on, the firm has worked with many brokers, clients, and stakeholders, who have helped the business go from strength to strength, but it is the team to which I give most credit.

Establishing a reputation From day one we built our reputation on transparency, honesty, and flexibility. We prioritised service excellence and are constantly seeking to improve our operations to ensure the most streamlined 16 | NACFB

and effective processes are in place. This was particularly important during the COVID-19 pandemic, where lenders had to think quickly to ensure they could react to numerous unprecedented changes. By implementing a flexible and fast approach, introducing changes to work functions, and a can-do attitude to adapt and embrace new technologies, we evolved to ensure borrowers could continue their investment plans. This was partly achieved through adopting an Automated Valuation Model (AVM) and new ID verification and messaging technology, which improved customers’ experience and made it quicker and easier for our team to communicate with clients during the times where it was not possible to meet face-to-face. However, while technological innovation was key in getting deals across the line, the service we are renowned for delivering, remained

“

It is essential this momentum continues, which is why lenders and other parties need to educate brokers on why a bridging loan may be the best solution for borrowers

“

Ultimately, bridging loans are no longer being viewed as a last resort. Instead, we have firmly positioned ourselves as a first port of call

the same, i.e. providing transparent and consistent communication throughout the entire loan process. Speed and efficiency are essential in bridging finance, which is why we ensure brokers have direct contact to an underwriter, so they have easy access to a decision maker.

Moving forward Whilst the outlook for 2022 and beyond remains unclear and there will be new challenges, due to the ongoing influences of COVID-19 and Brexit, the need for bridging finance solutions from experienced specialist lenders is clearly in demand. Looking ahead, we have ambitious plans to extend the team to ensure the firm is in the best position to meet business volumes and able to create more innovative products which meet the market demand. This will also support our plans as we begin to enter new lending spaces, such as development exit finance, and finish and exit finance, as well as extending our lending proposition in Scotland. These actions will be key, as more brokers recognise bridging finance as a first-class product solution for their clients. Previously bridging finance has been labelled as an expensive option, which was often overlooked. However, as awareness of what the value of bridging finance can offer to certain borrowers has grown, this in turn has ensured the specialist lending market has grown significantly in popularity. Moving forward, it is essential this momentum

continues, which is why lenders and other parties need to educate brokers on why a bridging loan may be the best solution for borrowers due to the diverse range of options available and the benefit of packagers and distributors. This will be particularly important in the SME lending sector, where these types of businesses are looking to bounce back from the pandemic. Short-term finance provides various benefits in this situation. For example, a small business may require a bridging loan to provide capital before it is able to obtain a longer-term loan. In addition, bridging finance can also be used to release equity to grow the company and invest in equipment needed for the business. The main challenge as a broker is finding a lender who provides competitive LTVs, rates, and a diverse range of unique and innovative products. As time is usually of the essence for clients who are considering a bridging loan, it is important for a broker to be aware of the options available and to find a lender who has a significant amount of market experience. Ultimately, bridging loans are no longer being viewed as a last resort. Instead, we have firmly positioned ourselves as a first port of call, renowned for the relationships the team has built and maintained with brokers over the past ten years, providing a superior service and support to brokers and their clients from initial enquiry stage through to completion. NACFB | 17

Compliance

More than just hot air The plan to turn talk into meaningful action Rob Levitt Compliance Officer NACFB

ovember’s COP26 climate conference arrived in Glasgow amidst soaring energy prices. The UK had also just braced a petrol crisis, highlighting our oil dependency, and even if you had a full tank, your journey could well have been disrupted by Insulate Britain protestors firmly affixed to the road. Hard to argue then that the conference was not at least timely. But the timeliness of the summit did not necessarily translate into meaningful action. Indeed, although China and Russia sent delegates, leadership from these two nations, which are among the biggest global polluters, was noticeable by its absence. Before taking a private jet back to London, Boris Johnson made some of the right noises, but the resulting talks failed to yield any substance as the minute hand of the doomsday clock ticked ever closer to midnight.

The role of the regulator With a leadership vacuum at the highest levels, it does then fall to others to fill the void. Step up, the regulator. Indeed, the Financial Conduct Authority (FCA) is set to require intermediaries to consider sustainability issues when advising clients, in line with rules introduced on the Continent earlier this year. In a discussion paper published in early November, to coincide with COP26 Finance Day, the FCA invited views on potential criteria to classify and label investment products, and said it was minded to introduce specific rules for advisers. Europe’s Sustainable Finance Disclosure Regulation, which came into force at the start of 2021, already makes sustainability-related demands of advisers. 18 | NACFB

However, its rules were not onshored prior to the UK’s exit from the EU. The FCA is now introducing its own Sustainability Disclosure Requirements (SDR) for firms involved in investment management and decision-making processes. Plans to classify sustainable investments into distinct groups may also be aligned with existing SFDR categories, the regulator said in its discussion paper. Before setting out that it will: “…develop proposals on this in due course, working with government. We welcome any views on this approach and any particular considerations that we would need to take account of in our proposals.” The labels and criteria are intended to help consumers navigate their sustainability characteristics and the input received will guide the FCA’s policy design in this area, ahead of consultation on new proposals in spring next year. The NACFB will share with the membership guidance on any reporting obligations the FCA implements in the future and is actively exploring new services to help support decarbonisation efforts for intermediaries.

“

The FCA is set to require intermediaries to consider sustainability issues when advising clients, in line with rules introduced on the continent earlier this year

Ask the Expert

In the round

The role of capital assets in the circular economy

Tim Chapman Director Hickman Shearer

ickman Shearer is an independent capital asset valuation, management and used equipment sales company providing expertise and professional advice in relation to capital assets and the built environment. In November, they published a white paper examining where used equipment sales and management fit into the circular economy. A pertinent topic in light of the recent COP26, we asked Tim Chapman, author of the report to explain more.

What is a circular economy?

It is a framework of core principles, centred on eliminating waste and pollution, keeping products and materials in use, and regenerating natural systems. It encompasses every aspect of business with the goal to ensure sustainability is achieved wherever possible by exploring the potential to re-use, re-purpose, or re-cycle. Ultimately it seeks to de-couple the reliance on finite resources both at a consumer and business-to-business level.

Why is it so important? Adopting the circular economy supports organisations as they progress to improve 20 | NACFB

both sustainability metrics and capital asset performance.

What are the advantages and benefits?

According to evidence published by the Ellen MacArthur Foundation, by adopting a circular economy strategy, businesses can de-risk investments and drive superior risk-adjusted returns for investors and financial institutions.

How does used equipment sales and management fit circular economy thinking?

It is all about extending the life of assets through different channels to maximise environmental and social metrics as well as financial goals. This can deliver extremely positive, measurable results but to accomplish them, it is critical that organisations understand the true value and potential lifecycle of every single asset. At Hickman Shearer we help organisations to achieve these goals and to help the process, we have developed a cascade methodology which identifies whether an asset should be transferred, refurbished or re-lifed, sold, recycled or go to landfill.

Is it that simple?

either financial and/or physical. Some assets become obsolescent as a result of environmental performance that may be captured in regulation.

