Commercial Broker (NACFB Magazine) April 2021

Issue 89 APRIL 2021

Broker COMMERCIAL

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

18 40 WAYS TO SPOT A SCAM

22 BUDGETING FOR RECOVERY?

Highlighting the ways you can recognise financial crime

Assessing an economic roadmap that promises prosperity

Taking the first step Preparing for an exit from isolation

30 OUT OF COMMISSION Reviewing the impact of the FCA’s disclosure changes

34 TRANSITIONING TO TRANSIT Funding future growth in the booming transport sector

We like to make SUPERHEROES out of our brokers.

As a specialist lender with the strength of a bank, we have the power to offer what others can’t.

Offering up to £15M AT £75% LTV, we can tailor bespoke and complex funding solutions for your clients. We’ll never add loading to your rate and with dedicated specialists at each stage, we aim to give you, the brokers, the confidence your client is in super-safe hands.

 

Innovative product range up to £15m

  

No maximum age

Up to 75% Net LTV lending (Arr. fees can be added) No minimum income

 

Interest only terms up to 30 years



Refurb IN Term – all the benefits of a light refurb wrapped up in the term facility

5:2 – leverage of a 5 year, with the flexibility of a 2 (no ERCs after year 2)

Fixed rates for 2 or 5 years

Specialist BTL

Semi-commercial

Bridging

T: 020 7862 6244 E: specialistmortgages@htb.co.uk

FOR INTERMEDIARY USE ONLY | © 2021 Hampshire Trust Bank Plc is authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the Financial Conduct Authority. Our FRN number is 204601. We are a company registered in England and Wales, registration number 01311315.

Registered office: 55 Bishopsgate, London EC2N 3AS. Hampshire Trust Bank, HTB and

are registered trademarks of Hampshire Trust Bank Plc.

Contents

In this April issue NACFB News

Special Features

4 6 8

22-23 25-28 30-31 32

10-11 12-14

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

34-35

MFS: Budgeting for recovery?

NACFB: Taking the first step Auxillias: Out of commission Goldentree Financial Services: The recovery roadmap Paragon Bank: Transitioning to transit

Industry Insight 36

38-39

40

42

44-45

Make UK: Manufacturing a response Lending Standards Board: Innovation and good outcomes Nucleus: Asking the right questions Channel Capital: All that glitters Arc & Co.: The true cost of capital

Opinion & Commentary 46-47

NatWest: Opening up to the possible 48 Masthaven: A short-term bounce?

50 West One: Turning the corner 52 Listicle: Five ways the Budget

will impact SMEs 54 Five minutes with: Ian Ford,

Investment Manager,

Blackfinch Property

16 Patron Profile 16-17

Together: Not the ‘new normal’

CIOT: Taxing concerns

KIERAN JONES Editor & Feature Writer

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

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

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

Magazine@nacfb.org.uk

18-19 NACFB: Spotting a scam

20

Further Information

MAGAZINE ADVERTISING T 02071 010359

Compliance Update

Ask the Expert

50

46

MACKMAN Design & Production T 01787 388038

mackman.co.uk

NACFB | 3

Welcome

Norman’s Note

P

andemics, by their very nature, create anxiety and fear.

One of the worst aspects of this pandemic is that enforced social distancing also removes one of the best ways we have of reducing such feelings: our personal networks.

As we begin to see the light at the end of the tunnel, some will gleefully return to pubs, restaurants or, in my case, Stamford Bridge – as soon as it is legal. But I suspect most of us will return somewhat more cautiously, stumbling slowly, almost unwillingly, from imposed reclusion back into the daylight. A phased re-entry is required, mandated by law even, so as to avoid the mistakes of previous lockdown easing – this time though, there is hope it will be the last.

Norman Chambers Managing Director | NACFB

We will then find ourselves on a road to recovery. UK businesses that have adapted to survive will now be taken off the reins. Many of those businesses, your clients, will have been sheltered from the true realities of the pandemic through the intervention of government-backed loan schemes.

This month, the three schemes amalgamate into one; the Recovery Loan Scheme. Through it, the Treasury’s aim is to wean SMEs off critical state support. As frontline intermediaries, your role will be to assess whether use of Sunak’s programme is in the long-term best interests of the client. The NACFB has provided our membership with information on the Recovery Loan Scheme. In conjunction with the British Business Bank, we hosted an incredibly well-attended webinar and have subsequently shared detailed intermediary guidance. This should help you and your clients take a more confident first step on the road to recovery.

Post-lockdown fear and trepidation is natural, but UK SMEs will be looking to us – to you – to be a calm and rational presence.

The charge of Moving Britain Forward is not a solitary one, it is a collective task – one to which I know we will rise.

4 | NACFB

Go on.

Make their day.

Our competitive range of regulated and unregulated Bridging loans have become renowned for their speed, ease and flexibility.

With thousands of them under our belts over the years, there’s practically nothing we haven’t seen before.

So whether your client’s been left in the lurch by another lender or just needs to move quickly on their next investment, we'll work with you and apply our common sense approach to make it happen.

Find out more togethermoney.com/maketheirday

For professional intermediary use only.

NACFB News

Association updates for April 2021

NACFB News NACFB Commercial Broker Awards to return in September

NACFB shares broker guidance for Recovery Loan Scheme

This year’s Commercial Broker Awards will be hosted at Edgbaston Cricket Ground in Birmingham on Wednesday 29th September 2021 – the day before NACFB Expo.

Representatives from the British Business Bank joined the NACFB earlier this month for the Association’s ‘Recovery Loan Scheme (RLS) Intermediary Guidance’ webinar.

