Commercial Broker (NACFB Magazine) March 2019

Issue 68 MARCH 2019

Broker COMMERCIAL

The magazine for the National Association of Commercial Finance Brokers

24 FOS EXPANSION Strengthening the mechanisms for SMEs to resolve disputes

36 LEGAL PARTNERS Soliciting the best legal insight from the right team

​ he art of T underwriting Understanding the interwoven elements of risk

38 VULNERABLE CUSTOMERS Taking practical steps to recognise potentially vulnerable clients

42 LOAN ‘STACKING’ The fallout of simultaneous facilities from multiple lenders

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Our relationship managers are here to offer expertise and specialist advice about invoice finance and business planning. We really get to understand the nuts and bolts of your client’s business and their ambitions.

We understand that no two businesses are the same and that flexibility can help your client’s business to stay nimble. We can provide a facility that will evolve to meet business aspirations.

Putting your clients in pole position for growth.

We can offer Factoring, Invoice Discounting and Asset Based Lending, which could help you release the cash value held in your existing assets.

For more information: www.aldermore.co.uk/invoicefinance Talk to one of our Invoice Finance experts today: 0330 134 6350 FOR INTERMEDIARY USE ONLY. Aldermore Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. (Financial Services Register number: 204503). Registered Office: 1st Floor, Block B, Western House, Lynch Wood, Peterborough PE2 6FZ. Registered in England no. 947662 . AIF563-0219-100417

Contents

In this March issue NACFB News

Special Features

4 6

28-29

8 10-11 12-14

Note from Graham Toy Association enhances lead generation platform Lloyds: Sharing 2019 targets Industry news round-up Patron news

30-32 34-35

Liberis: Freeing business data securely NACFB: The art of underwriting Growth Street: Are you ahead of the curve?

Industry Insight 36-37

Philip Ross Solicitors: Choosing your legal team 38-39 Money Advice Trust:

Recognising vulnerable customers

Opinion & Commentary 40-41

24

42-43 44

Case Studies

46 48

16

49

Precise: Refurbishment Buy-to-Let 18-19 Esme: Speedy festive funding 20 Paragon: The perfect pair

50

Bathgate: The personal touch still reigns AABF: Threat of loan stacking Bridge Invest: Modelling risk factors Haydock: Enter the broker Affirmative: Balancing client and lender requirements Listicle: Five reasons to attend #CFE2019 Five minutes with: Charlotte Williams-Parker, Underwriting Team Leader

Patron Profile 22-23

33 Eastcheap | London | EC3M 1DT Kieran.Jones@nacfb.org.uk LAURA MILLS Magazine Production Assistant

Magazine@nacfb.org.uk

24-25 FOS: No cause for alarm

John Dobson: SmartSearch

KIERAN JONES Communications Manager & Editor

RUTH DUNN Magazine Advertising T 0845 0043169

Compliance Update

26

Further Information

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

NatWest: Doing a great deal for brokers

Ask the Expert

40

MACKMAN Design & Production T 01787 388038

38

mackman.co.uk

NACFB | 3

Welcome

Graham's Note

W

hen putting the content plan together for this magazine we wanted to start a series of articles that sought to explain and arguably demystify the underwriting practices being applied in our sector.

The challenge has been to agree to what level of detail we take this piece of work. The reality is that this is a subject which takes many years to learn and the really sound underwriter not only knows all the theory but has coal face experience to back up the technical knowledge. This not only enables the underwriter to make the right decisions, but also gives them the ability to explain their reasoning with some real-life examples.

Graham Toy CEO | NACFB

Some say it is more of an art form than a science and I believe that there is some truth in this. All mandate holders have their own particular approach whether it is an acronym, or piece of servicing analysis and the recommending lending manager is well advised to learn these at their earliest opportunity. From the broker’s perspective, it is likely that you will become involved in some of the due diligence to ensure that your proposal receives a smooth transition through the underwriting process. What we won’t be doing is discussing the lender risk appetite as an overlay. This, as we all know, is infinitely variable and is almost certainly one of our Members’ biggest challenges as appetites change and the number of lenders in the market continues to grow.

Another area which justifies some focus is the challenge of stacking.

What is it? How does it occur? And what are the consequences?

A valuable piece of work to make sure that all our Members are fully briefed on this recent development.

Finally, we will be sharing some feedback and guidance about vulnerable customers. Despite the significant level of attention that this cohort of borrowers has attracted, and the focus generated by the regulators, not all brokers and lenders have gripped this as comprehensively as they should. I recommend having a read of the Money Advice Trust piece which will help grow your understanding of the behaviours expected when transacting in this space.

4 | NACFB

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NACFB News

Association updates for March 2019

​Association launches enhanced lead generation platform ​NACFB unveils findsmefinance web portal as key Member benefit The NACFB has launched an enhanced online portal, findsmefinance, offering UK businesses access to the trade body’s membership of independent finance brokers.

Our free directory enables UK businesses seeking finance to simply filter their funding requirements by loan size, type and location and are then presented with a range of the Association’s commercial brokers to approach.

The lead generation platform is available to all SMEs and provides exclusive access to NACFB broker Members with the aim of offering an alternative route to finance for businesses that may have been turned away elsewhere.

All full NACFB Members are eligible to sign-up to our new platform and can do so in minutes – with approval taking less than 48-hours.

Each NACFB brokerage then has an updateable online profile listing and can monitor SME engagement through the platform via an analytical dashboard.

Commenting on the launch of the Association’s findsmefinance platform, NACFB chief executive officer, Graham Toy, said: 6 | NACFB

“Access to finance continues to be a key issue for UK businesses and we believe there is still a lack of awareness of the finance options available to SMEs.” Graham continued: “In an era when some lenders are scaling back their face-to-face operations, the modern finance broker has inherited and enhanced the role of a local bank manager.

Brokers are able to provide advice and products from a wide range of UK funders.”

NACFB Chair, Paul Goodman, said: “The Government’s bank referral scheme helped just 230 British businesses access £3.8 million of funding in its first nine months, meaning that only 2.8% of the 8,100 businesses referred through the scheme were able to draw finance. Our findsmefinance platform, powered by the NACFB, is targeting 5,000 SME searches in the first year alone.”

Paul added: “The site will seek to provide a lifeline to those left behind by providing access to a wide range of brokers, all of whom adhere to an industry recognised Code of Practice.

If a business uses a broker with the NACFB logo, they know they’ll be using a knowledgeable, experienced and trusted advisor.”

For further enquires please contact our team via findsmefinance@nacfb.org.uk NACFB brokers can register today via: findsmefinance.co.uk/join

Targeted lead generation

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helping you fund UK business Welcome to the NACFB’s targeted lead generation platform: findsmefinance UK businesses seeking finance are filtered by loan size, type and location and presented with a range of NACFB brokers Each NACFB broker has an updateable online listing and can monitor SME engagement through analytical data Register today:

findsmefinance.co.uk/join findSMEfinance is a trading style of NACFB Member Services Ltd which is authorised and regulated by the Financial Conduct Authority 734857. We are a broker, not a lender.

Note from our Sponsor

​We’re pledging £18bn to UK businesses in 2019 Andy Bishop, National Director of Business Development, discusses Lloyds Banking Group’s pledge to further support UK businesses with a commitment to lend £18 billion, and what this means for Lloyds Bank’s broker services

Andy Bishop National Director of Business Development SME Banking Lloyds Bank

A

s part of Lloyds Banking Group’s continued commitment to help Britain prosper, this announcement underlines to existing and new businesses across the country that we are committed to supporting businesses through 2019 and beyond. This £18 billion will support entrepreneurs looking to start a new business, micro-businesses seeking to scale up and small businesses considering trading internationally for the first time. It will also support established mid-sized businesses and large, multinational corporations seeking further growth.

Achievements in 2018 Throughout 2018, we demonstrated our ongoing commitment to supporting British businesses, launching initiatives such as the creation of the £500 million growth fund to help firms invest in equipment which improves their productivity, backing the Lloyds Bank Advanced Manufacturing Training Centre with an additional £5 million to help train 3,500 manufacturing apprenticeships, and also the swift creation of a £50 million fund to support small businesses within the Carillion supply chain.

8 | NACFB

Continued support through uncertainty António Horta Osório, chief executive of Lloyds Banking Group shares his vision: “In 2019, we will lend up to £18 billion to businesses across the UK. During these uncertain times, it is important that our customers have financial support and expert guidance to navigate the challenges they may face. Whatever the future brings, we will continue to support UK businesses as part of our commitment to help Britain prosper.”

What does this mean for our broker proposition?

Following a successful pilot last year, we have recently extended our broker proposition for larger businesses with turnovers up to £100 million. This announcement follows an increased demand from brokers who are now working with corporate businesses across a range of products. Initially launched through selected brokers, this extended proposition includes commission payments for overdraft and loan facilities, Invoice Finance and Asset Finance. You can find out more via your local business development manager.

We look forward to announcing further improvements to our proposition this year, including extended digital capabilities allowing for more effective communication, faster decision making as well as streamlined services for smaller deals. Lloyds Banking Group is a financial services group that incorporates a number of brands including Lloyds Bank. More information on Lloyds Banking Group can be found at lloydsbankinggroup.com

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Industry News

Industry News 3. Cases of distress rise in winter of discontent

1

Begbies Traynor’s latest Red Flag Alert reveals that the number of businesses in ‘critical’ distress leapt by a quarter to 2,200 in the fourth quarter of 2018 while those in ‘significant’ distress remained roughly flat year-on-year at 481,000. Julie Palmer, a partner at Begbies, said businesses had endured a “winter of discontent”.