No. Consider asset obsolescence. Most capital assets will at some stage become obsolescent, as they are superseded by assets with improved performance

For example, consider older diesel generators or commercial ships – both burn fossil fuels, and both are now affected by regulation in the UK which forces operators to reduce emissions or face hefty emission-based taxes. Hence, there is a strong argument that at mid-life these assets should be retrofitted to reduce emissions before considering any extension of life by asset transfer or sale.

So where do you start?

By reviewing all your assets. The circular economy is important both financially and operationally, not just to original equipment manufacturers (OEMs) but to asset owners too. If the manufacturing economy is to become resilient to climate change, adopting the circular economy model is imperative, and sooner rather than later. For us, the circular economy is at the heart of Hickman Shearer’s DNA. In working with our clients, we maximise not only the financial return on used equipment, but also ensure environmental targets are met with actions to measure and to deliver on them. For those who are interested in reading more about the benefits of the circular economy, the white paper is available on our website.

Our speedy new portal is on its way You can now get a quote in just four easy steps, wherever you are, 24/7. And because it’s faster than ever, you’ll hear back in minutes. Our broker team will also work closely with you to help manage clients of any size. Other support includes: access to our Business, Commercial, Corporate and Institutions banking teams forward-thinking digital options to help make banking quick, easy and efficient access to working capital management solutions expert thought leadership at natwestbusinesshub.com

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Special Feature

Advertising Feature

Dispelling bridging myths Exploring the merits of dual representation Roger Morris Group Distribution Director Precise Mortgages

hen I joined Precise Mortgages over ten years ago, my main focus was to develop the bridging strategy and create a quality training programme which would ultimately challenge the reputation of bridging, which at the time was seen as relatively murky. We wanted to be at the forefront of educating the market, leading on what best practice should look like and to help establish a better customer journey. So, we decided to follow the protocols and processes laid out in the CML Handbook and, from the outset, we only dealt with brokers who held a credit consumer licence. Before 2010, bridging and short-term lenders would insist that as bridging was complex, you needed a solicitor for the customer and a separate solicitor for the lender. In short there were a lot of myths floating around. I carried out my own research about why this was needed, why bridging was seen as complicated, and why dual representation wasn’t used more widely. For those of you who don’t know, a bridging loan is treated no differently from a first charge loan and by law we implement regulated practices across every product line that we deal with. This ensures that the customer has the same code of conduct and can be confident that the lender treats regulated and non-regulated business in the same way. Now when it comes to applying for a bridging loan, you have the option to either go for dual representation or sole representation. If you select sole legal representation, the first thing the lender’s solicitor will do is write to the borrower’s solicitor and ask for a 22 | NACFB

written undertaking that the borrower will cover all the costs for the lender and just that process could take three to four weeks. Dual representation is where the same experienced solicitor acts for both the customer and the lender. When speed is of the absolute necessity, which it often is with a bridging loan, this is the option I would personally go for. At Precise Mortgages, dual representation is used in around 90% of the cases we deal with. To give you an idea of how much quicker it can be to use dual representation, we can complete a bridging application in as little as two weeks, as long as all the paperwork is complete and correct. If the case is urgent and the borrower pays for valuations and dual representation at the same time, the legal work could be completed by the time the valuation comes back, which is roughly three to four days on average. But don’t just take my word for it. At Precise Mortgages we have access to a panel of expert bridging solicitors, so I asked Jodi Lund from JMW Solicitors to share her professional opinion for brokers to consider when tackling bridging cases. Jodi said: “It’s vital to the efficiency and speed of a bridging transaction to ensure that solicitors with an in-depth knowledge and expertise of bridging are instructed to act, whether on a separate representation basis on behalf of the lender only or on a dual representation basis on behalf of the lender and borrower in pre-approved circumstances based on outcome-focused risk analysis and managing potential conflicts.

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Dual representation is used in around 90% of the cases we deal with

“Dual representation can certainly help to provide brokers with a faster, efficient, and more cost effective method of accessing short-term finance on behalf of their clients – the borrower will be responsible for one set of legal fees, and borrowers and brokers are able to call upon one point of contact in terms of legal representation per transaction rather than dealing with multiple parties.” As with any major financial decision, there are other factors that need to be taken into consideration before making a decision, but

this is where our award-winning bridging team come in. Precise Mortgages launched bridging more than ten years ago and have the experience to help brokers place their customers’ cases. Alternatively, if you need a little more support with your application, a member of our Premier Packager Panel could help. If you’d like to find out more about how Precise Mortgages could support you with your bridging cases, please visit precisemortgages.co.uk or speak with a member of our sales team. FOR INTERMEDIARIES ONLY

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Special Feature

The long haul Efforts to avoid industry grinding to a halt

Norman Chambers Managing Director NACFB

lmost everything NACFB Members help to fund, relies in some part on road haulage services. Our clients would have no stock or building materials without lorries, and the companies and drivers that operate them. We see the vehicles that transport them daily – but they are far less often understood. The last few months have proven beyond measure just how essential road haulage is for the people and businesses of the UK. The productivity and competitiveness of our economy remains dependent upon having an efficient road haulage sector and a supporting transport infrastructure that works for all users.

The road to ruin? Data from the Road Haulage Association (RHA) demonstrates just how vital the sector is to keeping the UK moving. 89% of all goods transported by land are moved directly by road. Indeed, 98% of all food and agricultural products are transported by road freight, alongside 98% of all consumer products and machinery. More than 2.54 million people work in the haulage and logistics industry and the sector is currently the UK’s fifth largest employer – including some 600,000 goods vehicle driving licence holders. These drivers sit behind the wheel of over 493,600 commercial vehicles. Such eye-opening data points not only to an underappreciated industry, but alludes to an over-dependency on road freight, one that became all too apparent earlier this summer. Figures from the ONS show the number of people working as HGV drivers in the UK has fallen by 53,000 (16.5%) in four years, from 321,000 in 2017 to 268,000 in 2021. The number of UK nationals working in the sector fell by 42,000 people over the same period – a 15% drop. It was a real cocktail of chaos that slammed the brakes on the wheels of UK industry. No single factor shoulders all the blame, but a combination of COVID aftershocks, Brexit fallout, retiring drivers, poor working conditions, fuel panic buying, and the cost of training cruelly conspired to bring the entire sector to the brink of collapse. Such is our dependency on road freight, the economic impacts were felt almost immediately after society returned from COVID-induced hibernation. A reduction in trade with the EU drove down UK exports as driver shortages scuppered the normal functioning of trade flows. According to the ONS, exports were £1.3 billion lower in August compared to July, driven by a £600 million fall in trade with EU countries. One of Britain’s biggest ports, Felixstowe, even started turning away new shipments due to container numbers swelling on site because of poor HGV driver availability.

All in all, the RHA now estimates the UK needs an additional 100,000 HGV drivers if it is to meet current demand.