The awards, which last year took place virtually, provide a platform for national recognition within the commercial intermediary space and seek to recognise the Association’s best brokerages. There are fourteen award categories available to enter and the submission process is now open. The deadline for all entries is Friday 28th May 2021. This year’s categories are:

Following the event, a full NACFB broker guidance document – compiled in conjunction with the British Business Bank – was made available exclusively to NACFB Members.

• Development Broker of the Year • Buy-to-Let Broker of the Year

The bespoke handbook provides full context for the new government-backed programme and features a review of the finer scheme details. The guide also outlines the Association’s expectations of Members who engage with the scheme – including advice on marketing promotions.

• Commercial Mortgage Broker of the Year • Cashflow Broker of the Year • Factoring & Invoice Discounting Broker of the Year • Asset Broker of the Year • Leasing Broker of the Year • Bridging Broker of the Year • Sole Trader of the Year • Rising Star of the Year • SME Champion Award

The Recovery Loan Scheme replaces all three previous government-backed schemes – Bounce Back Loan Scheme, Coronavirus Business Interruption Loan Scheme and Coronavirus Large Business Interruption Loan Scheme – which had defined criteria around the size of the business applying, along with different amounts of borrowing available depending on that size of the business. RLS will be one offering for businesses of all sizes and life stages.

• Deal of the Year • Broker Innovation Award • CBILS Broker of the Year

The awards are exclusively available to NACFB Members, who are eligible to enter as many categories as they wish. The judging process is equally weighted between Patron votes and those from an independent industry panel. The shortlist will be drawn on merit with the judges looking for demonstrable evidence of broking excellence.

Further information, discounted tickets to the event, and entry submission forms can be found at commercialbrokerawards.co.uk 6 | NACFB

NACFB managing director, Norman Chambers, said: “As a community on the coal face of business support, the role of our Members will be to assess whether use of Sunak’s programme is in the long-term best interests of the client. The aim of the guide is to aid our Members and in turn help their client take a more confident first step on the road to recovery.”

NACFB Members who have not yet received the guide can request a copy by emailing: compliance@nacfb.org.uk

STEPPED BRIDGING

75% LTV 0.59% PM THEN 1.2% PM 0% EXIT FEE

6 MONTHS

Speak directly to one of our award-winning underwriters for super, simple stepped rate bridging up to £5m with no exit fees or other catches.

Unregulated first charge residential loans only. 2% arrangement fee plus legal and valuation fees apply. Visit www.funding-365.com for full product guides.

Funding 365 Limited is registered in England & Wales. Company Registration Number: 08488034. Company Registered Address: 20 - 22 Wenlock Road, London N1 7GU.

Note from our Sponsor

Going for growth SMEs are receiving support, but they can’t do it alone

Andy Bishop UK Director, Commercial Broker Development Lloyds Banking Group

L

ast month’s Budget set a tone for the months ahead.

It contained a very clear focus on looking to accelerate a UK recovery against a backdrop of a successful COVID vaccine roll-out – aiming to directly address business confidence.

Whilst the initial BBL and CBIL schemes are coming to an end, the new Recovery Loan Scheme will launch this month, with loans from £25,001 to £10 million. Under the banner of helping businesses to recover, adapt, and grow the Chancellor also announced several other important initiatives: • Corporation tax on company profits to rise from 19% to 25% in April 2023. The rate to be kept at 19% for about 1.5 million smaller companies with profits of less than £50,000.

•

A new UK-wide ‘Help to Grow’ management programme to upskill 30,000 SMEs. There will also be a digital element of the scheme which will help 100,000 SMEs adopt productivity enhancing software, with a voucher covering up to half of the costs of approved software up to a maximum of £5,000, alongside free impartial advice.

• Super-deduction: from April 2021 until March 2023, companies investing in qualifying new plant and machinery assets will have a 130% first year capital allowance.

• The doubling of payments to employers in England who hire a new apprentice between April and September, with up to £3,000 per new hire.

• The VAT rate for hospitality firms will be maintained at the reduced 5% rate until September. An interim 12.5% rate will apply for the six months thereafter.

8 | NACFB

• Business rates holiday for firms in England to continue until June, with a 75% discount after that.

•

New ‘Restart Grants’ will be available in England of up to £6,000 per premises for non-essential retail businesses and up to £18,000 per premises for hospitality, accommodation, leisure, personal care, and gym businesses.

• There’s a £1 billion ‘Towns Fund’ to promote regeneration in 45 English towns.

• A further £150 million for community groups to take over pubs at risk of closure.

•

The first eight sites for freeports in England were also announced. On these sites: “…businesses will benefit from more generous tax reliefs, customs benefits and wider government support, bringing investment, trade and jobs to regenerate regions across the country that need it most.”

Badged by some as ‘Grow Now, Pay Later’ we are already seeing increased investment appetite from businesses even before the current restrictions are relaxed. For funders and brokers alike, we bear a very real responsibility to support SME businesses, helping them to navigate the options and opportunities over the coming months as well as transitioning towards a ‘new normal’.

We have committed more than £250 million of commercial mortgage, asset, and invoice finance facilities this year already, and supported by the launch of our Commercial Finance Broker Direct service and our expanded UK-wide team of BDMs, we are working with brokers to Help Britain Recover.

Lloydsbank.com/businessintermediaries

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under Registration Number 119278.

3…2…1…LIFTOFF! We’ve launched a new look.

Discover the asset finance trailblazer that has pioneered asset based lending since 1959.

Explore and say hello at BLACKARROWFINANCE.COM

Industry News

Industry News

1 1. Business confidence at highest for three years The success of the vaccination programme has helped to restore business confidence to its highest level since 2018, according to the latest Santander Trade Barometer.

Some 65% of firms are confident about growth prospects over the next three years.

However, respondents also said that Brexit was weighing on trade, with 35% reporting higher trading costs. A total of 38% said that the Brexit deal would make trading more time-consuming and just under a quarter said that the increase in costs and bureaucracy would prevent their business trading in its existing markets.