5 5. FCA examining banks’ use of customer data

1. Majority of SMEs seeking new funding According to a report from Independent Growth Finance, 71% of SMEs are seeking new funding in 2019. Furthermore, 53% claimed that they had to wait a month or longer for traditional funding.

The research also found that over a quarter of business leaders (27%) expect revenues to rise by more than 10% this year.

The FCA is monitoring the ways in which banks are acquiring customers’ data and whether they are using it to get some customers to pay more for products.

The regulator has raised concerns that the banks controlling the most data could identify those customers who do not move their money when interest rates drop, and so are easy to exploit.

2. Ombudsman backlog worse since revamp

6. Scots business failures jump by fifth

A whistleblower has told the Treasury select committee that the Financial Ombudsman Service’s case backlog is ten times longer than it was before the financial complaints regulator was restructured in 2016. They added that 30,000 cases are still to reach the first stage of the complaints process, while 8,000 investigated cases are awaiting an outcome.

The number of Scottish business failures in 2018 rose 21% year-on-year, from 780 to 945, according to analysis of the latest official figures from the Accountant in Bankruptcy (AiB). It marks the highest annual figure for corporate insolvencies since 2012 and is the fourth highest level ever recorded.

2 10 | NACFB

4 4. Inexperienced lenders threaten development finance market Magnet Capital has warned that inexperienced lenders are targeting development finance as the bridging market becomes saturated. Magnet CEO and co-founder Ashley Ilsen believes some lenders don’t have the necessary expertise to operate in highly specialised development finance. Inexperienced lenders “cause problems for brokers and clients, as there ends up being as much ‘bad’ money available as ‘good’ money,” Ilsen said.

7. Corporation tax cuts to cost billions a year HMRC has calculated that plans to cut corporation tax rates will cost the public finances £6.2 billion a year. The current rate of 19% is set to be reduced to 17% in April next year, costing the public purse £5.8 billion in foregone revenues in 2020-21 and £6.2 billion the following year, according to a “ready reckoner” published by HMRC.

8. Concerns raised over ability to detect financial crises The IMF and the European Systemic Risk Board have warned that threats to the world economy could go unnoticed until too late because of flaws in the European and worldwide systems for spotting potential financial disasters.

Officials believe another crisis is ‘inevitable’, but that regulators are not yet proficient in scanning the horizon for emerging problems.

10. Appointments Assetz Capital has appointed Shami Sharma as its relationship director, tasked with helping brokers and intermediaries in London and the South East. Elsewhere, West One Loans has expanded its sales team with three new appointments: Kevin Glover, responsible for expanding its presence in the North of England; and Sharon Clarke and Pauline Rylands, who join its second charge mortgage sales team as relationship managers.

9. Small firms apprehensive about MTD switch

8

UK small firms are raising concerns about the Government’s Making Tax Digital programme. An ICAEW survey revealed that 40% of firms had no idea the change was coming while others have criticised the timing – alongside high business rates, the apprenticeship levy, late payments, rises to the minimum wage and Brexit.

10

A bank of knowledge not simply a bank of money Our support for your broker business goes beyond finance. We can connect you with the right people, with the right knowledge, to boost your clients’ businesses and help them grow.

Search: NatWest Brokers

NACFB | 11

Patron News

Arkle sees asset sector defy Brexit gloom as demand doubles

​D

ata released by specialist lender and NACFB Patron Arkle Finance shows that brisk demand for asset finance from the construction, haulage and warehousing businesses continues, despite Brexit concerns.

Investment appetite was highest among construction sector firms, which posted a 152% increase in demand for Arkle’s asset finance products. Similarly, in the haulage industry, Arkle recorded a 115% growth in finance secured against transport and logistics assets compared with 2017 lending levels.

Arkle’s lending to the gym, health and beauty, and manufacturing sectors has also grown steadily over the past three years, increasing 128%, 59% and 48% respectively across those sectors since 2016.

Lending to gyms almost doubled in 2017, posting a 96% increase on 2016 levels, before increasing by a further 16% last year.

Meanwhile Arkle’s lending to the manufacturing industry has risen consistently in the last few years, rising by 23% from 2016 to 2017, and then by a further 20% from 2017 to 2018.

New lending to all sectors increased by 14% in 2018, more than double the 6% growth achieved in 2017. Arkle Finance provides finance for SMEs across a diverse range of assets and vehicle requirements. The team specialise in asset finance on marine, aviation, and renewable energy.

Reflecting on the increased demand in the Asset sector, Daniel Bailey, managing director of Arkle Finance, said: “It’s reassuring to see how many of Britain’s SMEs continue to invest in their future by seeking finance to help them grow.

12 | NACFB

“Construction and haulage are both sectors being buffeted by Brexit uncertainty, yet our data shows that many firms in these industries are investing in new assets to keep their competitive edge.

“2018’s strong sales figures aren’t just a source of pride for Arkle’s team; they’re a statement of intent. We’re determined to play our part in helping Britain’s SMEs to grow, and to broaden our asset mix.

“While retaining a strong focus on our core, business equipmentfocussed lending, we’ve broadened our asset appetite to enable us to lend to more high performing, high potential businesses in all sectors.”

Since it was founded in 1997, Arkle Finance has grown to support more than 6,000 customers across the UK. Working with more than 150 finance brokers across the UK, it typically offers facilities from £5,000 up to £500,000 over periods ranging from 18 to 84 months.

“

​ onstruction and haulage are both C sectors being buffeted by Brexit uncertainty, yet our data shows that many firms in these industries are investing in new assets to keep their competitive edge

FUNDING THAT’S MORE ON YOUR WAVELENGTH The funding solution for growing SMEs Only by fully understanding a business’s ambitions can we provide a funding solution that’s right for its specific needs.

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Whether your clients are looking to fund growth, an acquisition (including Management Buy Outs or Buy Ins), capital expenditure or refinance existing loans we share the same goal: helping UK entrepreneurs realise their potential.

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Patron News

​White Oak UK opens new Glasgow headquarters

​N

ACFB Patron, White Oak UK, has announced the official opening of its new Glasgow headquarters. The lender has successfully relocated from Stewarton in Ayrshire and all employees have now transitioned from the former location.

The new address is: 58 Waterloo Street, Glasgow.

White Oak UK has signed a long-term lease for its office in the impressive building on Waterloo Street, which is centrally located in Glasgow’s financial district and close to all major transport hubs.

In 2018, White Oak UK arranged funding of approximately £520 million giving thousands of businesses across the UK access to business finance solutions. Additionally, the firm announced in the last year that it has passed the £1 billion mark in lending on its own book.

The decision to invest in Glasgow was driven by the city’s recent regeneration, superior business infrastructure and growing commercial profile. The firm has been actively recruiting in Glasgow and believes the city is home to a burgeoning pool of talent which it aims to tap as part of its plan to hire locally and grow organically. The Waterloo Street office is close to many of White Oak UK’s clients and houses all functions which are central to the continued success of White Oak UK’s business operations in Scotland and throughout the UK. Peter Alderson, managing director of White Oak UK, said: “The opening of our new office in Glasgow represents a significant milestone for White Oak UK in its objective to help businesses thrive while providing the highest levels of service and solutions.

Our geographic footprint perfectly reflects our commitment 14 | NACFB

to financing businesses across the UK with key offices in Wales, England and Scotland.”

White Oak UK completed approximately 14,000 deals in 2018 and the average deal size was £40,000. The firm works with thousands of businesses across a wide range of industries and sectors, many of whom are long-standing loyal clients.

Previously known as LDF, White Oak UK was acquired by White Oak Global Advisors in June 2018 and successfully rebranded in July 2018. As part of the White Oak family, this move has enabled greater investment and the introduction of new finance solutions at a time when traditional banks and finance providers are closing branches and struggling to provide businesses with the service and financing options they need to thrive.

“

​ hite Oak UK completed W approximately 14,000 deals in 2018 and the average deal size was £40,000

Supporting brokers and their customers to thrive in the long-term We see the potential for growth and provide straightforward asset finance solutions to support this.

Contact our team of experts today to discuss your latest requirements.

0330 134 6400 broker.support@closebrothers.com

Close Brothers Business Finance is a trading style of Close Brothers Limited.

Close Brothers Limited is registered in England and Wales (Company Number 00195626) and its registered oďŹƒce is 10 Crown Place, London, EC2A 4FT.

Case Study

​ etting to a lettable state G through Refurbishment Buy-to-Let ​Liza Campion Head of Key Accounts Precise Mortgages

I

magine you’re approached by a customer who’s seen a property they’d like to purchase at auction with the intention of letting it out in the future. The property is structurally sound, but needs some light refurbishment work carried out to bring it up to a habitable and rentable standard.

The property is likely to attract a lot of interest at the auction and your customer needs a solution to ensure they can buy it and carry out the renovation work quickly.

Traditionally, your customer would have struggled to secure the funds they needed to finance the project as most lenders would have declined a Buy-to-let mortgage application on the grounds that the property was not in a lettable state.