An industry in reverse It’s all too easy to be wise after the fact. To its credit, the RHA points to the repeatedly ignored warnings it shared with the government in the build-up to the HGV crisis, but in the short-term at least, there have been some measures introduced designed to help ease the backlog. The government quickly cleared the way for a visa change allowing foreign lorry drivers to work in the UK. In a bid to keep supermarket shelves stocked, temporary measures created opportunities for a potential 5,000 HGV drivers and 5,500 poultry workers to take up employment in the UK until Christmas Eve. The government has subsequently admitted that take-up had been ‘relatively limited’ before a minister finally revealed on Radio 4’s Today Programme that only 20 foreign trucker visas had been approved, with each one taking up to three weeks to process. The transport secretary also unveiled plans for HGV driving tests to be relaxed, allowing room for up to 50,000 more tests to be taken before the end of the year. Tests have been made shorter, with the reversing and the uncoupling and recoupling exercise elements entirely removed. Articulated vehicle drivers will also no longer have to get a licence for a smaller vehicle first. The government says this will allow about 20,000 more HGV tests each year, some way short of the RHA’s suggested target of 100,000. Critics say temporary visas and test changes won’t solve the problems facing the haulage industry. Many would prefer to see commitments to longer-term investment measures including training, apprenticeships, improved testing resources, and better welfare facilities for truckers.

The domino effect Speaking last month at a meeting of the Business, Energy and Industrial Strategy committee, haulage industry leaders agreed that the driver shortage is likely to last for at least another year. Duncan Buchanan, policy director at the RHA told the committee of MPs that in relation to shortages and delays its members had reported that “…things are not visibly getting better.” He shared

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The RHA now estimates the UK needs an additional 100,000 HGV drivers if it is to meet current demand

NACFB | 25

how the aforementioned short-term measures were not yet having the desired impact. “Visually, on the ground, that is not really having much of an effect,” said Buchanan, adding the government’s temporary visa scheme for foreign workers would not help alleviate supply chain issues in the run-up to Christmas. Food & Drink Federation chief executive Ian Wright acknowledged there had been some shortages but said that consumers did not need to worry. “We’re not going to run out of food,” he said, “Big red letters. Double underlined.” However, he did warn the committee to take note of the ‘terrifying’ inflation rises in some parts of the sector. “In hospitality, which is a precursor of retail, inflation is currently running somewhere between 14% and 18% – that is terrifying,” he added. Neil Carberry, chief executive of the Recruitment and Employment Confederation, said its surveys showed that there was strong demand ‘across the board’ in most sectors of the job market, which was spiking wages, and firms were taking longer to fill driving vacancies. “This is a global issue caused by a misallocation of resources caused by the pandemic which is being amplified by the new trading arrangements that we’re working under and will take a little longer to work out in the UK than other countries,” he added. It’s not just the haulage sector that is struggling to keep moving. A report from the Licensed Private Hire Car Association (LPHCA) published recently revealed that more than half of licensed mini-cab taxi drivers had not returned to the trade since the pandemic. The trade body estimated that the industry is short of 160,000 of the previously 300,000-strong workforce. Unfortunately, labour supply problems are affecting UK industries from construction and manufacturing to retail and hospitality. The CBI has warned that shortages could last for up to two years and government officials have told businesses they should use British workers, including those coming off furlough, rather than expect further rules to change to temporarily allow in EU workers who had filled these positions in the past. For those SMEs lucky enough to still maintain drivers in their employ, concern over the very vehicles they’re steering is now on the horizon. NatWest’s Dave Furnival explained: “We’re seeing issues around lead 26 | NACFB

times on assets. If you’re a haulier right now, for example, it’s taking between 12 months to two years to get a truck. Something similar is happening in construction with plant. JCB’s order book is already full for next year, so it’s looking at 2023.”

Changing lanes In truth, standing firm and waiting for shortages to solve themselves is not the way to run an economy. The UK needs to simultaneously address short-term economic needs whilst implementing longer-term economic reform – no easy task. UK driver shortages are just the visible and immediately impactful manifestation of the current shortages we face, but what we have in plentiful supply, is expertise. This includes the collective insight, knowledge, and experience of the NACFB’s growing network of intermediaries who have the tenacity to secure the finance that is needed to help the UK and particularly its SMEs ride the storm. Battle-hardened yet agile, diversified and resilient, the Association’s commercial finance professionals remain both willing and able to carry post-pandemic momentum and face the next crisis alongside their clients. Through the intermediary route to market, millions of SMEs survived the static and stationary depths of lockdown immobility. Now, the challenge we face is one of keeping the wheels of industry turning. On both counts, our membership is proving just how seriously it takes the responsibility of Moving Britain Forward.

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If you’re a haulier right now, for example, it’s taking between 12 months to two years to get a truck

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Special Feature

An ‘unreliable boyfriend’? Rate rises are coming Josh Levy CEO Ultimate Finance

fter weeks of clear signals from the Bank of England, and Governor Andrew Bailey, that it would increase its official interest rate, November saw a surprise decision to keep rates at the all-time low of 0.1%. This has revived the phrase ‘unreliable boyfriend’, previously used to describe Bailey’s predecessor, Mark Carney, who was often accused of failing to turn tough signals on interest rate moves into action. However, the Bank has made it very clear that rates are moving upwards to combat inflationary pressures and it is just a matter of timing, reaffirming that if economic conditions develop as anticipated, “it would be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target.” What is behind this and what is the likely impact on businesses and the commercial finance market? The pandemic shock has triggered a global mismatch in supply and demand for raw materials, manufactured goods, and logistics. The labour market has also been severely disrupted in industries such as hospitality and transport. This supply-demand imbalance, coupled with complex supply chains that stalled in 2020 and have struggled to bounce back quickly, has caused a resurgence of inflationary pressure. The concern is imported inflation feeding into consumer price and wage inflation, although many believe these pressures are transient 28 | NACFB

and will be resolved as global supply bottlenecks loosen. The justification for not increasing rates in November was labour market uncertainty following the end of the furlough scheme, but with early employment data remaining positive, a December rate increase looks highly likely. Consumers will be impacted, with the mortgage market already seeing rising interest rates with some cheap fixed-rate deals withdrawn. Undoubtedly businesses will be impacted too, by higher interest rates, higher inflation, or both. But despite declarations of the end of the era of ‘ultra-cheap’ finance, it’s important to contextualise. The pre-pandemic rate of 0.75% was only marginally above the then all-time record low of 0.5%. The economy remains fragile and even the most ‘hawkish’ economic commentators do not expect or advocate rates going beyond this level in the next 12 months – any increases will be slow and steady. By all historic measures, we will still be operating in a low-rate environment and whilst businesses are carrying significant debt balances, the cost of servicing this debt won’t substantially change. In highly competitive commercial finance markets, there is no imminent prospect of lenders meaningfully increasing prices. The bigger challenge for businesses will remain what the Federation of Small Businesses has described as the “autumn storm” of rising taxes, escalating costs, staff shortages, and supply disruption. Monetary policy alone cannot fix this, and businesses will rightly be worried about the Government’s increasingly hostile tone. The Bank of England may not be the only ‘unreliable boyfriend’ this winter…

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A Net Zero future? Our role in averting a climate catastrophe Keith Softly Head of Commercial Banking Intermediaries Lloyds Bank

MEs will be essential in the UK’s transition to Net Zero carbon emissions, and they are keen to play their part. But they need more help.