2. Government borrowing hits record high Office for National Statistics (ONS) data shows that public sector borrowing hit £19.1 billion in February, £17.6 billion more than the same time last year and the highest February borrowing since monthly records began in 1993.

While the coronavirus pandemic drove up government spending, February’s borrowing came in below expectations, with City economists having forecast that the deficit would hit £21 billion.

10 | NACFB

3. COVID-19 and the digitisation of SMEs

5. Self-employed boosted by tax clawback

Research from cloud and hosting services provider IONOS has found that 63% of UK SMEs believe COVID-19 has strongly (34%) or very strongly (29%) impacted their company’s digitalisation. The poll of 1,003 UK SMEs saw 39% of those that have taken measures towards digitalisation during the pandemic say it has helped them win new customers, while 74% feel better prepared for future crises because of the technology they have put in place. It was also found that 22% of respondents do not believe digitalisation is required for their company.

Thousands of small business owners who have lost money during the coronavirus crisis can claim tax rebates to help mitigate losses. It is expected that these claims may total more than £1 billion after ministers announced an emergency extension to ‘loss carry back’ rules. Previously losses could only be carried back one year to offset historical tax bills, but the new measures enable firms to claw back profit and income taxes paid in the past three years.

4

6. Female-led SMEs contribute £85bn to economic output Female-led small to medium businesses contribute around £85 billion to the economic output every year in the UK, according to outsourced communications provider Moneypenny. The study shows that 15% of SMEs are led by women, while a further 24% were ‘equally led’, meaning the management team had an even split between women and men. Analysis of “total early-stage entrepreneurial activity” (TEA), shows that the rate in the UK is 11.7% for men and 7% for women, making the TEA gap 4.7 percentage points.

4. More blackmail and fraud over past year

7. FLA predicts ‘strong recovery’ in consumer car finance market

There has been a rise in fraudsters bribing or blackmailing bank staff for customers’ information, according to the Dedicated Card and Payment Crime Unit, which said it had 43 referrals from bank staff who had been approached by criminals last year, up from 23 the year before. Meanwhile, Santander has reported a 47% rise in so-called payment redirection fraud in the past year.

The Finance and Leasing Association (FLA) has predicted a ‘strong recovery’ from the consumer car finance sector after volumes declined by 35% as the latest lockdown stalled trading in January. FLA analysis shows that the new car finance market saw a 38% fall in new business volumes in January to 36,134 compared with the same month in 2020. The used car finance market reported a 34% fall to 87,557.

8. Staff and owners apart on return expectations

10. Assetz to launch IPO ‘within three years’

Research shows that a third of SME owners expect staff to come back full-time when lockdown ends in June, double the figure for employees, of whom just 16% expect to return to work as soon as restrictions are lifted. In a survey conducted for Cignpost ExpressTest, it was found that 38% of 1,100 employees polled do not expect to return to the office for the foreseeable future, with a further 20% not expecting to return until the entire workforce has been vaccinated.

Assetz Capital intends to launch an initial public offering (IPO) within the next three years, as part of its long-term expansion plans. “It’s likely that we will IPO part of the company as a modest free float”, said the NACFB Patron’s chief executive Stuart Law. “It will further bolster our balance sheet which will be very strong by then, and give us the opportunity for potential acquisitions should we find anything.”

8

9 9. NCSC offers SMEs cybersecurity support With analysis suggesting that smaller firms may not have access to the budget, skills, and knowledge necessary to tackle cybersecurity risks as thoroughly as larger businesses, the UK National Cyber Security Centre (NCSC) has developed resources aimed specifically at SMEs, microbusiness, and sole practitioners. It has launched a new Cyber Aware campaign which includes a self-assessment tool that provides tailored advice.

VASE

10

ROAST & SPOKE BLACK Fresh GROUND

HADDOCK & SPICE

COFFEE SINCE 1999

Help your clients unlock the best of both worlds with our Semi Commercial Loans Help your clients discover new investment opportunities and broaden their property portfolios with our Semi Commercial Loans.

VASE HADDOCK & SPICE

VASE HADDOCK & SPICE

ROAST & SPOKE BLUE Fresh GROUND

COFFEE SINCE 1999

Your clients could benefit from: Higher yields than standard buy-to-lets.

Longer leases in comparison to standard ASTs. A more advantageous tax environment.

We keep it simple.

Visit ccbank.co.uk/semi

Call 0344 225 3939

FOR INTERMEDIARY USE ONLY - Cambridge & Counties Bank Ltd is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under firm registration number 579415. Our authorisation can be checked at the Financial Services Register at www.fca.org.uk.

Cambridge & Counties Bank Ltd Registered Office: Charnwood Court, 5b New Walk, Leicester England, LE1 6TE. Registered in England and Wales No. 07972522.

TEMPEST BIKES

Patron News

Patron News A third of SME leaders optimistic for the next 12 months

Landbay and Allica Bank launch five-year BTL partnership

SME leaders believe there is light at the end of the pandemic tunnel, with a third optimistic about the year ahead, recent research from Nucleus Commercial Finance has revealed. The NACFB Patron found that younger owners (aged 18-34) are more sanguine about their business’ prospects, with 40% feeling optimistic compared to 32% for those aged 35-54 and 28% for over 55s.

Landbay has partnered with Allica Bank to fund a range of buy-to-let mortgages worth £200 million of originations per annum. The collaboration between the two NACFB Patrons will run over the next five years and is the fourth funding deal secured

by Landbay since mid-2019.

Business optimism also differs greatly by company size, with nearly half (47%) of larger SMEs (50-249 employees) feeling positive, compared to 39% for those with 10-49 employees, and 29% for those businesses with fewer than ten employees.