Fortunately, here at Precise Mortgages our new Refurbishment Buy-to-Let offering could provide you with a viable solution. It gives customers quick access to flexible short-term finance which enables a property to be purchased at auction and refurbished together with the security of an exit onto a long-term mortgage once the work has been completed. Landlords can borrow up to 75% LTV on the bridging element and 80% of the post-works valuation on the Buy-to-let mortgage.

Our proposition recently helped a customer achieve £40,000 net equity growth in a property in just two months, and here’s how they did it.

The customer identified a four bedroom residential property at auction which they wanted to convert to a six bedroom house and carry out some other light refurbishment work before letting it out as a house in multiple occupation.

16 | NACFB

We were able to complete the bridging element of the case in just nine working days allowing the customer to borrow £180,000 at 75% LTV to purchase the property at auction for £240,000. The customer then spent £20,000 renovating the property.

Once the refurbishment work was completed, the property was revalued at more than £300,000 and the customer was then able to exit onto a long-term Buy-to-let mortgage. The length of time taken from initial DIP to completion was just two months, including the Christmas and New Year bank holiday period.

With our Refurbishment Buy-to-Let offer, brokers benefit from a streamlined application process with a range of great features, including one application form which produces two offers and two procuration fees (one for the bridge and one for the Buy-to-let).

They also receive support from a dedicated team of expert underwriters who provide help every step of the way. Bridging rates start from just 0.49% per month and no mortgage repayments are required whilst the refurbishment works are being completed.

With landlords looking for different ways of boosting their profits and increasing rental yields and capital values, it’s suitable for a range of landlord types, including personal ownership, limited company and HMO applicants. Interest Coverage Ratio options are available to ensure brokers can tailor affordability assessments to customers’ personal circumstances.

“

​ ur proposition recently helped O a customer achieve £40,000 net equity growth in a property in just two months

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Case Study

Instant funding for when opportunity knocks Seasonal demand can bring a myriad of logistical uncertainties, the importance of lending speed and flexibility ensure a borrower’s requirements are met Simon Cureton Commercial Director Esme Loans

​E

sme prides itself on making fast decisions and, in December last year, we were delighted to assist one of our brokers in the South East with a time critical challenge.

The client, a printing company, had secured a new contract and in order to resource it they needed a £45,000 loan to hire temporary staff and purchase more stock. This was a significant contract for the printing company and so ensuring they could deliver on schedule was crucial to capitalising on this growth opportunity and securing future business from this customer.

With this in mind, the broker was concerned about finding the right lender for the company within a short timescale. As the request had come in over the Christmas period, and with a lot of people out of the office, the broker was finding it difficult to obtain indications of interest from lenders at the right rate and term for the customer.

However, by utilising Esme’s instant quoting tool they were able to get an immediate indication of appetite alongside a loan amount – subject to affordability – with a confirmed, competitive price and term. We did this through our use of automated technology and, unlike some other lenders, we can offer 100% accuracy instead of only a range of pricing and terms.

Having introduced the client to Esme and provided details of the quote, the broker simply had to answer a handful of simple questions and upload their client’s VAT returns which can be read and verified by Esme’s portal. The broker was able to complete the paperless application just 10 minutes and 71 seconds later – receiving an automatic approval. The client was delighted that the documents could then be signed online and the funds could be transferred to their account within the hour.

It is great to see an increase in the use of our automated credit capability but most importantly to be able to assist this client with a time critical lend. We know that a lot of brokers receive a standard set of financials from their client, but by providing a hassle-free way to link bank accounts, VAT returns and accountancy software, Esme is able to process applications near instantly and offer rapid delivery for both brokers and their clients.

Esme Loans is the digital lending platform where SMEs can quickly obtain unsecured business loans between £10,000 and £150,000, which can then be borrowed for up to five years and with no arrangement fees.

“

​ his was a significant T contract for the printing company and so ensuring they could deliver on schedule was crucial to capitalising on this growth opportunity and securing future business from this customer

This festive example reaffirms our belief in a simple, fast and fair approach to business funding and our dedication to making the process of applying for loans quick and hassle-free so that businesses can get on with doing what they do best.

In business luck isn’t found.

It’s made.

Turn their ideas into action. Get your clients fast, competitive business loans with no set-up fees from esme.

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Applicant must be a sole trader or director of a UK Limited Company, actively trading for at least 18 months with a minimum annual turnover of £15,000 and over 18. A personal guarantee may be required. Fees apply. © Esme Loans Limited, company number: 10411077. Registered address, 250 Bishopsgate, London, United Kingdom, EC2M 4A

NACFB | 19

Case Study

​Making the perfect pair ​Richard Doe Managing Director of Commercial Lending Paragon

​A

s a specialist lender, Paragon works with many small and medium-sized businesses across the UK. One recent case enabled our Invoice Finance team to support a historic British business following a sustained period of difficult trading.

Hosiery company Pretty Legs marks its 60th anniversary this year, but this was a celebration that it came close to never reaching when a major customer made a sudden and unexpected move to take its manufacturing overseas.

This led to a crisis for the Leicestershire-based firm – and that’s when it turned to Paragon for support.

An experienced Invoice Finance team took a close look at Pretty Legs’ business and what it found was a sound company with plenty of potential and future growth plans. There was a clear way of saving this long-standing British business with specialist advice to get it through a Company Voluntary Arrangement (CVA), flexible cashflow support and dedicated help in steering Pretty Legs through repayment plans and necessary redundancies.

Set up in 1959 in Lutterworth, Pretty Legs not only produced its own brand of tights for suppliers including Peacocks and Co-op food stores but had also diversified into hospital stockings for the NHS and flight socks.

Whilst it was once at the heart of Britain’s bustling hosiery industry, Pretty Legs was now the last one standing and the only hosiery company left in the country.

Adrian Taylor, head of invoice finance at Paragon, said: “This wasn’t a trading mistake that led to Pretty Legs’ problems but something that the business couldn’t have foreseen.

“Our support package was to see the company through a voluntary arrangement, preserve many jobs and help the business to re-establish itself in the marketplace.

20 | NACFB

“As a specialist lender, we are all about supporting British businesses and SMEs, so we feel proud to have helped a long-standing British company continue its story.”

Specialist advice and flexible cashflow support means Pretty Legs is now looking at a turnover of up to £3.5 million next year with plans to develop new sports and medical socks, and increase exports to countries like America, Pakistan, Qatar and the UAE. Richard Tudor, operations management director at Pretty Legs, said: “Paragon supported us with finance and its expertise through the CVA, helping us to keep going and to keep manufacturing in the UK, so we feel very grateful for that.

“The amount of legal and accountancy fees in a CVA are quite scary but with Paragon, I knew we could come out the other side.

“When you have a specialist lender like Paragon that is prepared to support your business, it makes a huge difference. Now we have come out the other side, we have big plans for the future. It feels good to be banging the drum for UK manufacturing from where we have come from.”

“

​ pecialist advice and S flexible cashflow support means Pretty Legs is now looking at a turnover of up to £3.5 million next year with plans to develop new sports and medical socks

MFS delivers fast bridging loans for buy-to-let purchases & refurbishments: Free valuations Funds ready to deploy Broker incentives Zero admin fees No charge for early repayment Contact our award-winning team on 020 7060 1234 to arrange a meeting with one of our Business Development Managers

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Patron Profile

​Doing a great deal for brokers ​Dave Furnival Head of Broker & Intermediary Services NatWest

I

As a bank we pride ourselves on proactively sharing our financial insights with the brokers we support, helping you to grow and diversify your product offerings to your clients. Through our networks your BDM can also introduce you to a range of subject matter experts in areas such as the Government’s Making Tax Digital initiative, to help you to better manage your business as the regulatory landscape changes.

don’t remember a time when the commercial broker sector sat still. But with a swathe of new regulatory and technological challenges, not to mention a rise in the number of lenders servicing the market, brokers are under pressure to adapt and make the most of all the new opportunities out there.

And as you’d expect, we’re continually innovating our products, online platforms and service offerings to help brokers meet the challenges of this evolving sector – whatever size they are.

Regulatory challenges are one of the key drivers of the consolidation we’re currently seeing in the market. The burden presented by GDPR compliance and the Financial Conduct Authority’s oversight of broking activity is being felt most keenly by smaller operators. It’s one of the reasons the industry has started to see these businesses form or join networks that can offer compliance support in recent months.

NatWest’s vision is to become the most trusted bank in the UK by 2020, and to continue serving our broker community with the high levels of service and expertise they’ve come to expect.

For many small firms, it can also be difficult to stay abreast of the wide range of products available from the 140 or so lenders that now service the market. And technological changes are also set to play an important role in the move towards consolidation. As online platforms grow their capability to streamline finance requests from SMEs, smaller brokers are likely to find it tougher to compete.

How we can support you and your clients At NatWest we understand that many brokers don’t have the time or the bandwidth to get their heads around all the latest regulations, which is where our UK-wide network of Broker Development Managers (BDMs) come in. They can help you understand your regulatory responsibilities, explain the implications of noncompliance and share their experiences of working with large numbers of brokers over the years.