The Government target of reaching Net Zero carbon emissions by 2050 is one of the biggest challenges faced by businesses in a generation. Firms will need to examine every aspect of their operations from supply chains to property energy efficiency and their use of transport, to play their part in reaching the target. To better understand the scale of the challenge faced by SMEs, Lloyds Bank surveyed more than 1,000 SME leaders across the UK and held several in-depth interviews with sustainability experts and businesses to hear their hopes and concerns. The findings in our special report From Now to Net Zero: A Practical Guide for SMEs, are uplifting, but also highlight the difficulties and frustrations felt by many firms. SMEs are eager to play a part in the road to sustainability. Most (74%) are aware of the Net Zero target and an even greater proportion (89%) see sustainability as important to their business. But unfortunately, 40% of businesses said they did not know what Net Zero would mean for their business in practice. Factors motivating SMEs to make changes ranged from cultural 30 | NACFB

change and shifts in public opinion, to regulation, commercial opportunity, and the need to attract and retain employees. A journey to Net Zero can create new opportunities to thrive and grow and increasingly change will come from within, as employees at all levels increasingly expect and deliver action on sustainability. Talking to SMEs revealed three principal areas where they faced a challenge around sustainability. • Financial barriers – Finding the capital to invest in sustainability initiatives and uncertainty about whether such investment would deliver real returns. • Limited control – How can they act to reduce emissions outside their own direct operations – for example in supply chains? • Assessing their environmental impact – This remains logistically difficult and quite complex.

Key stages on the journey to Net Zero From getting started, to being a net hero, these key stages reflect the day-to-day experiences of firms on a sustainability journey. Having a clear understanding of the stage they are at, will help businesses of any size to consider what next? And to move along their sustainability journey.

1 . Getting started These businesses recognise the benefits of sustainability to their commercial success and preparing for the future but are also facing barriers to action – most likely around knowledge, control, finance, and time.

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Factors motivating SMEs to make changes ranged from cultural change and shifts in public opinion, to regulation, commercial opportunity, and the need to attract and retain employees

2. Short-term wins and employee engagement Many will have already taken decisive steps towards sustainability, aiming for quick wins and seeking to engage staff in a sustainable culture. They are likely to have implemented initiatives that are aimed at achieving rapid commercial gains through cost savings and quick reductions in carbon footprint.

3. Measure, mobilise, and monitor Measuring and assessing their current environmental impact and putting in place a system to monitor progress is the most fundamental driver of long-term sustained change. They are measuring their carbon footprint and setting objectives to reduce it.

4. Navigating the road ahead These businesses have made a commitment to Net Zero, have a clear roadmap, established clear targets, and are measuring and monitoring their progress.

5. Heroes of Net Zero Businesses are making significant commercial decisions and investment in line with their sustainability goals. They are often

at Net Zero or very nearly there. They are motivated to help others on their sustainability journey and champion it as a part of their success story. Every business is on its own personal journey to Net Zero. Those that ignore the issue, risk being left behind and will ultimately find their business cannot survive; those that embrace can turn sustainability into a commercial gain, delivering a competitive edge over less proactive rivals, enhancing their reputation, and potentially discovering whole new opportunities for business expansion.

How Lloyds Bank can help Our report, From Now to Net Zero: A Practical Guide for SMEs, brings together the findings from our wide-ranging research and our proposals for where further action is needed from the authorities and other stakeholders. It is a practical guide, offering relatable entry points for firms at every stage, including links to a wealth of data resources and digital tools to allow SMEs to turn their sustainability ambitions into action. Read our report at lloydsbank.com/business/ resource-centre/insight/sme-journey-to-net-zero.html Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under Registration Number 119278. NACFB | 31

Special Feature

Back on track Borrowing to grow, not just survive Colin Goldstein Commercial Growth Director iwoca

he world is settling into a new rhythm; the furlough scheme has ended, the Recovery Loan Scheme has been extended, and all businesses across the globe are determined to re-establish themselves as they emerge from the turbulence. And finally – as our Q3 SME Expert Index findings suggest – growth is on the cards. The Q3 SME Expert Index is based on insight from UK brokers who collectively submitted over 1,000 applications for unsecured finance on behalf of their SME clients over a four-week period in August. It’s the third edition of the index and is designed to explore the small business borrowing landscape, and how this changes over time.

Borrowing for growth The Q3 results suggest a promising trend with small business owners becoming more optimistic about economic conditions for growth. Over a third (35%) of brokers told us that ‘growing the business’ was the top reason cited by SMEs accessing finance – a 12 percentage point increase from the previous quarter, which puts growth into top place for Q3’s most common loan purpose. This meant ‘managing day-to-day cashflow’ – having been the top motivator for SMEs applying for finance in both Q1 and Q2 – was overtaken for the first time this year, dropping by six percentage points. There was also a decline in the number of SMEs citing ‘recovery from lockdown or closure’ or to ‘bridge occasional cashflow gaps’ as a reason for needing finance.

Growing demand The findings indicate a rise in requests for unsecured finance: a third (33%) of brokers told us they’d submitted more lending 32 | NACFB

applications for unsecured finance compared to the four weeks prior. When combined with the loan purpose trend I have mentioned already, it’s clear that more and more businesses are looking to finance growth. What’s more – with increased demand for unsecured finance comes increased demand for government-backed loans. Since our Q2 edition, many more banks and fintechs have received accreditation for the Recovery Loan Scheme (RLS) – including alternative lenders like iwoca. And our recent results reflect this: in Q2 only 20% of brokers opted to apply to accredited RLS lenders on behalf of their clients, with the majority choosing instead to wait for more lenders to be accredited or apply for non-governmentbacked products. In Q3, 75% of brokers chose to apply to RLS accredited lenders. Appetite for RLS is growing; nearly 40% of brokers saw client demand for the scheme increase in Q3 compared to Q2. And one in seven brokers (14%) saw demand increase significantly – submitting 50% or more applications compared to the previous four weeks. As this data was captured prior to the scheme’s extension, it acts as a good indicator that the subsequent extension is welcomed by small businesses, brokers, and lenders alike. We’ve spoken to brokers across the country about the Q3 SME Expert Index results, and the shift they show in SME borrowing behaviour. One of our broker partners – Sam Jones from NGI Finance – sums up the story behind the data nicely: “Growth now seems to be the main driver for our clients: they’ve made it through all the lockdowns and the furlough scheme has ended, so they’re now in a position to regroup and plan ahead with a more positive mindset on how their businesses will perform. Growth inevitably costs, so using external finance to fund that keeps SME owners in control of their businesses and allows them to stay on top of the all-important cashflow.” It’s great to hear from brokers that the small businesses they work with are beginning to feel more confident about their future, and – as Sam suggests – access to external finance will be key to support this.

Get cash flow back on track Asset refinance is a fast way to release the value held in capital equipment. Our team understand the value of business’ assets, so if your customers are looking for a cash injection, our team of experts are here to help. Take control of cash flow with Close Brothers Business Finance. Speak to our team today.

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Special Feature

Incentivising growth What SMEs need to consider in 2021 and beyond Dave Furnival Head of Broker NatWest

manufacturing and agriculture, should. According to The Resolution Foundation, plant and machinery represents approximately a sixth of the UK’s overall investment spending. Should this figure increase?