Despite this optimism, SME leaders report some significant barriers to growth. Nearly a quarter (23%) are most concerned about the economic impact of COVID-19. Other barriers include reduced consumer spending (12%), Brexit (8%) and lack of available financial support (6%).

Chirag Shah, CEO of NACFB Patron Nucleus Commercial Finance, commented: “We will see SMEs rise from the ashes to make a meaningful difference to the lives of their customers, as well as their essential contribution to the UK economy. We are ready to support those businesses who are looking for finance to help them not only survive but thrive in the current environment.”

12 | NACFB

Allica Bank was awarded its banking licence in September 2019 and has grown rapidly since. The bank recently announced it had lent more than £70 million to SMEs in its first year of lending with £120 million of committed lending offers in the process of completion.

John Goodall, CEO at Landbay, said: “This partnership with Allica Bank reinforces the growing reputation that Landbay has for originating high-quality buy-to-let mortgages for our institutional partners via our platform. It will also ensure that we can continue to provide some of the most competitively priced, buy-to-let mortgages in the market. We are really pleased to be working with Allica who have similar values to Landbay and also have a real customer focus.”

Richard Davies, CEO at Allica Bank, said: “This partnership is an important step forward in accelerating Allica’s impressive growth potential, leveraging our unique skills and expertise in lending underpinned by the robust and solid foundations we have built.”

Full-speed ahead or obstacles in the road?

In the aftermath of one of the world’s most turbulent trading periods Matt McDermott, Credit Manager from Wesleyan Bank, considers the impact on the funding landscape and how brokers can help their customers thrive in uncertain times.

As we tentatively edge towards emerging from the pandemic, businesses are turning their thoughts from survival to growth. However, the speed of recovery will hinge on their ability to obtain finance to buy new stock, purchase equipment and invest in technology.

Driven largely by the use of the government loan schemes, brokers have been deluged with applications for external financial support over the last 12 months. Demand for funding in 2021 is once again expected to soar, but it remains to be seen whether appetite for lending will match the ambition of SMEs that are seen as pivotal green shoots to drive the UK’s economic resurgence.

Some doors may close The recent budget announced that from April the new Recovery Loan Scheme (RLS) will replace the Coronavirus Business Interruption Loan (CBILS) and Bounce Back Loan (BBLS) schemes.

It is anticipated that the lending criteria for RLS loans will be more stringent than its predecessors. Borrowers will once again need to demonstrate pre and postCovid-19 business viability as part of their application, which is a key reason why acceptance rates for CBILS (around 44%) are much lower than BBLS (around 75%).

While CBILS lenders have provided significant support to their customers, this may come at a cost to their appetite for growth finance in 2021. The slower repayment terms of CBILS loans in comparison to normal debt cycles will stretch liquidity for several financial

institutions and lead to them curbing their lending in some sectors.

Banks are also seeing an unprecedented level of demand being placed on their existing book. As a result, some are scaling back support for new lending to existing customers due to concentration concerns, even if those businesses can demonstrate they are creditworthy.

Other doors will open Asset finance will become even more in demand as businesses strive to leverage their balance sheet to provide working capital but this may involve brokers having to work harder to secure the funding their customers require.

Engaging with funders creates an opportunity for brokers to demonstrate that their clients are weathering the economic storm and that they can push through to their growth phase. While there are a plethora of alternative finance options available, choosing the right financial partner is critical to enabling brokers to find the best solutions for their clients.

Key considerations should include whether the finance provider is willing to work in partnership with brokers to provide dedicated support and can offer a broad suite of solutions with competitive pricing.

It’s also essential to establish whether the finance provider can demonstrate specialist knowledge of the end customers’ markets, how flexible they are to get deals over the line and how fast their turnaround times are. Funders who are not bogged down with government loan schemes may be able to demonstrate a greater appetite for lending.

Wesleyan Bank acts as a broker and a lender.

Depending on the circumstances and where required by law, loans will be regulated by the Financial Conduct Authority and the Consumer Credit Act. Wesleyan Bank Ltd (Registered in England and Wales No. 2839202) is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services register No.165116). Registered Office: PO Box 3420, Colmore Circus Birmingham B4 6AE. Tel: 0800 358 1122. www.wesleyanbank.co.uk . Calls may be recorded to help us provide, monitor and improve our services to you.

Top of the props Despite difficult trading conditions, brokers and their customers can take comfort that alternative lenders are willing to support them to capitalise on substantial market opportunities. Three sectors in particular could thrive in a post-pandemic world.

Construction – the pandemic inflicted massive disruption to UK construction but the sector has adapted well following the initial shock. Supported by the government’s focus on increasing housing supply and transport infrastructure, a gradual but sustained recovery is anticipated for the next two years.

Operators implementing the HS2 railway project are seeing huge demand, whilst firms not involved in HS2 are enjoying a similar boom to fulfil other projects and require finance for new equipment.

Manufacturing – UK manufacturing has been less affected by restrictions on activity, but growth is being hampered

by Brexit trade barriers and raw materials shortages. Nevertheless, manufacturing will play an essential part in re-building the economy and many plan significant investments in boosting productivity and agility. Finance will be key to enabling manufacturers to restock their capital equipment base, which was put on hold last year, and take advantage of the opportunities from digital technologies.

Transport and logistics – the UK logistics sector was booming even before the pandemic and its significant growth acceleration is set to continue. Businesses specialising in cold logistics are extremely buoyant but are operating in highly competitive supply chains. They are likely to increase their investment in refrigeration and freezing equipment to maintain the quality and shelf life of products, whilst integrating renewable and low-carbon technologies as part of the drive towards net-zero carbon emissions.