22 | NACFB

Our aims and intentions for 2019

Our specialist and highly experienced broker team is based across mainland UK, with a purpose to build strong relationships and support to the UK SME and broker market. The team’s on hand to help NACFB Members find the products and services that are right for them and support their lending needs.

“

NatWest’s vision is to become the most trusted bank in the UK by 2020, and to continue serving our broker community with the high levels of service and expertise

“

​ any brokers don’t have the time or the bandwidth to get their heads around all M the latest regulations, which is where our UK-wide network of BDMs come in

I strongly believe that the broker-lender relationship works best when there is a shared understanding of how we can help each other to provide the best possible service and deliver on commitments.

This proactive approach is the recipe for future success, and I believe that it’s one of the reasons we’ve been voted Best Business Bank two years in a row at the NACFB Awards.

Our broker offering at a glance Here’s a few headline numbers to give you an idea of what we do: • 14 broker development managers – covering a range of sectors including leisure, manufacturing, agriculture, healthcare and real-estate finance

2. Give them the details of the deal your client is looking for.

The BDM will review the deal and if it’s workable they’ll send it to a local relationship manager (RM).

3. The RM will contact your client and arrange a meeting with them normally within 48-hours to discuss the deal and what we can do. They’ll work alongside our credit teams and we’ll have a decision for you within a maximum of seven working days.

4. If the deal is agreed it will be allocated to a centre of lending excellence. Their team will work closely with your client and all other third parties to make sure the deal is completed in good time.

5. The funds will typically be paid to your client within 75 working days or less.

• 84% of our brokers would highly recommend our BDMs. That’s according to an RBSG Advocacy Survey, based on interviews with 242 brokers voting 9/10 or above • We’re connected to over 450 brokers. Our network of professionally accredited relationship managers helped nearly 9,000 businesses in 2018

How to work with us in five easy steps

1. Contact your local dedicated BDM (search ‘NatWest Brokers’ for contact details).

Supporting the NACFB and its Members I was proud to join the NACFB Board as a Patron Director at the end of last year, and I’m confident myself and the other new Patron Directors will be able to bring knowledge and insight with our diversity of experience.

As a Patron of the NACFB, NatWest hosts and runs events that help Members achieve their required CPD hours, whilst educating them on products, processes and applications. We’ll be running many more throughout the year. To find out what we can do to help your business, search NatWest Brokers.

NACFB | 23

Compliance

​Strengthening the mechanisms for SMEs to resolve disputes ​Why the increase in the FOS compensation limit is no cause for alarm

​James Hinch Compliance Consultant NACFB Compliance

​A

pril will see the launch date of the Financial Ombudsman Service’s (FOS) extended reach embracing a cohort of SMEs so it is timely to consider some of the opinions and reactions to this regulatory tightening.

I should start by making it clear that the Association has always supported this proposal, you may remember that we canvassed our membership to ensure that the view we offered was a true reflection of those at the coal face. If we then dig deeper and consider our Mission, which is focussed on professional expertise and embracing the highest industry and regulatory standards, it is difficult to imagine why anyone would object.

The good news is that there is more that is happening on this subject. What is very encouraging is that UK Finance supported by seven initial participating banks – Barclays, CYBG, Danske Bank, HSBC UK, Lloyds Banking Group, Royal Bank of Scotland and Santander UK, want to support and extend the current initiative beyond the published criteria approved for FOS. Whilst FOS will be restricting their remit to SMEs with an annual turnover below £6.5 million and fewer than 50 employees, or an annual balance sheet below £5 million, the UK Finance plan is to not only support this extension but provide support for a broader agenda. This includes providing access to an appropriate ombudsman scheme for SMEs with a turnover of between £6.5 million and £10 million and a balance sheet up to £7.5 million demonstrating an industry commitment to supporting the establishment of a suitable ombudsman scheme for larger SMEs that meet the eligibility criteria.

24 | NACFB

These firms will be able to have their complaints reviewed and redressed through the creation of a specialist ombudsman service with the expertise and powers to address larger and more complex cases for eligible SMEs, funded by the banking and finance industry.

These criteria are in line with the findings discussed in Simon Walker’s independent review of alternative dispute resolution (ADR) for SMEs based on the Legal Services Board surveys about the threshold above which court processes ought to be accessible to businesses.

The industry believes that the natural home for the ADR mechanism for this cohort of businesses is within the framework of the FOS. However, the industry has agreed to support and fund an interim voluntary ombudsman with an aim to deliver the arrangement by September 2019 and will work with all stakeholders with input from government and regulators to develop the necessary proposals as quickly as possible. This new scheme will recommend appropriate awards for redress, which will be binding on banks up to a new higher level of £600,000 (meaning the bank cannot appeal any award up to this threshold). As with the current FOS binding award, both parties can appeal over this threshold and the SME can still go to court if it wants to pursue an award above the threshold.

Not everyone, however, appears to be on the bus. There are concerns being expressed by organisations in the commercial compliance arena, that there will be a knock-on impact on Professional Indemnity Insurance with the possibility that premiums could increase, and insurers may leave the market with entrants deterred as a consequence.

Professional Indemnity Insurance is an important component of our Member’s business and we work hard with our business partners, Towergate, to ensure that the policies deliver the most appropriate cover and that the premiums are competitive. Feedback from Towergate on this matter has confirmed that their insurers are aware of the FOS changes, but this will not have an impact in their rating

unless of course they begin to see an adverse increase in the number and size of claims paid. They are keeping a watching brief for now.

This is a far more pragmatic and commercial approach than the somewhat alarmist declaration heard from others in the industry.

As with any new initiative there are bound to be learning points as the processes and systems are tested. I am sure that the Independent Assessor of FOS will be widening her remit as the extended reach becomes business as usual so there will be transparency on how well the FOS are performing.

This initiative alone will not guarantee the highest levels of professionalism in every corner of the sector, but it will help.

It will make a contribution and ensure that all of us remember the importance of professionalism and integrity in everything that we do as we partner with SMEs on their customer journey.

“

I​ f we then dig deeper and consider our Mission, which is focussed on professional expertise and embracing the highest industry and regulatory standards, it is difficult to imagine why anyone would object

NACFB | 25

Ask the Expert

​The value of streamlining background checks

Q ​John Dobson Chief Executive Officer SmartSearch

Why is it important for brokers to conduct background checks on their clients?

Fraud and financial crime are on the rise, so it has never been more important to undertake thorough background checks on clients. The obvious benefit is to protect you and your business, but they must also be undertaken to ensure you’re complying with money laundering regulations.

Are you seeing increased demand for brokers needing to conduct due diligence checks on both individuals and businesses?

There is an increased demand for SmartSearch services across all regulated sectors. We predict this to accelerate in 2019 in preparation for the 5th Money Laundering Directive, which comes into force later this year. Electronic verification will be elevated in importance and may be mandated as the first level of verification.

With the 5th Money Laundering Directive now being implemented what changes will this bring to the market?

One of the biggest changes is the stipulation that electronic verification is used wherever possible when undertaking customer due diligence and KYC procedures. The 5th Directive also 26 | NACFB

requires member states to produce lists of PEPs and central registers of beneficial owners and introduces tougher rules on Virtual Currency Exchange Platforms and Custodian Wallet Providers.

in the industry. The sanction and PEP processes are automated to the fullest extent saving clients time and money and giving them peace of mind that their business is fully compliant at all times.

What are the key benefits of using the SmartSearch platform?

If a search highlights PEPs or sanctions warnings what actions should a broker take?

&

A

Our award-winning platform provides a cost-effective and efficient solution to comply with AML regulations. Instead of using manual checks, or multiple software platforms and documents to compile information, SmartSearch can verify individuals, companies, international businesses, beneficial owners, directors, PLCs, and a whole range of other entities, in a single platform and complete sanction and PEP checks.

What advantages do NACFB brokers have in using the SmartSearch system?

SmartSearch sets the ‘gold standard’ for AML, sanction and PEP compliance, it only uses top quality data sources you can rely on and with a dual bureau data strategy it delivers the highest match and pass rate

“

Once a PEP or sanction warning has been identified, the broker will need to carry out additional checks (enhanced due diligence).

The SmartSearch platform ensures enhanced due diligence is undertaken if PEPs or sanctions warnings are highlighted.

It has links to the best data sources available in the UK and worldwide including Experian, Equifax and Dow Jones to provide the most reliable, robust and up to date AML, PEP and sanctions information.

How can NACFB Members sign-up?

The NACFB has negotiated preferential rates for all Members, who will be invoiced quarterly based on usage.

The dedicated portal for Members to register their business can be found via smartsearchsecure.com/register/nacfb

​ here is an increased demand for SmartSearch services T across all regulated sectors. We predict this to accelerate in 2019 in preparation for the 5th Money Laundering Directive, which comes into force later this year

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Special Feature

Free your business data securely - helping SMEs to unlock faster economic growth

L​ iberis were the first to process a small business funding application via Open Banking. Here we outline the positive impact of this new financial tech on business growth and access to finance

​Jonny Hawkins Head of Data Science Liberis

A

ccessing finance can be a huge challenge for UK small businesses. Especially as the mainstream banking system has so significantly retreated from funding small businesses in recent years; with the total amount of bank overdrafts and loans outstanding to small businesses decreasing by nearly £6 billion in the past five years.