Improving emissions and moving towards net zero Laura Capper Head of Sectors Lombard

As all eyes turned to the UN Climate Conference and its legacy, there was a renewed focus on sustainable investment. Increasingly, businesses are aiming to reduce emissions in line with the Paris Agreement. We think there is an opportunity for businesses to invest in a variety of assets to reduce their carbon footprint and qualify for additional tax relief. Lombard provides asset finance that could help businesses acquire renewable assets or upgrade existing equipment such as solar panels, electric vehicles, and LED lighting systems to be more energy efficient. Such investment also helps a business use sustainability to win customers and engage tomorrow’s generation of the workforce.

ollowing the Autumn Budget, we wanted to take a closer look at both the super-deduction and the Annual Investment Allowance. Are the tax incentives working as hoped? Have they encouraged businesses to invest and increase productivity? And what remaining options are there?

Investing in assets after Brexit

Amid the challenges facing businesses this year, including global supply chain issues and the rising cost of raw materials, take-up of tax reliefs for the purchase of qualifying assets has been perhaps lower than government expected. So, to encourage businesses to invest further, chancellor Rishi Sunak announced in his recent Budget the extension of the £1 million Annual Investment Allowance (AIA) to March 2023. It was initially scheduled to end in December but is now in alignment with the end date of super-deduction tax.

As the labour market adapts post-Brexit, we are seeing sectors such as agriculture and manufacturing increase investment in automation, when before they may have relied on manual labour. The combination of incentives and the tax relief not only supports this shift, they create opportunities for businesses to find ways of becoming more efficient, and rises in the ‘national living wage’, as well as wage inflation across the UK, only makes automation a more urgent consideration.

While they may not be a silver bullet, it’s worth recapping what these measures mean for business, and how brokers can engage them in key areas.

Bridging the productivity gap The government is committed to boosting business investment and, by extension, productivity. Our view is that not every business needs to invest in plant and machinery to increase productivity – the UK is predominantly service-based – but some sectors, such as 34 | NACFB

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Plant and machinery represents approximately a sixth of the UK’s overall investment spending

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Industry Insight

Slow but solid CBI tracks growth among SME manufacturers Alpesh Paleja Lead Economist CBI

utput volumes among manufacturing SMEs saw slower growth in the three months to October, while fears that labour and materials shortages could impact future production hit an all-time high. These are the main findings of the CBI’s latest quarterly SME Trends Survey which provides both insight into business conditions for smaller manufacturing firms and a powerful early signal to inform forecasts of the economic outlook of the UK's manufacturing sector. It is a supplement to the Industrial Trends survey, the longest running and most influential manufacturing survey in the UK. The CBI’s latest SME Trends Survey – completed by 249 companies – shows that growth slowed over the past three months, following July’s record rise in output. However, growth remains solid in comparison to the long run average and is also expected to pick up again in the coming quarter. Total new orders growth also remained firm despite easing on last quarter’s record-high rate, reflecting an easing in both domestic and export orders growth. SME manufacturers expect total new orders growth to be maintained at a similar pace next quarter. The three months to October saw further strong growth in firms’ headcounts, despite the rate slowing slightly from July’s record high – with expectations for headcount growth to accelerate again in the coming quarter. However, almost two-thirds of SME manufacturers reported concerns 36 | NACFB

that supply of materials/components could impact output in the next three months – the highest share on record (since 1988). Concerns over the availability of skilled labour (46%) and other labour (25%) were also higher than at any other time in the survey data’s 33-year history. Firms reported that growth in average unit costs, domestic prices, and export prices in the three months to October sped up to their quickest on record, and growth in all three is expected to accelerate further next quarter. Elsewhere, business sentiment was broadly flat after having grown rapidly in the past two quarters. Investment intentions for the year ahead softened somewhat on the previous quarter, but generally remained strong. It looks as if the optimism of summer has given way to an uncertain autumn for SMEs in the manufacturing sector, as firms struggle with persistent supply challenges and acute cost and price pressures. It has been encouraging to see the Government recognise the issues facing businesses and begin to take action to address supply chain issues and skills shortages. Creation of the new supply chain taskforce is a welcome step, and crucially utilises expertise in understanding and addressing these challenges. Business and government working together is the best way to restore momentum to the UK recovery, and move towards building the high-wage, high-skill, high-investment, high-productivity economy that we all want to see. The full results of the SME Trends Survey together with its parent publication, the Industrial Trends Survey, can be found at cbi.org.uk

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Industry Insight

Milking the opportunity Cattle finance that is both seen and herd Jon Hercman Head of Agriculture Haydock Finance

he UK dairy industry plays a vital role in feeding the nation and accounted for 16.4% of last year’s total agricultural output. It is also a sector that is no stranger to challenges, some of which have arisen from shifts in demand and price fluctuations. We launched our agriculture division in September 2020 with the aim of providing financial solutions tailored to the requirements of farmers and identifying new opportunities to better support them. Over the last 12 months this sales channel has grown and significantly strengthened its position in the broker introduced agriculture finance market. With approximately 8,000 dairy farmers in the UK, we wanted to develop a solution that would support them through the market challenges. Acknowledging that a dairy farmer’s most valuable asset is often their herd, our new product enables farmers to increase their herd size through new purchases as well as leverage against their existing herd to invest in the business and to drive higher returns. It is the ability to refinance a farmer’s existing herd that makes our product truly unique. It has been developed to recognise the characteristics of cattle and their financial value which allows us to release cash to farmers for any business purpose, not just the purchase of more cattle. Furthermore, our product is available to owner occupiers and tenant farmers alike. 38 | NACFB

We rolled out our new product offering to over 50 broker partners via an online webinar in October 2021 where I was joined by our CEO John Jenkins, sales director Andy Taylor, and our senior agriculture underwriter, Vanessa Burger. Under refinance we will release up to 75% of the value of a herd. Our minimum facility size is £15,000 with a maximum facility size of £500,000. This means that we can support both small and large farmers. To date we have seen a wide range of proposals for the refinance of dairy cattle and have paid out a good number of deals. The feedback we have received from brokers has been great. Since launching this new product, we were thrilled to work with our broker partner Allan James Financial Services and assist their client with the refinance of 90 dairy cows. The deal raised £95,000 which enabled the family run business to proceed with their expansion plans and purchase additional cows.

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Our new product enables farmers to increase their herd size through new purchases as well as leverage against their existing herd to invest in the business and to drive higher returns

In addition to funding dairy cattle, Haydock funds a wide range of other business assets commonly found on farms. Recent assets funded include the refinance of a 2015 combine harvester to a tenanted farm business who wished to invest in other areas of the business. We also supported the refinance (sale and HP back) of a flower scanning, cutting, and bunching production line to one of the largest cut flower producers in the UK which supplies many major

retailers. The capital raised was used to support the expansion of the business which has seen an increase in demand from retailers for domestic flower supply resulting from COVID and Brexit. Going forward we will continue to develop new products and grow our proposition in the sector. Dairy cattle finance is the first significant step in this journey.