Patron News

Patron News SMEs plan to invest as they gear up for summer

Unity Trust Bank reports record year in lending

Britain’s SMEs are hoping for a bumper summer free of coronavirus restrictions, according to recent research by Recognise. In a survey of 500 small businesses, the NACFB Patron found that 67% are confident of a seasonal trading boost if social distancing measures are relaxed, rising to 76% of firms in hospitality.

Unity Trust Bank has announced its annual results, including a record rise in net lending (+26%) and customer deposits (+29%).

Protective equipment topped the investment list for small firms readying themselves for summer with 45% saying they planned to invest in PPE or protective measures for staff and customers. Taking on staff is also important; 38% plan to hire extra staff or at least recruit back up to their pre-COVID-19 numbers. Reflecting upon the way lockdown has forced SMEs to adapt, 23% told Recognise they will be developing new products and services, and 22% will be investing in new equipment and IT. While investment could be challenging, 14% said they would use their cash surplus or try one of the government’s loan schemes and 12% said they will use personal savings. A significant chunk of SMEs, 13%, hope to borrow from their bank.

Small businesses will be crucial in getting the economy going again and savvy brokers will play a vital role in helping them fund their ambitions.

14 | NACFB

The NACFB Patron has maintained its track record of safe and sustainable growth, delivering a strong set of results with pre-tax profits at £7.5 million and a 7% growth in new customers.

By continuing to drive an impact-led strategy, the bank increased lending to responsible finance intermediaries by 185%, enabling the distribution of £16.9 million to 250 businesses across the UK. £185 million of new lending supported 712 jobs, the building or renovation of 722 bed spaces, and provided 1,327 people with housing; a substantial increase on 2019.

Colleagues across the business engaged in 148 volunteering days, and the employee-led ‘Unity in the Community’ initiative supported charities and grass-roots organisations with donations amounting to £13,500. This included the purchase of subscriptions for The Big Issue for each of Unity’s employees at the onset of the pandemic.

Margaret Willis, CEO of Unity Trust Bank, said: “2020 was a particularly challenging year, socially, economically and emotionally.

We remained fully operational throughout and worked hard to support our customers as they navigated the far-reaching implications of the pandemic.”

Just Cash Flow PLC is rated excellent Based on 265 reviews

A Revolving Credi with no monthly repayment requir

We partner with well run, ambitious businesses providing fast, flexible financial support and services

Complete flexibility, with a market leading rate of only 0.075% per day.

Leading the market in alternative bank overdrafts

✓

Funding facilities of up to £500,000

Funding from £10k to £1 million

✓ ✓ ✓

No fixed monthly repayments

Lending decisions made in hours, not weeks

Interest only for the full term No management or early repayment fees

Support when you need it delivered by our dedicated and experienced broker team Competitive pricing Prompt commission payments

Fixed rates, flexible repayments and 5 feedback.

Contact our Business Development Team today 0121 227 6450 justcashflow.com/partner

Patron Member FS668057

JCF0019-0321-NACFBBRANDADVERT

justcash

BCMS668054

Just Cash Flow PLC is registered at 1 Charterhouse Mews, Farringdon, London EC1M 6BB Just Cash Flow PLC is registered at 1 Charterhouse Mews, Farringdon, London EC1M 6BB under Company ©2020 Just Cash Flow PLC 2020 under Company numbernumber 08508165 ©08508165 Just Cash Flow PLC

Patron Profile

This is not the ‘new normal’ Evolving to serve in an unfamiliar world ​Sundeep Patel Director of Sales Together

B

efore the pandemic, we positioned ourselves in the market around a phrase: ‘the new normal’. It centred on a simple idea: that modern lives and businesses were less likely to follow some kind of predetermined structure or pattern, and therefore less likely to fit into big-name lenders’ rigid tickbox applications. Perhaps this is because the application is in a limited company name, or because of their short trading history, or even because theyʼre a first-time landlord.

But – and we don’t know about you – we think that’s a phrase that’s become a little too familiar over this last year. The irony is that the impact of the pandemic means we’re probably more relevant to many of these borrowers than ever before.

We knew we’d have to evolve as a business to serve these customers in an unfamiliar world, and that’s what we set out to do.

Embracing change In the years leading up to the pandemic, we had experienced increasing demand for our products and services which meant we had to concentrate on what we did rather than how we did it. As a result, some of our legacy systems and manual processes fell behind advances in technology. So, in 2019 we started to revolutionise.

In addition to implementing technologies to help us reduce costs, we also found ways to speed up the decision-making process on clients’ commercial mortgages and bridging loans. This huge project was quietly ticking away behind the scenes whilst we were busy lending at record levels.

16 | NACFB

Fast forward to March 2020. Back then we couldn’t have known just how seismic a change the coronavirus pandemic would have on our business and our industry, forcing us to concentrate all of our efforts on our existing customers for a while. But if it had one silver lining, it gave us an opportunity to accelerate these transformation plans.

Whilst we believe that robots can never replace common sense decision-making, we know that robotic process automation and artificial intelligence can help in other areas. In fact, we have been conducting automated valuations for years, but now we’ve evolved our criteria and harnessed big data in a way that means physical valuations need to happen even less often. This saves borrowers money, saves brokers time, and saves surveyors from having to make site visits.

“

Whilst we believe that robots can never replace common sense decision-making, we know that robotic process automation and artificial intelligence can help in other areas

“

The pandemic, we believe, will cement brokers’ position as fixers who unlock opportunities for borrowers – especially considering the additional barriers that the events of repeated lockdowns have created

This said, we’re mindful of changing too much, too quickly, and making wholesale changes that might not work. So we’ve mapped out some key initial goals, and expect change to be ongoing, incremental and manageable – not just the occasional ‘big bang’.