Our recent research has shown nearly 30% of UK SMEs require funding simply to stay afloat, and the most common funding request comes in at around £30,000. Limiting access to this funding can not only hinder small business growth, but negatively impact wider economic progress as a result too; so, the funding gap is most certainly an area that needs to be rectified, with ease of application and smoother processing at the highest priority. As leaders in the alternative finance space, we are keen to shine a spotlight to help drive additional support.

Open Banking is a safe and secure way to give providers access to financial information quickly and efficiently, saving time and hassle for any applying businesses. Providers can access the necessary details through collaboration with open service developers and then use the data to decentralise decision making.

The technology is allowing consumers to benefit from the data that their banks are holding on them but currently not using to provide finance. Taking control of this information – choosing when and where to share it – UK small businesses can now better benefit from the funding options available to them, ultimately fast-tracking their development and moving to bridge the current UK funding deficit.

Harnessing Open Banking technology At Liberis, we were the first in the UK to process a full small business funding application via Open Banking and have since seen the benefits to small businesses first-hand. Increased transparency, smoother form-filling, fairer credit decisions and greater growth opportunities too. And these are just the tip of the iceberg.

We can use Open Banking technology with all customers, provided they work with a compatible bank, to support the application process by gathering bank statements and revenue documentation at the click of a button. We can then use this data to price and decision the applying business appropriately.

Proving what their revenues have been can be a tougher step for small businesses than it is for single consumers applying for finance as, naturally, a consumer’s revenue is just their salary.

Small business owners however will need to speak with their business’ bank as well as their card payment processors to access

this information. Thankfully for the world of busy business owners, the use of Open Banking is now eliminating this hassle.

It will take some steps to improve this process on a wider scale as the data is less mature and less commonly dealt with. But we have already taken steps towards using the process to improve our customer journey.

At present, through our innovative Business Cash Advance, we link repayments directly to cash flow so businesses only repay when their customers pay them. And so far, every £1 of Liberis funding increases spending in the economy by over £1.50.

Understanding Open Banking technology Open Banking technology is, without a doubt, a huge milestone in the financial world. Faster application and increased access to finance is exactly what UK small businesses require, however when it comes to sharing the data required to achieve this there is, naturally, an element of initial uncertainty.

That said, since Liberis have implemented Open Banking into our funding process, we have had an extremely positive response to the evolvement. We’ve found that, largely, small businesses are comfortable sharing their data if they’re receiving something they value in return – in this case a Business Cash Advance.

Thinking more broadly, providers may need Open Banking to allow smart services – like Liberis – to work even more quickly when providing funding, products, or tools required. It’s set to notably increase small business’ access to funding; as it can take the data the banks have – and are often resistant to lend on – and bring it directly to providers that are dedicated to funding growth directly.

Data protection and security are top of the agenda for many businesses and by harnessing this technology at a time where data is more readily accessible, it is set to be an exciting time for the lending space and small businesses. The advent of Open Banking technology comes at a pivotal moment for SME funding and will fuel small business growth, ensuring fairer credit decisions and is vital for the wider UK economy.

“

​ esearch has shown nearly R 30% of UK SMEs require funding simply to stay afloat, and the most common funding request comes in at around £30,000

NACFB | 29

Special Feature

​ o lend or T not to lend: demystifying the underwriting process ​ ow greater understanding of the H underwriting process can help brokers package a better deal and tip the process in your clients’ favour Graham Toy Chief Executive Officer NACFB

W

elcome to the first in a series of articles designed to help our Members understand the underwriting process. Over the coming months we plan to produce illustrations of how you can present your cases in sufficient detail to ensure they receive a positive reaction with minimal push back and queries. But first let’s set the scene.

Whether you are a seasoned broker with decades of experience or a new entrant into the world of commercial lending, you need to be successful in achieving three key objectives.

The first objective is to delight your client with the arrangements that you have facilitated for them, the next is to secure the best relationship possible with your lender panel, and the third is that the energy that you have contributed needs to deliver for you – the broker – with a reward that justifies your effort.

Take a moment to reflect on the straplines of many NACFB Patrons.

The words fast and flexible are commonly used and are often enticing when dealing with a client’s proposal. In order to truly unlock this speed and flexibility the broker needs to provide the underwriter with the ability to exercise their discretion.

priced facilities with less onerous terms attached,” he added. John’s experience has shown him that there is further value for brokers who can adapt their advice to borrowers with practical examples of the underwriting process, in demonstrating knowledge of how this will benefit their loan.

The process of underwriting business loans can seem complicated, and there are occasions where it certainly can be. Prior to loan approval, there are many decisions a lender has to make – with many variables in play – and just navigating the process can seem overwhelming.

The journey from factfinder to finance

For modern finance professionals, developing a better understanding of the underwriting process and demystifying how key decisions are made, can help to package deals more efficiently, yield a higher conversion rate and help you go some way in meeting your objectives.

“We only put an application to a lender if we know, that on the face of it, it meets their underwriting criteria exactly,” said Peter Williams of the Oxford Funding Company.

“It is in my mind unacceptable for a broker to submit an application to be told that it doesn’t meet the lender’s criteria – or to be told that additional information is needed. Get it right and lenders value you as a business provider,” he added.

And herein lies the value, a well packaged offering most directly helps the borrower and the lender, but in turn it also benefits the broker; enhancing your reputation with all parties as a quality business partner.

Another key advantage for the broker is that of control: “It is a real benefit to the broker to understand the underwriting process.

I believe this helps me to have a real influence on the lending decisions that affect my client,” shared John Agama of Independent Banking Consultants.

The journey begins by presenting your client and their need in the most comprehensive light possible. Use your interest in your client, coupled with a natural inquisitive nature, to understand the proposal in all its dimensions – but remember that underwriters are by their nature a trifle cynical. They are not in post to prevent good business being written but they need to protect the lender’s capital and ensure facilities are agreed that are right for all concerned.

Whilst a number of mnemonics exist to help the decision-making process, adopting a logical, approach will ensure that you are naturally drawn to ask the questions which, if you don’t answer them, you can be sure the underwriter will. Your approach needs to leave no stone unturned. By taking this approach you will build a strong reputation with the underwriter and with that respect and trust will develop.

“

The creditability and thoroughness of the financial presentations are very important to an underwriter, which further endorses the importance of the broker undertaking a full fact find from the outset

Such knowledge gives brokers an edge, often resulting in “...better NACFB | 31

Answers to the following questions will almost certainly support any application: • What are the credit scores and have there been prior defaults?

• Has the lender made loans previously to this borrower?

• What is the money to be used for?

• Are there valid business reasons for the loan and how will it impact the business?

• What is the business history, and how is the industry expected to perform in the future?

• Are there business projections for the future?

• Are these projections competently prepared and are they realistic?

• What is the total debt and other liability situation? Is the business sensibly geared?

If you identify something in any element of the proposal that you don’t understand, ask your client, or their professional advisors, to explain before submitting. The creditability and thoroughness of the financial presentations are very important to an underwriter, which further endorses the importance of the broker undertaking a full fact find from the outset.

If you have managed to collect and present all this information you might want to do some stress testing and pose some ‘what if’ questioning. If you do this exercise you will be helping the underwriter come to a decision to support your deal. If you don’t, the underwriter will, because that’s the job. If you help them, 32 | NACFB

you are far more likely to receive the decision that you are seeking.

Andrew Caulfield, senior underwriter at NACFB Patron Spotcap, shared his belief that the key to approval lies within the detail: “Our technology does great work in sifting through bank accounts and financial documents, however it’s often the smaller details that make the difference between a case being approved or not.”

Some lenders will even go beyond the detail provided and step into the field themselves. Samantha Williamson, senior underwriter at Roma Finance, shared her insight: “I recently met with a customer on site to help better understand the customer’s experience, aims for the property in the local market and to see how we may help structure the funding requirements for the transaction.”

A watchful regulatory eye Since 2008 there have been efforts from the regulator that focus on quality underwriting with the aim of preventing the return of risky lending. The concerns over the quality of lender underwriting practices fall in two key areas, both at the time the loan is advanced and, where it is applicable, where the loan is extended.

“The FCA want firms to make a reasonable assessment, not just of whether the customer will repay, but also of their ability to repay affordably and without this significantly affecting their wider financial situation,” outlined NACFB compliance consultant James Hinch.

Broker adaptability Even the most well-prepared broker or business owner can overlook information critical to securing a business loan. Likewise, lenders may require more documentation if the information they have initially received does not provide enough of a picture of the borrower and the potential risks.

The broker’s role remains pivotal in educating and supporting the SME of the variables of underwriting criteria so that they can have a reasonable prospect of securing the right commercial lending facility to match their needs.

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Special Feature

​ sea change in business A lending: what introducers need to know Business lending is about to change dramatically. I want to ask a question of the UK’s introducers: are you ahead of the curve? ​Greg Carter Chief Executive Officer Growth Street

​F

or a long time, Britain’s entrepreneurs had limited options when it came to securing finance. In the year to Q1 2013, the four biggest high street banks claimed a staggering 89% of the market for business loans.

To make matters worse, the years since 2008’s financial crisis have seen the banks withdraw from the most flexible finance product – the business overdraft. Growth Street’s own research suggests that overdraft lending decreased by a startling £18 billion between 2008 and 2018.