Industry Insight

Face-to-face The importance of relationship building Damien Druce Director Black & White Bridging

n the wake of the hugely successful NACFB Commercial Finance Expo held at the end of September, I was reminded just how much we have missed face-to-face personal relationships in the lending sector during the pandemic. There was definitely a feeling of being let out of a long school detention and the relief of re-joining our classmates in the world outside. I don’t need rose-tinted spectacles to describe what was an almost joyful vibe during the day with plenty of backslapping for old friends and animated conversations with those on first acquaintance. It also showed that while we are all grateful for the technology which allowed us to meet and converse online, there is no substitute for the world of face-to-face contact and is why I believe passionately that expos are so important, not only for the information gained, but for the validation that networking with our peers can provide. The lending business is essentially a people business and, while today we believe we are particularly sophisticated via our technology, it is worth reiterating the vital nature of the relationships that make businesses like ours successful. Good communication and partner engagement remain essential in the forging of strong relationships within the specialist lending arena. For lenders and service providers, including Black & White, exhibiting at the NACFB Expo afforded us the opportunity, not only to speak to brokers, but more importantly, to listen to them. Crucially, the listening 40 | NACFB

helped us to build a better picture of what is required on the front line. It is fair to say that all providers need to get closer to brokers and face-to-face discussions can help, particularly when explaining true headline rates and service levels. For example, we’ve all read about bridging deals which have completed within hours, but brokers need to know that these transactions are the exception rather than the rule. Thankfully, strong relationships have long formed the backbone of this particular sector and it is a real positive not only to see these continue to flourish, but also to observe such passion in the championing of the benefits attached to short-term finance, as well as professional standards being raised across the board. All of which bodes well for the year ahead and for even more positive statistical data to emerge. The pandemic has certainly shown us that there is a long-term place for technology which allows us to communicate with colleagues and customers and I like most, am grateful for it. However, having the opportunity to exhibit at the NACFB Expo and other events has reminded me that to start, build, and nurture relationships still, undoubtedly requires face-to-face contact.

“

...to start, build, and nurture relationships still, undoubtedly requires face-to-face contact

Industry Insight

In the moment SMEs trust brokers to get alternative finance delivered Gemma Wright Managing Director for Yorkshire & North East Reward Finance Group

ccording to the Federation of Small Businesses (FSB), there were more than six million SMEs operating in the UK in 2020, representing 99% of all business.

Research by the British Business Bank shows that at the start of 2021 more than a fifth (21%) of UK businesses were confident that they would grow throughout the year. This positivity was more prevalent amongst SMEs, possibly because their size allows them to respond faster and with greater agility than their larger counterparts. Arguably, helping them to grow has been one of the biggest challenges we have seen because, whilst the businesses themselves are agile and willing to adapt and flex, they sometimes struggle to find a funding partner which can do the same. For the majority of our SME clients, the funding requirement is not usually too complicated; a business needs to borrow money to either navigate through a difficult patch, take advantage of an opportunity, or to simply provide them with the working capital to grow. Whatever the reason for the funding, whether acquisitions, asset purchases, MBOs/MBIs or just plugging an imminent cash gap, what is critical is that these businesses cannot afford to miss the moment. Timing is often the most important thing a business owner must navigate. One of the biggest frustrations we are currently hearing from SMEs, is that uncertainty in the lending market is making them miss these crucial milestones. Business owners need both clarity and confidence from their funders. At Reward, we talk a lot about speed of delivery but arguably what SMEs also need, right now, is certainty of delivery, and we are 42 | NACFB

immensely proud of our performance in both these areas. A fast decision is only valuable if you then deliver on it, and all too many businesses are being let down at the eleventh hour. This means they must quickly change direction or worse still, they miss the moment. For an increasing number of businesses, this confidence simply cannot come from the more traditional lenders and navigating through the mass of other funders vying for their attention isn’t something a typical business owner has the time to do. Historically, a bank manager was the owner’s confidant and sounding board, but those relationships have gone the same way as the traditional lenders’ appetite. Right now, a new trend is emerging, one in which SMEs looking for finance are building stronger relationships with the intermediary and adviser community. More than ever before, they are looking to brokers to help get the much-needed finance delivered. And if it is delivered quickly, even better. These relationships have become invaluable in helping SMEs navigate through this changing landscape and find the alternatives that are out there. This is why we work so closely with our introducers at the NACFB to source the right funding solutions for our clients. I am confident that there is still the right support for SMEs, the biggest challenge currently is making sure they know where it is.

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A fast decision is only valuable if you then deliver on it, and all too many businesses are being let down at the eleventh hour

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Broker Voice

Where thereʼs a will thereʼs a way Creative asset finance, a route to recovery

Simon Knowler Managing Director Direct Asset Finance

e have learnt over the last year that you can never fully predict what the future will hold and that it’s wise to expect the unexpected.

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Asset finance can play a key role to help businesses maintain some essential cash headroom over the coming months

Resilience is key on two fronts: within the business – not being overly dependent on any one market, customer, or supplier; and, within the owner – the mental resilience to withstand shock, adapt, and maintain a positive mindset. We have witnessed this entrepreneurial mindset at its best throughout this year and last, as SME owners have adapted, pivoted, managed risk, and sought out new opportunities. The latest Global Innovation Index 2020 published by Cornell University, INSEAD and WIPO, which ranks the UK as one of the most entrepreneurial countries in the world, examines who will finance innovation. It highlights that whilst the sheer scale of the COVID-19 crisis could mean financial resources remain constrained and risk aversion high for some time to come, equally every crisis brings “...new opportunities and room for creative disruption”. From direct discussions that we have had with business owners over the last few weeks, many are now seeing the next few months as a real crunch time – a triple whammy effect of business recovery and income not yet back to where it was pre-COVID, Government support packages starting to tail off, and inflationary pressures on input costs with disruption to supply chains from both COVID and Brexit and wage price pressures. These pressures are echoed in the Q1 2021 survey results published by Close Brothers Asset Finance with 56% of UK SME business owners voicing concern about the impact Brexit is having on their normal trading and 75% feeling some degree of stress about current cashflow in the business. Despite this, many are investing to build resilience in their business and future-proof; 24% are investing more in business assets as a result of the pandemic and 58% plan to seek additional finance for business investment over the next 12 months. Asset finance can play a key role to help businesses maintain some essential cash headroom over the coming months. Providing creative solutions to help business owners weather the storm of continued instability and resolve the tension between the current pressure on costs and margins and the need to continue to invest to future-proof their business. Many businesses will have taken on debt through the government CBIL, Bounce Back or Recovery Loan schemes over the last year;

however, many have found themselves financially stranded. As Ed Molyneux, CEO of FreeAgent recently stated: “It’s our small business entrepreneurs who will have the agility to respond to the demands and the opportunities of a post-COVID world. Until that world arrives we need to provide them with the right levels of support, otherwise they won’t be around to help us recover.” By financing new assets, or re-financing existing assets, businesses can steady their cashflow and free up working capital to invest in the long-term revenue stream of the business, helping to offset current cost pressures and continued trading uncertainty. We see ourselves as problem-solvers and through our interactions with clients over recent months, have identified opportunities to use asset finance creatively to help SMEs unlock working capital and overcome new challenges caused by COVID-19 and post-Brexit trading conditions. A transport and logistics company, whose key sectors include aerospace and events and exhibitions was forced to downsize its fleet during the pandemic due to reduced demand. We helped the business use asset refinancing to raise additional capital from its remaining fleet, settle existing debt agreements, and provide working capital to rebuild capacity. An established plant and equipment company was looking to source a new specialist trailer from Holland. Whilst we have successfully financed similar assets for the company previously, due to post-Brexit arrangements, funders were reluctant to provide financing without the asset in the country. This forced a rethink. Through refinancing an existing asset, we released sufficient working capital to enable the business owner to purchase the trailer and import to the UK, following which we refinanced the new asset, returning working capital to the business. As the old saying goes, where there’s a will there’s a way. When a business owner needs to invest to build capacity, build resilience, and fulfil new opportunities, we pride ourselves in exploring all options to find a way to accomplish it regardless of obstacles. NACFB | 45