As well as investing in technology, the pandemic gave us an opportunity to step back and reassess our products. To provide the expert, tailored service we want with minimum fuss, we simplified our product range to focus on the things that matter most to borrowers.

And we looked at the way we interact with brokers, streamlining our teams and reducing overlap.

Making it easy This all speaks to our commitment to speed, and making it easy to do business with us. When your clients need finance to cash in on an unmissable opportunity, they don’t want to be bogged down by lengthy decision-making processes. You need to find and deliver the product they need, fast, whatever the complications and whatever their situation. So we use years of experience, not tickboxes, to make these decisions.

Every case is underwritten by a person, so nobody is precluded on their credit score alone. By getting to know the person behind the application and their ambitions, we’ll look for a way to lend when others won’t.

A future of opportunity The pandemic, we believe, will cement brokers’ position as fixers who unlock opportunities for borrowers – especially considering the additional barriers that the events of repeated lockdowns have created.

To use property investors as an example, there are likely to be many properties coming to the market in the coming months for reasons we can all imagine; thinking objectively, this presents an opportunity for buy-to-let landlords to add to their portfolio. But we anticipate some lenders’ apprehension on lending to them in the coming months, despite the fact they’ve restarted payments after a payment holiday – and this is just another example of how they differ to Together.

We actively look for ways to make borrowers’ ambitions a reality. We are one of few lenders which offers second-charge loans on residential investment properties. We allow top-slicing where investors have a good level of background income, and we accept deposits leveraged on portfolio equity for investors looking to make further purchases.

No doubt there will be other opportunities that present themselves to businesses over the coming months, and we look forward to supporting brokers and their customers as things slowly return to normal.

NACFB | 17

Compliance

Spotting a scam Staying one step ahead of the fraudsters ​James Hinch Senior Compliance Manager NACFB

9. Payslips, bank statements and utility bills older than the

10. Salary credits on the bank account that appear on Sundays

W

hether out of desperation or opportunity, financial crime is on the rise, especially over the past year.

All types of commercial finance are targets for criminals, and brokers have their part to play in preventing it.

last three months

or Bank Holidays

11. Inconsistency in both fonts and formats 12. Obvious typos or lots of spelling mistakes 13. The name, address, date of birth, NI number and tax

code don’t match across documents

We all know about due diligence, Know Your Customer and anti-money laundering procedures, but what does suspicious activity look like in practice? We have compiled 40 red flags which, although don’t necessarily mean that a fraud is being committed, can often be tell-tale signs that are worth further checks.

Client due diligence

16. Salaries paid by Faster Payments

1. Illegible documents (i.e. passport, payslips and

bank statements)

2. An out of date passport or driving licence 3. A passport that appears to be in a non-valid style 4. Documents that fail equipment tests (i.e. magnifiers,

UV light sources, document scanners)

5. An individual does not look like their official photograph 6. Payslip figures are in rounded amounts 7. Payslip figures do not match bank credits 8. Payslips that do not have any deductions or the deductions

look questionable

18 | NACFB

14. There are sudden or significant increases in income on bank statements

15. Wages payment method does not fit profile of the employer

“

The broker must also pay close attention to the business itself; the primary question being, do the company’s accounts stack up?

Even if all the paperwork looks good other checks may throw up questions which cast a shadow of doubt on the veracity of the application such as:

31. Apparent stock anomalies

17. Paperwork doesn’t match official registers (i.e. electoral roll,

33. A significant increase in invoicing in the short-term

Companies House, credit reference agencies)

32. Large volumes of new debtors

34. An inability to explain large volumes of debtors over

18. It is difficult to trace employer or referees

19. An employer is also a family member

35. Inability to provide evidence of the source of business funds

20. There is a recent change in job that seems unconnected

Confirming the use of funds

to previous roles

21. Very short employment periods 22. Missing documents 23. Inability to provide older bank statements 24. Companies House shows the business has been trading for

a very short time

25. Applicant says they’ve been employed by the company for

longer than the company has been established

26. Inability to find the applicant on Google, either in the natural

a long period

search listings or on Google Maps

27. No or negative company reviews on review sites

Last but by no means least, the broker should understand the purpose of the loan and be able to justify why the business needs the funds. If fraud is to take place, then the legitimacy of use is likely to be obscured. Brokers should look out for:

36. A business plan that doesn’t seem to fit with the

financial accounts

37. An inability to provide contracts to purchase land, property,

or assets

38. An inability to prove the existence of the seller 39. No information on contractors (e.g. for property developments) 40. A request that funds are paid to a third-party

Understanding the business

Whilst extensive, this is not an exhaustive list of red flags and there is not a one size fits all approach when it comes to identifying fraud. Brokers should consider the size, scope, and complexity of each transaction.

As well as the business owners (directors and primary shareholders) and the documentation, the broker must also pay close attention to the business itself; the primary question being, do the company’s accounts stack up? To answer the question thoroughly, brokers should consider reviewing the firm’s financial accounts over a sufficiently long enough period to allow them to understand the big picture. Red flags might include:

Of course, there is now a plethora of technology available to help carry out checks and identify fraud. NACFB Members have discounted access to SmartSearch, an online Know Your Customer (KYC) and anti-money laundering (AML) solution which enables brokers to electronically identify UK and international individuals and businesses. It also provides full sanction and Politically Exposed Person (PEP) screening as well as ongoing monitoring.

29. Glaring or subtle discrepancies in the figures

For more information on identifying and reporting fraud, or access to SmartSearch, please contact the NACFB compliance team at compliance@nacfb.org.uk

28. The applicant refuses to use Open Banking

30. Inadequate provision of financial information

NACFB | 19

Ask the Expert

Post-Budget tax implications

Q John Cullinane Director of Public Policy The Chartered Institute of Taxation

Overall, what did you think of the tax changes announced in the Budget?