There is hope on the horizon, though. I’m glad to say that this stagnant lending climate is undergoing profound change, with innovative non-bank lenders playing a significant part. In 2018, Funding Circle floated on the London Stock Exchange; we also saw the formation of the governing body overseeing the distribution of the £775 million Alternative Remedies Package, which I hope will further shake-up the business banking landscape. There is real appetite for something different.

One of the most profound changes to this new financial services ecosystem is the nature of the capital fuelling new lending platforms.

It’s no secret that the peer-to-peer (P2P) industry is growing quickly: as of Q1 2018, total P2P lending volumes were approaching £9 billion.

But even though the number of businesses being helped by P2P investors continues to swell, introducers may well have had reason to question whether an ‘alternative’ solution was right for their 34 | NACFB

clients. After all, how many of these new platforms were regulated by the FCA? And would their operations stand the test of time?

I think Growth Street’s latest funding round might help to answer those questions. After a year in which total loan book volume grew by 115%, and which saw us become directly authorised and regulated by the FCA, we’re delighted to announce that we’ve raised £7.5 million in a scale-up investment round led by the Merian Chrysalis Investment Company.

I think this funding round demonstrates that business lending is about to undergo another fundamental shift. Merian Chrysalis is part of Merian Global Investors, a global asset manager with a total of £34.6 billion under management. That Merian is excited to back Growth Street is an endorsement of our own ambitions as a business, but Merian’s investment also signifies that leading institutions are now taking the SME market seriously as a source of growth and innovation within financial services.

“

Even though the number of businesses being helped by P2P investors continues to swell, introducers may well have had reason to question whether an ‘alternative’ solution was right for their clients

We’ve never been shy about supporting SMEs, the underlying engine of UK economic growth. Our belief is that high-quality SMEs – with profitable business models, clear plans for success and talented management teams – are going to continue to succeed even in an uncertain economic environment. We’re pleased that Merian shares our view that Britain’s business owners deserve better.

As the global economic outlook grows less rosy, it makes sense that investors more commonly seen managing positions in big corporates should look for value in companies operating at a different scale.

But it’s important to remember that no single innovative fintech

will tip the scales in favour of SMEs. Our business owners need an ecosystem, not a silver bullet.

I want Growth Street, and other younger non-bank fintechs, to be at the heart of a lending infrastructure that genuinely works for businesses. New partnerships combining the scale of the banks with fast-moving, digitally savvy challengers could really benefit introducers. And with new and differentiated products coming to market, the introducers who can get ahead of the curve and deliver these benefits to customers will thrive into 2019 and beyond.

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NACFB | 35

Industry Insight

​ he value of partnering T with the right legal team ​Alicia Pattihis Real Estate Partner Philip Ross Solicitors

B

lawyer it does not mean that they have the time to take on your case at that given moment. Equally you are unlikely to bring a multi-asset high-value deal to a one-man band... they simply won’t have the manpower to deliver the quality of what is required within the timeframe.

orrowers underestimate how many people need to work together for a loan to go from application to draw down.

The borrower frequently has just one point of contact; the broker. Behind the broker is an army of professionals that assist them; the lender, the valuer, the lawyer and perhaps even an accountant.

Tip: Before you recommend pick up the phone, and ask how busy they are to ensure, your deal receives the attention it merits so deadlines are not missed and work isn’t subbed out to an inexperienced junior… and lawyers – be honest by return!

In these challenging economic times brokers may be compelled to close the deal swiftly and therefore it has never been more important to ensure that the professionals on whom the broker is relying are the right ones.

Availability and communication

The broker formulates strategic partnerships to ensure they can provide their clients with a particular level of service. The same principle applies when selecting a lawyer – on both lender and borrower side – and therefore a strong legal partner is essential.

The selection process is often mistakenly price-driven, particularly in scenarios where dual representation is required. However, as the old adage goes “if you pay peanuts, you get monkeys”. If you select a lawyer based solely on price you may quickly find yourself in a situation where the transaction has stalled, is delayed or even worse, has fallen through with no ability to resuscitate.

Before recommending a lawyer, look at the intricacies of the borrower, security, deal structuring and really understand them so the right lawyer is appointed.

If a relationship is going to work and flourish, you need to talk to each other. Brokers and lawyers need each other and their relationship is founded on one core principle; effective communication.

Tip: Even the most technically gifted lawyer may not understand the importance of keeping you in the loop.

It’s your introduction, your deal, your reputation at risk, find someone who understands and performs.

Team work In any deal, the whole team needs to work together. Some professionals sadly though believe face saving or point scoring is more important. It’s not.

With a plethora of experience in Commercial Property and Secured Lending here are some things to look for when partnering with a law firm:

Tip: Find someone who recognises that and invest some time in building a rapport with them.

Capacity

Experience

We are all in people businesses and recommendations are always of a particular solicitor in a particular firm. As with any profession, there are busy times and quiet times and just because one is a good

To a borrower a loan is a loan... it’s just money! For a lender however, innate intricacies differentiate a regulated loan from a Buy-to-let loan a Bridging loan, or a Development loan. View your legal

36 | NACFB

partner likewise. Ensure that the person you are recommending a development deal to is someone who is familiar with its complexities from a finance and Real Estate perspective.

Tip: Check the lawyer’s experience out on LinkedIn or their website, even seek oral references from others before engaging their services. This will save you hassle down the line if issues with which they are unfamiliar crop up.

Pragmatism and proactivity There are two types of people: those who create problems and those who solve them. When time is of the essence and your reputation is on the line, you need a lawyer who has a commercial and proactive approach; someone who can take a step back and think how a problem can be overcome in order to move forward. Of course sometimes the problem cannot be overcome or the solution is just not commercially viable, and that’s an inherent risk of the work.

However, with experience, team-work and effective communication most problems can be solved.

Tip: Partner a problem solver; someone who can offer you creative realistic solutions; someone who thinks outside the box.

Create your own panel With experience you will see which firms work well together and whether there is positive and productive chemistry between them.

Create your own “panel”, a trend that many professionals in the property industry are developing and investing time in.

Tip: Try to ensure the borrower and lender are represented by firms that have previously worked together harmoniously.

It makes the channels of communication easier, increasing the likelihood of your deal completing.

“

The selection process is often mistakenly price-driven, particularly in scenarios where dual representation is required

NACFB | 37

Industry Insight

​ practical look at A supporting customers in vulnerable circumstances Chris Fitch Vulnerability Lead Money Advice Trust​

C

ommercial finance brokers and business lenders are likely to engage with people who are in a variety of vulnerable situations at different points during their work. While business models vary, due to the work of intermediaries in introducing customers to lenders, it is important to understand how to identify and support those in vulnerable circumstances.

Mental capacity limitations are one form of vulnerability that customers may face. These can cause significant problems with understanding, remembering, and evaluating information about the credit product they are applying for, as well as other difficulties in communicating their decision.

The BRUCE protocol covers: Behaviour: staff should monitor a customer’s behaviour and speech for indications of difficulties with: Remembering: is the customer exhibiting any problems with their memory or recall?

Understanding: does the customer grasp or understand the information given to them?

Communication: can the customer share and communicate their thoughts, questions, decisions about what they want to do?

Evaluation: can the customer ‘weigh-up’ the different options open to them?

When not identified and supported, these conditions can lead to financial difficulty and problem debt.

What practical steps can you take?

There are a number of ways to embed vulnerability processes within any organisation. At a high level, organisations should ensure that their vulnerability policies take mental capacity limitations into account. For staff that have telephone or face-to-face contact with customers, the BRUCE protocol provides practical steps to help identify customers that may be in vulnerable circumstances.

Identification and BRUCE BRUCE is designed to remind staff of the key aspects of decision making without having to memorise the Consumer Credit Sourcebook (CONC), common law, or capacity law.

38 | NACFB

Firms can improve identification by encouraging ‘self-disclosure’ – encouraging customers to self-disclose a known capacity limitation or vulnerable situation. To achieve this, staff need to provide reassurance to customers that they will not be penalised for disclosing such information, and that this can potentially result in additional support being provided.

Talking about wellbeing Identification is, however, just the first step. To address the situation, a move needs to be made from identification to conversation.

In our experience, most customers will not object to a simple, politely phrased question about their well-being and situation.

Once a disclosure has been made or identified, staff can follow the TEXAS model found on our website.

Support Once the full range of evidence about a client’s situation is collated (from their financial activity and the information staff have gathered from TEXAS) their information can be used to develop an appropriate support plan.

It is important that both intermediaries and lenders take responsibility for their ‘part of the conversation’. When a potential vulnerability is observed, staff should seek the customer’s explicit consent, so their information can be passed on to inform action.

“

​ t a high level, organisations A should ensure that their vulnerability policies take mental capacity limitations into account

For further information, our latest guide, ‘Lending and vulnerability: an introductory guide to mental capacity’ outlines the importance in identifying and supporting customers with decision making limitations.