Opinion

Commercially sound EPC targets for rented commercial properties Richard Kirby BSC, MRICS Director Anderson, Wilde & Harris

to suit their needs, rather than renting a previously furnished property. The challenge presented is that often, as the tenant begins occupancy, they will install or make changes to things such as lighting, ventilation, and air conditioning, and possibly even heating. These aspects can influence the EPC rating.

n June 2021 a consultation was held to support the government’s roadmap for the UK to bring all carbon emissions to net zero by 2050. Landlords, tenants, and local authorities in England and Wales were among those invited to take part.

As landlords are required to ensure that the EPC is a given level before they are legally allowed to rent it, the concern is that the landlord may need to have work carried out to meet the required EPC level, only to have the tenant remove them again immediately as part of their fitout.

If nothing changes, minimum energy efficiency standards (MEES) compliance will require all non-domestic private rented properties to have an energy performance certificate (EPC) level C by 1st April 2027 and a level B by 1st April 2030. Currently, they are required to have EPC level E. Using these staggered milestones allows landlords and tenants to work together to achieve these targets, where it is cost effective to do so. Exemptions can be applied for in certain circumstances, but failure to meet these EPC levels without an exemption would lead to fines being levied.

Alternatively, pre-tenancy agreements that stipulate that the tenant pays for the fitout before legally becoming a tenant are not always popular. The level of risk that these kinds of agreements carry for the prospective tenants is not one that everyone is comfortable with.

The government is expected to publish a response to the consultation towards the end of this year, so it will be interesting to see what is changed. While there does seem to be support for these proposed regulatory changes from many in the private rented sector, there are some key areas of concern that have been raised. Due to conflicting guidance, there is an element of uncertainty around how the updated EPC regulations will affect listed buildings. To make things clearer for everyone, the consultation proposes to make it a requirement for all tenanted listed buildings, and those in conservation areas, to require an EPC, with the ability to apply for relevant exemptions. Another item being addressed is properties which are rented in a shell and core state. Retail, office, and certain industrial sectors often rent buildings in this way, where a tenant will want to furnish the building 46 | NACFB

In addition to the above there are other areas that the consultation discusses. One of the main things to take away from it though is that landlords and tenants will need to work together towards a common goal. Otherwise, it may be difficult to achieve the required EPC levels. Naturally, each party will bear certain responsibilities. Without cooperation, particularly for buildings where tenants make significant changes during their fitout, achieving the net zero carbon emissions target will become impossible.

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MEES compliance will require all non-domestic private rented properties to have an EPC level C by 1st April 2027 and a level B by 1st April 2030

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Opinion

The hidden value of IP Lending against intangible assets Jim Davies Corporate Finance Partner & Valuation Specialist FRP

n his most recent Budget, chancellor Rishi Sunak outlined the need for a new post-COVID economy, fit for an ‘age of optimism’. If the UK economy is to truly become fit for the future, at a time when innovation and knowledge increasingly drive growth, the funding landscape will have to change in order to support our most entrepreneurial businesses. Indeed, a recent report by the British Business Bank (BBB) pointed out the scarcity of traditional funding options available to UK SMEs whose asset bases are largely intangible, or knowledge-based. As such, businesses with limited physical assets but significant growth potential – from R&D-led tech start-ups to those with strong consumer brands or content IP – face a challenging environment in which to excel. Of course, there is significant private capital for these firms to tap into; however, this often requires them to concede considerable equity or take on greater burden to finance their debt. Fortunately, the next logical step – lobbying traditional lenders to improve their understanding of intellectual property as a security option – is in progress, both via the BBB and Intellectual Property Office. They are being assisted by data that evidences that SMEs with high-quality IP have, on average, lower default rates. Among the key challenges to overcome is the issue of valuation of IP assets, and the practical realisation of that value. Lenders are naturally reluctant to invest where value is uncertain and there is little in the way of clear and transparent liquidity. 48 | NACFB

However, approaches to valuation are maturing; making a stronger case than ever for lenders to help those firms with intangible assets to accelerate their growth. With increasing deal flow to brand acquisition groups and other IP consolidators, and greater sophistication in projecting IP income streams, both market and income-based valuations are becoming more robust. Equally, we are seeing new ways in which lenders can consistently realise value in the event of a business in their portfolio defaulting. All this points to an increasing need for commercial finance brokers to consider and advise their clients as to how best they can tap into this developing market. Patenting and securing IP, for example, can be expensive. However, if it is likely to support them in developing a relationship with a traditional lender, then now would be an opportune moment to do so. Underpinning this of course, is understanding the value of businesses themselves. Knowing their potential worth based on the quality of their intangible assets could be the key to sourcing finance, unlocking growth, and contributing to a more innovative, knowledge-based economy in the future.

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Lenders are naturally reluctant to invest where value is uncertain and there is little in the way of clear and transparent liquidity

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Real world lending 0800 470 0430 www.assetzcapital.co.uk/introduce/rls Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes. Assetz Capital also offers Recovery Loan Scheme (“RLS”) loans to corporate borrowers through Assetz Capital Lending Limited. Assetz Capital Lending Limited is a company registered in England and Wales with company number 12632494. Assetz Capital Lending Limited is not authorised or regulated by the Financial Conduct Authority. Assetz Capital Lending Limited is registered with the Office of the Information Commissioner (Reg No: ZA759694) for data protection purposes.

Opinion

Lending excellence 2021 WINNERS

The winners of the NACFB Patron Awards 2021

he NACFB Patron Awards is always hotly contested, and this year was, perhaps more competitive than ever before, as 63 firms vied for a coveted title from across multiple categories.

BDM Team of the Year

Rising Star of the Year

Winner: Allica Bank Highly commended: Cambridge & Counties Bank

Winner: Kara Williams – Together Highly commended: Naomi Campion – Bibby Financial Services

The process began back in the summer when all NACFB Patrons were invited to submit their entries. After long deliberation and some lively discussions, a shortlist was agreed and duly put out to the membership for voting. The results were then tallied and kept secret until Thursday 25th November when all was revealed at the annual NACFB Gala Dinner.