The Budget tried to do three things. First, put the public finances on a somewhat less exposed footing. Second, avoid stalling the economy’s recovery from coronavirus. Third, keep election pledges about the rates of income tax, VAT and national insurance.

By these tests it was pretty pedestrian.

The Chancellor plans to be taking nearly £30 billion more a year in five years’ time. Two thirds from companies (but only from 2023); the rest from freezing allowances and rate bands – but you may not notice it as a tax change until you get a pay rise.

Corporation tax is set to rise to 25% in 2023. Can you explain how less profitable businesses will be affected?

It’s a tax on company profits. So, the less profit your company makes, the less it will be affected. Particularly if your profits are lower than £50,000 a year, the rate increase from 19% to 25% won’t apply. (If they’re 20 | NACFB

&

between £50,000 and £250,000 a year, the effective tax rate will be somewhere between the two percentages.)

gross pay (or profits) go up somewhat more than inflation, the real value of your take home pay will fall.

What opportunities will the freeports bring to SMEs?

How will the extension of the stamp duty land tax holiday affect the property market?

A

It’s hard to be sure. There will be customs relaxations in freeports, and more tax allowances and reliefs for buildings and improvements, and against national insurance costs. Commercial property prices in those areas can be expected to rise. There’s probably money to be made by those who can keep ahead of the curve.

Although income tax rates will stay the same until 2023, the Office for Budget Responsibility forecasts that the Budget will create fiscal drag affecting more than one million people. What does this mean?

If your pay or profits go up, you’ll be paying a bigger share of your new pay to HMRC than you were of the old. Firstly, because anyone earning between £12,570 and £125,140 per annum will only get a smaller share of it tax free. Secondly because anyone earning more than £50,270 per annum will pay higher rates on a bigger share of it. If you don’t get a pay rise, the tax system won’t be making any allowance for the fall in the real value of your pay packet due to inflation. Overall, unless your

Tax holidays are designed to stimulate activity by encouraging everyone into the market before the holiday ends. This usually works, but often with knock-on effects on pricing and with transaction bottlenecks. So, people lobby for them to be extended. This time the Chancellor plans to end the holiday in two stages, starting at the end of June.

What tax reliefs or rises affecting SMEs would you like to see in future?

Sadly, it’s not realistic to expect lower taxes: they’re going up, and business owners already pay less than employed people.

But government can and should make the process easier. They should not be forcing digitalisation; they should be making the system so good that people choose to use it, as happened with the online tax return.

They should invest in supporting taxpayers and their agents by answering queries and processing their own forms quicker. More tax is lost to mistakes than to avoidance; the solution is to make it easier to do the right thing.

When residential meets commercial Commercial Residential Investment Mortgage for investors and landlords • Lending up to 75% LTV • A range of variable and 3, 5 or 7 year fixed rates • Loans from £50,000 to £25 million for: - Residential portfolios that include seven or more multi unit blocks - Houses in multiple occupation with seven or more bedrooms - Investors who have more complex corporate structures looking to fund residential portfolios of any size If you’re a broker and registered with us, visit: intermediaries.aldermore.co.uk/commercial-residential or call 01733 404 518

Subject to status and affordability. T&Cs apply. Security may be required. Any property or asset used as security may be at risk if you do not repay any debt secured on it.

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: Apex Plaza, Forbury Road, Reading, RG1 1AX. Registered in England. Company No. 947662. Invoice Finance, Commercial Mortgages, Property Development, Buy-To-Let Mortgages and Asset Finance lending to limited companies are not regulated by the Financial Conduct Authority or Prudential Regulation Authority. Asset Finance lending where an exemption within the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 applies, is exempt from regulation by the Financial Conduct Authority or Prudential Regulation Authority.

ACM 0122

Special Feature

Advertising Feature

The Budget for recovery?

Sunak’s mapping of a return to prosperity Paresh Raja Chief Executive Officer Market Financial Solutions

I

n the weeks leading up to the 2021 Budget, speculation was rife about the type of reforms Chancellor Rishi Sunak would introduce. With public debt at a record high and the UK in the process of transitioning out of lockdown, there were concerns the Budget would focus primarily on spending cuts and tax reforms.

However, the Budget that was ultimately delivered by Chancellor Rishi Sunak last month was not one of austerity. Instead, an economic roadmap has been drawn which aims to encourage investment activity and consumer spending in a bid to overcome the financial disruption caused by the coronavirus pandemic. As a result, the announcement has been well-received, particularly by those involved in the property market.

Since the beginning of the pandemic, the Government has recognised how important the real estate sector is in driving investment, productivity and enabling economic growth. The first lockdown posed its fair share of challenges – buyers, sellers and renters were discouraged from moving properties and this led to a decline in the rate of house price growth. However, the introduction of the Stamp Duty Land Tax (SDLT) holiday in July 2020 kicked the market back into gear. Since then, house prices have been rising at an impressive rate.

In the days leading up to the Budget, Nationwide revealed that annual UK house prices had risen by 6.9% in February 2021.

This is impressive if we consider this rate of growth has occurred 22 | NACFB

amidst the disruption brought on by the pandemic. Thankfully, the Chancellor is aware of the property market’s positive performance, announcing a series of reforms to ensure more people are better positioned to jump on or move up the property ladder.

Extending the SDLT holiday One of the bigger announcements to come from the Government was obviously the extension of the SDLT holiday. Originally due to end on 31st March, those working in the real estate sector had been calling for the holiday to be lengthened.

Initially, it was reported that the Chancellor was considering a six-week extension. While this would have been well-received, the general concern was that an additional six-week window would still significantly limit the number of people able to take advantage of the holiday.