To download the latest guide and find out more about the Money Advice Trust’s vulnerability training for staff: Visit: moneyadvicetrust.org/vulnerability-resources Email: training@moneyadvicetrust.org NACFB | 39

Broker Voice

Convenience is key, but choice, expertise and the personal touch still reign

​ ver the past three years, we have seen the O landscape of the finance sector change irrevocably, pushing brokers to evolve both the services they offer and how they are delivered

​Ian Adams Business Development Manager Bathgate Business Finance

B

usinesses, SMEs in particular, are more aware than they have ever been of alternative funding. The breadth of financial products available has increased significantly, through the entry into the market of fintech organisations like peer-to-peer lending platforms, Funding Circle and Esme, and supplier finance specialists such as Pay4 and Woodsford Tradesbridge, not to mention the expansion of organisations such as MSIF and the Development Bank of Wales.

We’ve also seen the retreat of banks from the high street, most recently Santander, which announced in January that it would be closing 140 branches. The Spanish-owned bank has stated that its remaining network of 614 branches will comprise larger branches offering community facilities and smaller branches using the latest technology to offer more convenience.

The convenience and innovation that fintech offers is laudable and will continue to improve efficiency in the industry. There are benefits for the end user too. At the click of a button individuals and businesses can find a whole range of funding options that are open to them. But are they always the right ones? Can we really trust an algorithm with such nuanced decisions?

The industry seems to have moved too swiftly from one extreme to the other. Where business owners could once turn to their bank manager for trusted financial advice, they find themselves without this face-to-face contact and expertise and instead pointed in the direction of the “latest technology” – automated processes and faceless digital interactions.

Perhaps this wouldn’t be so bad if banks had the resource and time of yesteryear. But despite still accepting responsibility for finding alternative support for their business customers, they cannot always offer the assistance that brokers can. The reduced product offering means many viable alternatives may be missed and technology

“

​ he brokers who thrive in our T ever-changing market will be those who stay fully abreast of alternative funding solutions

“

Where business owners could once turn to their bank manager for trusted financial advice, they find themselves without this face-to-face contact and expertise

cannot be a substitute for the face-to-face meetings in branch or on SME premises that allow relationship managers to fully understand the nuances and needs of a business.

If the alternative to your bank or relationship manager was once to go to specialised brokers, depending of the type of finance you believed you needed, from invoice discounting to commercial loans, then that too has become a thing of the past.

Brokers that have moved with the times have evolved into onestop-shops. They’ve brought the core expertise that their client base needs under one roof, appointing a range of finance experts with knowledge of multiple products and markets, alongside building close relationships with a collaborative external network of partners and other financial institutions that can provide further funding alternatives, such as bridging loans and property finance.

Together these internal and external stakeholders can work together and combine expertise for the good of the client. They can work as a trusted point of contact for banks to direct their customers too, fulfilling their responsibility for providing a route to alternative finance and the expertise their customers need and expect.

Convenience may be key to business owners, but they also demand choice, expert guidance and the personal touch – a real person, giving real advice – something that banks have greatly reduced and fintech platforms cannot yet provide.

The brokers who thrive in our ever-changing market will be those who stay fully abreast of alternative funding solutions. They’ll be able to move with the ceaseless and transformational march of fintech and they’ll confidently communicate it to their clients as they guide them through it all.

Despite the clear advantages of tech-driven platforms, both in terms of speed and efficiency, delivering repeat custom and finding ‘clients for life’ on a significant scale can really only be achieved through building relationships in person and fostering confidence by guiding clients to exactly the right solutions at exactly the right time to meet the specific needs of a business.

NACFB | 41

Opinion

The growing threat of 'stacking' multiple loans​ ​John Davies Chairman Association of Alternative Business Finance

E

very year new words and terms enter the UK lexicon and a high percentage of these are imported from the US. I want to highlight one, ‘stacking’, because of the negative impact it is having on commercial lenders, brokers and, most importantly, SMEs looking for finance to support their growth and development.

Stacking occurs when a lender makes a lending decision based on all the information at hand, often – and in the main – this information is provided by the director or officer of a company, who omits the fact that they had previously borrowed funds elsewhere and pledged guarantees to those borrowings.

This results in the borrower ending up with several simultaneous facilities from lenders, with the new funding often paying the repayments on the other loans – leaving them stacked.

These further advances all ‘stack up’ and totally distort the basis on which the original lending decision was made and puts both the customer and all lenders involved at risk.

This is rapidly becoming a major issue in the UK. In my organisation, we are seeing a significant increase in proposals that fit this profile – indeed, we declined over 40 of these cases in one week alone.

When the Association of Alternative Business Finance was formed in early 2017 ‘stacking’ was identified as the first issue we should address especially as one of our members, Capify was able to educate us about the impact this was having on the US SME lending market and initiatives taken to combat this.

Unsurprisingly, the key to tackling this problem is better information 42 | NACFB

when you are making underwriting decisions, and this is why we are championing the creation of a centralised personal guarantee database.

We have invested in creating such a platform, based on a database of Personal Guarantees, enabling lenders – for the first time – to gain insight into the contingent liabilities of prospective borrowers’ guarantors.

However, what is needed now is all those within the SME lending industry to commit to submitting and sharing their data.

Additionally, the adoption of banking technology should be embraced and the added information Open Banking will provide should be used to make more informed lending decisions. Stacking leads to borrowers being completely over committed and invariably having the wrong type of finance product for their needs.

These are the specific kind of issues the Financial Ombudsman Service and possibly the FCA will focus on – if, as muted recently, moves to regulate commercial lending come to fruition.

But what should both lenders and brokers be doing in the meantime?

I passionately believe that, as lenders and commercial brokers, our prime focus must be on making decisions in the best interests of our customers. Key to this, of course is affordability and ensuring customers fully understand the ramifications of the agreements they are entering into.

“

The key to tackling this problem is better information when you are making underwriting decisions

If we know ‘stacking’ is becoming increasingly prevalent we should be asking the right questions about other loan commitments and pushing for full answers. With the advent of Open Banking we should be looking for the obvious bank statement clues and regular payments to other lenders.

It’s never a good idea to be borrowing more money to help pay for the finance arrangements already in place and brokers need to be providing the right guidance for their customers and in the process developing long-term customer relationships.

Customer Outcomes is a key focus for the regulators. Both alternative lenders and brokers need to be demonstrating the focus is on ensuring SMEs are getting the right product and one we all know they can afford.

“

I​ n my organisation, we are seeing a significant increase in proposals that fit this profile – indeed, we declined over 40 of these cases in one week alone

NACFB | 43

Opinion

​Should bridging lenders apply stress tests?

The value of modelling risk factors when making the decision to lend ​Natalie Jones Business Analyst Bridge Invest

​S

tress testing is high on the agenda of banks, which is largely driven by regulatory requirements. Extensive data mining techniques are common practice and market insights are sought upon to manage the risk of a bank’s loan book.

The type of stress testing that should be considered depends on the type of lending that the business does. Not all bridge lenders are wholly principal lenders and therefore they may wish to only apply stress tests to their on-balance sheet positions. Alternatively, they may be prudent in extending their stress tests to include their investor’s exposure. Bridge lenders that apply leverage (such as bank funding lines), should stress interest rates on these liabilities especially if they are long-term committed facilities that are tied to LIBOR or other variable benchmarks.

In recent years, the UK residential property market has had marked differences according to region; for example, Wales and London have been trending in opposite directions. Within the same region, some sectors such as commercial property have been behaving differently to residential and even within commercial property, retail has been performing different to office space.

Land or heavy refurbishment loans may be subject to other risk factors – such as steel prices – that can wipe out contingency costs. Land prices are volatile as a fall in gross development value by say 15% could easily make a project unviable. Econometric modelling techniques requires extensive data collection and, in most cases, econometric software, in order to generate forecasts to be relied upon. More simply, scenario analysis can be performed on a spreadsheet by identifying material risk factors and stressing

44 | NACFB

them individually or simultaneously. Such scenarios can be based on actual historic data – see the 1989 UK property crash – or hypothetical scenarios such as a 30% fall in residential property, a 40% fall in commercial property and a 50% fall in land value over say a 12-month horizon.

Unlike mortgages, bridging loans are short duration and an exit strategy is known at the outset. This should limit the market risk of the security. Additionally, bridge loan valuations are generally based on a 180-day or 90-day restricted marketing period, rather than open market valuations. Even this is irrelevant if the lender intends to repossess and liquidate at an auction within 30 days.

Co-founder of Bridge Invest, Vivek Jeswani, shared his view that: “Residential valuations in London have been falling during the entire time we have been lending. As there is now less downside risk, we have taken a conscious decision to increase loan-to-values.”

Modelling of risk factors such as interest rates, region and property type are imperative at the outset of the loan when making the decision to lend. If strong covenants are in place and loan extensions in a downward trending market are subject to revaluations, then the risks can be well managed throughout the loan without any need for complex statistical regression analysis.

“

Unlike mortgages, bridging loans are short duration and an exit strategy is known at the outset. This should limit the market risk of the security

Our bridging loan helped Sue to buy a rundown house at auction in 28 days.

Now she’s sold it for a tidy profit.

Lending for the new normal.

Rates from

0.49%* per month

At Together our experience spans over decades and tens of thousands of bridging loans. So no matter the circumstances our flexible approach to lending means that it’s perfectly normal to us.

Find out how we do things differently at togethermoney.com/bridging or call 0330 127 1647 For professional intermediary use only.

‘Sue’ has been used for illustrative purposes only.