Business Bank of the Year

Short-term Lender of the Year

Winner: NatWest Highly commended: Allica Bank

Winner: Together Highly commended: United Trust Bank

Buy-to-Let Lender of the Year

Socially Responsible Lender of the Year

Commenting on the awards, Norman Chambers, managing director of the NACFB, said: “With many Patrons entering several categories and so many Members taking the time to vote, I was genuinely touched by the overwhelming response to the awards. It is clear that they are a highlight of the commercial finance calendar for both lenders and brokers.” Congratulations go not just to the winners and those who were highly commended but to all the firms who took the time to enter, and to the Members for casting their votes. Our gratitude to the organisations that sponsored an award, including PMD Business Finance, Red Flag Alert, Stonehouse Capital, Goodman Corporate Finance, Mantra Capital, Asset Finance Solutions and, Watts Commercial Finance.

Winner: Shawbrook Bank Highly commended: Keystone Property Finance and Paragon Bank

Winner: Unity Trust Bank Highly commended: CAF Bank

COVID Response Award

Industry Supplier of the Year

Winner: Funding Circle Highly commended: United Trust Bank

Winner: Red Flag Alert Highly commended: Purbeck Personal Guarantee Insurance

Commercial Mortgage Lender of the Year Winner: Allica Bank Highly commended: Cambridge & Counties Bank

Development Lender of the Year Winner: Shawbrook Bank Highly commended: Aldermore Bank

Factoring & Invoice Discounter of the Year

NACFB community, we salute you.

Winner: Bibby Financial Services Highly commended: Ultimate Finance

Asset Finance Provider of the Year

Most Innovative Lender of the Year

Winner: Close Brothers Business Finance Highly commended: Aldermore Bank

Winner: Allica Bank Highly commended: Funding Circle

50 | NACFB

Specialist Lender of the Year Winner: Shawbrook Bank Highly commended: White Oak UK

Unsecured Funder of the Year Winner: Funding Circle Highly commended: iwoca

Patron of the Year Winner: Allica Bank

Significant Contribution Andy Bishop

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Listicle

ways the NACFB has supported Members in 2021

ince inception, the vision of the NACFB has been to be the professional association of choice for commercial finance brokers, to help them prosper and embrace the highest industry and regulatory standards. This vision still holds true, and we are working hard to keep it that way. Today the Association is proud to be the UK’s largest, independent trade body for brokers who arrange finance for small and medium-sized enterprises (SMEs). Never resting on our laurels, here are five ways in which we have supported our Members in 2021.

1. Events It’s been a bumper year for events with more attendees than ever before. The NACFB Commercial Finance Expo, held at the NEC Birmingham in September was probably the largest, in-person industry event of its kind with more than 130 exhibitors, 1,700 delegates and a packed programme of seminars hosted by the BBC’s Naga Munchetty. There were also two sell-out awards ceremonies celebrating excellence throughout the commercial broking and lending community, and a successful series of sector specific virtual forums designed to help brokers understand more about their clients, the sectors in which they operate, and the funding available to help them grow.

52 | NACFB

2. Compliance One of the biggest cost-saving benefits of NACFB membership, the compliance team continues to help Members uphold the highest industry and regulatory standards to ensure that their brokerages are healthy and fit for purpose. This year the Association has overhauled its minimum standards review (MSR) process with the aim of increasing standards further whilst presenting data and feedback to Members in a more friendly format. We have also welcomed two new experts to the compliance team and absorbed costs to support Members with their KYC and AML due diligence requirements through our partnership with Red Flag Alert. In addition, the team continues to deliver daily telephone and email support, and an up-to-date library of template documents.

3. Recovery Loan Scheme On the back of facilitating £6.1 billion of CBILS loans in 2020, the NACFB supported Members through the introduction of the government’s Recovery Loan Scheme with the launch of a guidance document for intermediaries and a supporting online seminar designed to address the key features and implications of the scheme. Take-up of the RLS is expected to be somewhat lower than CBILS and details on how much NACFB Member firms helped to facilitate will be released in the NACFB Broker Survey findings published in the new year.

4. Training Following the successful roll-out of the Association’s new online training platform in 2020, the NACFB has updated content and added a whole host of new courses to keep Members abreast of industry, market, business, and regulatory developments. The latest course is a bespoke training module delivered by NACFB Patron Tuscan Capital and explores the short-term property finance market. This online videobased module covers the full application process and client journey, from the valuation to the legal processes, alongside all KYC and AML requirements. All online training is delivered in bitesized chunks and is automatically logged for CPD purposes.

5. Patronage The Association boasts an ever-growing list of Patrons made up of property and asset lenders as well as invoice finance and cashflow providers. This year so far, the NACFB has welcomed 20 new Patrons with several more in the pipeline. The number of Associate Patrons has also grown from two to five, supporting Members with a range of services including: advice – corporate, HR, legal, tax, and health and safety; personal guarantee insurance, corporate credit review, repair, and monitoring; property sales guarantees for developers; and customer verification and monitoring.

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Five Minutes With

ive F Minutes with: Steve Smith Steve Smith National Sales Manager Roma Finance How do you make a difference? Share my experience and knowledge with my sales team; I have been both a successful BDM and a broker so understand what is required on both sides for a successful and fruitful relationship.

What changes do you hope to see in the ‘new normal’?

It’s all about the borrower for me; are they credible? Are the numbers viable? Location is key. Exit is crucial.

I like to think we will learn from the past; be inspired by the good we saw amongst the issues and care a little more in the ‘new normal’. On a more prosaic level, I hope people use technology to stay in touch with each other more often. I have actually built on relationships with family members overseas or miles away during the pandemic.

If you were to start your own small business, what would it sell?

Which person has inspired you the most?

Positivity. If I could bottle it and sell it, I would be a billionaire.

My grandfather. He taught me many things but manners, my work ethic and if you have the will to succeed, you invariably will. From humble beginnings, through hard work and determination, he built something substantial in this world.

In your view what are the key elements to a successful deal?

What advice do you have for the modern commercial finance broker? Know your borrower and tell the funder everything, good and bad.

What is your favourite piece of management/leadership advice? Employ people better at the job than yourself! 54 | NACFB

What is the best live music experience you’ve ever had? Probably Richard Ashcroft’s acoustic set in a small club in Birmingham although Pink on her Circus world tour was also incredible as an experience.

If you could have dinner with anyone from history, who would it be and why? Leonardo Da Vinci – so talented in art and creativity – this man developed a submarine, a helicopter and such things hundreds of years before they were made. Oh, and he painted the Mona Lisa. Genius. I would want to know how he was so far advanced for his time and where he got his concepts?

If there was an Olympics for everyday activities, in what activity would you have a good chance of winning a medal? Talking on the phone, I spend quite literally hours every day doing exactly that.

What’s happening now, that in 20 years people will look back on and laugh about? So many things, technology is advancing so rapidly. My sons laugh at me for still having a DVD and CD player! In 20 years’ time, people will find it incredible that we were still putting fossil fuels into our cars.

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Commercial Broker (NACFB Magazine) November/December 2021

Articles inside

Listicle: Supporting NACFB Members in 2021

Five minutes with

Anderson, Wilde & Harris

Direct Asset Finance: Where

Haydock Finance: Milking

Lloyds Bank: A Net Zero future?

Black & White Bridging

Reward Finance Group

CBI: Slow but solid

iwoca: Back on track

NACFB: The long haul

Membership news

Updates from the Association

Note from Norman Chambers

Hope Capital: From the

Note from headline sponsor

NACFB: More than just hot air

Precise Mortgages: Dispelling

Industry news round-up