*Other fees and charges apply and are variable based on the loan amount. 0.49% pm is applicable for the duration of the loan. 12 months as standard. No exit fee applies. Standard construction only. Any property used as security, including your home, may be repossessed if you do not keep up on repayments on a mortgage or any other debt secured on it.

Opinion

​Enter the broker Finding certainty in uncertain times John Jenkins Chief Executive Officer Haydock Finance Limited

T

he asset finance market is, I sense, at a bit of a crossroads right now. There is, undoubtedly, ever more choice for the business borrower – high street banks, challenger or specialist banks, specialist lenders, and the fintechs.

However, as we all know from personal experience, sometimes choice is not a good thing, especially if this apparent choice is difficult to navigate in order to find the right support from the right sort of lender. Understanding the different products available and the often quite different and fast changing appetites for risk and return from potential lenders, can be a complex, maybe even impossible, task for the finance professional.

Enter the broker. Haydock has always focussed on working with brokers – the group who are probably best placed to help their clients navigate this complexity. Probably best placed to understand the true requirements of the facility and the likely appetites and capabilities of the potential lenders to fulfil these requirements.

Probably most able to breakdown the requirements across multiple funders, or to draw multiple requirements together for a single solution if that makes more sense.

Probably most capable of finding the best deal, balancing the obvious elements of price, quantum and term with more subtle elements such as lender culture, ongoing appetite for follow on, adaptability and flexibility as circumstances change, certainty of delivery and many other things that the borrower may not even 46 | NACFB

think of as important. This is vital. This personal connection has been lost in many markets that now present the potential buyer only with the obvious and expect them to make an informed choice.

I say ‘probably’, because I am, of course, assuming that the broker takes the time to do all of these things – stay abreast of the market, get to know the lenders, keep the lines of communication open, seek out the subtle differences, understand the real detail of the borrowers’ requirements. Many, if not most, do, but I am sure it remains a challenge, even without having to manage increasing complexity around regulation and compliance.

We as lenders need to make it easier. We need to keep communicating around appetite, keep demonstrating capability, keep innovating to match changing requirements and to help support opportunities, keep delivering on the promise that you the broker is making. I like to think Haydock does all of this, but you will be the judge. We have strengthened and grown our team recently and will continue to add this year – add to our coverage, add to our experience, add to our capabilities and keep on delivering on your promise.

“

Personal connection has been lost in many markets that now present the potential buyer only with the obvious and expect them to make an informed choice

In complete control Specialists in fast non-status facilities from ÂŁ30k to ÂŁ250k

info@charterbank.co.uk | 01392 340150

| Auction Finance | Business Finance | Development Finance | | Bridging Finance | Farm & Land Finance |

Opinion

Your guide to getting bridging deals over the line How brokers can maintain the balance between a client’s needs and a lender’s requirements Chi Ho Head of Underwriting Affirmative Finance

B

ridging is becoming an ever more enticing lending solution for brokers and borrowers as it offers a unique option for clients to get the funding they need when they need it. However, despite being a fast way for your clients to get funding it can still be held up, often unnecessarily by avoidable factors. As a lender with 15 years of bridging experience, we are able to provide our insight to brokers to help ensure that the client’s expectation of a fast lending solution is met.

If the time to completion is a significant driver, the most important advice to brokers is that information should be provided clearly and concisely. When we have completed a loan quickly, it has been where we have been provided with all the necessary information from the outset. The loans with the best chance of a fast turnaround have been enquiries which included the following information in its entirety; Applicant Information, Proposal, Financial Requirements, Security, Ability to Repay, Other Income and Assets. This allows us to process the case as efficiently as possible and without unnecessary delays which could be caused by chasing outstanding information.

One issue that is often overlooked is the proximity of the client’s solicitor. The complexities of a bridging case require that the client meets face-to-face with their solicitor, this can be impractical when their solicitor is a significant distance from the client, so this is an important consideration.

As a responsible lender, we have processes and procedures in place which allow us to comply with all applicable legislation, regulation and good practices, such as evidencing the appropriate identity documentation and financial information (such as bank statements

48 | NACFB

and proof of income). Provision of the correct and accurate documentation significantly improves the chances of a swift completion.

Brokers have a good knowledge of their client’s needs for each case and use this information to provide the most comprehensive lending solution to serve their client’s needs.

After 15 years of lending, Affirmative has refined its products and service to be able to meet these bespoke requirements and with the flexibility to manoeuvre should circumstances change. All our loans are manually underwritten, and cases are considered on their individual different merits. We work with you, as hard as you work for your clients, to get the deal that works for them and look to complete the loan in the fastest possible time in line with the client’s requirements.

We understand that the role of a good broker is to perfect a balancing act to facilitate their client’s needs whilst also ensuring that the lender’s requirements are met. It is no easy task, but it is essential to ensure the client receives their money in the required timeframe.

“

The complexities of a bridging case require that the client meets face-to-face with their solicitor, this can be impractical when their solicitor is a significant distance from the client

5

Listicle

Reasons to attend #CFE2019

T

he NACFB Commercial Finance Expo, the UK’s biggest commercial lending trade show, returns for the tenth time to Birmingham’s NEC on Wednesday 19th June 2019. The free event is open to anyone with an interest in commercial finance and 2019’s Expo will host a wider spread of exhibitors than ever before – with over 100 already confirmed to exhibit.

We’ve compiled just five reasons why you shouldn’t miss out on this year’s event:

1. Build your business network With more than 130 exhibitors representing a diverse range of UK funders, CFE 2019 is the best place to develop and enhance business relationships. Our list of exhibitors is growing all the time and can be found on the event website.

4. Use the ‘CFE 2019’ app to plan your day

2

Our mobile app enables delegates to view a full list of exhibitors, sort by sector and schedule appointments with lenders.

The app acts as your pocket assistant for the day and is now available to download on the event website and via the Apple App, or Google Play, stores.

2. Meet new and existing NACFB Patrons Over the last 12 months the NACFB has welcomed an array of new Patrons who will be exhibiting at CFE 2019 for the first time. These Patrons will fall alongside longstanding NACFB Patrons, providing the perfect opportunity to introduce yourself and be reacquainted with familiar faces.

3. Be part of the UK’s biggest commercial finance sector show Located strategically in the centre of the UK, our event is the largest in the industry, attracting visitors across the length and breadth of the UK. You can also take advantage of discounted hotel rates as well as restaurant recommendations and transport offers.

4 5. Join the panel session debates

1

5

We’ll be compiling a stacked agenda for our expert panel to debate in our conference arena. You can join in the debate on the day, and also in advance, by submitting questions via the CFE 2019 mobile app.

NACFB | 49

Five Minutes With

​ ive F Minutes with: Charlotte WilliamsParker ​Charlotte Williams-Parker Underwriting Team Leader InterBay Commercial

​ escribe your role in ten D words or less?

I determine whether applicants are able/likely to repay a debt.

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

Please give us the full story so that we can process the application as quickly as possible. Basically, the more you help us the more we can help you so try as hard as possible not to leave any gaps by giving a full overview of the client’s case.

What’s the most common reason for turning away an application?

There isn’t really an overall common reason as everyone’s circumstances are different.

There may be reasons such as adverse credit or the case doesn’t fit within our criteria, however, it does depend on the client.

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

50 | NACFB

Shoes without a doubt – all with matching handbags and scarves!

their objectives. For us, our brokers know that we’re literally innovating on each case.

What advice do you have for the modern commercial finance broker?

What is your favourite piece of management/leadership advice?

For someone who hasn’t had much experience in dealing with commercial finance, I would suggest taking the time to read and understand the lease. This can often highlight queries for which supporting documents could be prepared in advance to avoid potential delays.

Take the time to get to know your BDM as they will look into creating a bespoke proposition that best meets the needs of the broker and their client.

How do you think commercial lenders can improve client experience?

By giving a superior level of service and ensuring that they understand the client’s priorities to ensure they meet expectations and turnaround times to help them meet

Be open and honest – I like to operate an open-door policy so that my team know what we are working towards and why.

This helps us bond together as a team and support each other which ultimately benefits the client.

Which person has inspired you the most?

My mum, because she has held prominent positions within finance and aviation companies and has really inspired me to always aim high and believe in yourself.

Where is your favourite place in the world?

Sainte Foy – it’s located in the French Alps and is a favourite snowboarding place. I go every year and I especially love going off-piste.

SPECIALIST LENDING SOLUTIONS REFURBISHMENT BUY TO LET

Maximise rental yield and increase capital value with Refurbishment Buy to Let If your customer is looking to buy a property in need of refurbishment with a bridging loan, but would like the peace of mind of an exit onto a buy to let mortgage once the work is complete, our Refurbishment Buy to Let range could help.

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

FOR INTERMEDIARY USE ONLY.

Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549).

Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.

01966 (5)

Get in touch

With our unique approach, your customer benefits from a single valuer for both the bridge and Buy to Let Mortgage, and one conveyancer with discounted legal fees. Meanwhile, you can enjoy a single application which we key for you, a dedicated underwriter for the entire case and two procuration fee payments.

We understand

United Trust Bank understands that you are looking to work with an approachable, adaptable and dependable finance partner who will look for reasons to say ‘yes’ to your proposals. That's why our book stays open.

Tel: 020 7190 5555 Email: info@utbank.co.uk www.utbank.co.uk we understand specialist banking