“

Thankfully, the Chancellor is aware of the property market’s positive performance, announcing a series of reforms to ensure more people are better positioned to jump on or move up the property ladder

“

Mortgage lenders and big banks have become much more stringent during the pandemic, with the UK economy suffering heavily as a result of COVID-19.

Mortgage applications are taking longer, and there is a greater risk of complex cases being declined

Thankfully, the SDLT holiday was instead extended to 30th June.

This means that domestic and non-resident buyers of property in England and Northern Ireland could save up to £15,000 should they complete a sale within this timeframe.

What’s more, once the initial holiday expires on 30th June, the SDLT cap will also temporarily double from its standard rate of £125,000 to £250,000 until the end of September. It is still likely however that towards the end of these periods it will become a race against time for borrowers to get their mortgages sorted. Market Financial Solutions (MFS) is still running its COVID recovery fund to help those borrowers that are coming worryingly close to the deadline.

Supporting first-time buyers Another reform to come from the Budget was the introduction of a mortgage guarantee scheme. It ensures first-time buyers and homeowners will be in a better position to secure a mortgage (95% LTV) with a 5% deposit on a property valued up to £600,000.

This scheme will give lenders the option to purchase a government guarantee that will compensate them for a portion of losses in the event of a foreclosure.

One of the problems prospective homebuyers have faced during the pandemic is having access to finance. Mortgage lenders and big banks have become much more stringent during the pandemic, with the UK economy suffering heavily because of COVID-19. Mortgage applications are taking longer, and there is a greater risk of complex cases being declined.

Considering this, MFS has been working with an increasing number of clients stuck in the middle of a property transaction due to the delays they have encountered from their existing mortgage lenders. The aim of this mortgage guarantee scheme is to give first-time buyers the confidence to take advantage of a new opportunity knowing they have access to the necessary finance.

Both these policies should be positive news for the property market.

With the SDLT holiday in place until the beginning of July, I expect the rate of house price growth to continue to rise. Nevertheless, even with the mortgage guarantee scheme in place, the main challenge for prospective buyers will remain getting finance in time to complete on a purchase before the window closes. They must ensure they are dealing with lenders who are able to process and deploy loans quickly. Doing so will reduce the chances of a property transaction falling through.

NACFB | 23

REFURBISHMENT BUY TO LET

Two loans.

One application.

For Refurbishment Buy to Let loans, we offer bridging finance rates and provide an exit onto a long-term Buy to Let Mortgage based on the after works valuation figure – all in one proposition.

One application, which we will key for you

One expert underwriter providing support for the entire case

One valuer for both the Bridging Finance and Buy to Let Mortgage

One conveyancer with discounted legal fees

Two offers issued simultaneously

Two procuration fee payments

0800 116 4385

precisemortgages.co.uk

FOR INTERMEDIARIES 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 with company number 06749498. Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.

01-PM-BTL-03 (1)

Contact your local BDM

Special Feature

One small step at a time Preparing SMEs for isolation exit Norman Chambers Managing Director NACFB

​O

n 20th July 1969, Neil Armstrong and Buzz Aldrin began their descent towards the Moon’s surface. Away from the spotlight, however, there was a third member of the Apollo 11 crew. The lesser-known Michael Collins, remained in lunar orbit, maintaining the command module Columbia, and preparing for his colleagues’ return.

Already physically separated from Earth by 250,000 miles of space, Collins slipped periodically out of contact with both headquarters in Houston and his fellow astronauts. “I am alone now,” he later wrote. As he disappeared behind the Moon for the first time, NASA’s own commentary team solemnly intoned: “…not since Adam has any human known such solitude as Mike Collins.”

The dark side of the Moon Many of you will be reading this in your own isolated command module. Whilst the desk of your home office is perhaps a little beyond comparison, in your own way, you too have been orbiting your clients remotely, providing support and guidance from afar.

NACFB | 25

To reach the Moon, all those years ago, was only half of the astronaut’s journey – for they still had to return home. Whilst Collins had circled his colleagues in isolation, he would re-enter the Earth’s atmosphere alongside them. Upon re-entry, they would be reunited with loved ones and friends, banishing seclusion and return to what – for them at least – was a ‘new normal’. As we prepare for our own societal re-entry, we too will no longer be alone.

This feature will look ahead to the great re-opening of life, examine what will be different, how we can realign the role of the intermediary, and evaluate what lessons we can take with us from our own voyages.

The final countdown Like the Apollo 11 astronauts, we cannot afford to simply bound carefree back into society. Life will be different. Moulded by recent experience, we know that only a cautious and phased reintegration will build a steady foundation for individuals and businesses alike.

Indeed, as Sting tells us: “Giant steps are what you take, walking on the Moon.”

Small steps it is then. And the first of these steps has seen the phasing out of the three government-backed loan schemes. The consolidation of existing arrangements into a single Recovery Loan Scheme (RLS) signals a desire to release many enterprises from long-term state-dependency. The previous schemes had defined criteria around the size of the business applying, along with different amounts of borrowing available depending on its scale. The RLS will be a single offering for businesses of all sizes and life stages.

The RLS features no personal guarantees on loans of up to £250,000, and, with interest rates capped at 15%, there will also be suitability 26 | NACFB

assessments with all borrowing subject to affordability checks.

This may cause headaches for businesses that have already received CBILS funding, as existing repayments will need to be accounted for in any RLS application. Such assessments will undoubtedly highlight your client’s most recent financial statements, with many likely to be skewed by the impact of the pandemic.

Traditional underwriting methods could well fall short of what is required, and lenders will need to quickly evolve to accommodate a revised set of expectations.

Intergalactic intermediaries The Government’s mission control will be hoping that UK lenders can become self-sustaining once again and, with the high street having already shouldered a large portion of the responsibility, non-bank lenders are being primed to maintain support alongside them.

“

The Government’s mission control will be hoping that UK lenders can become self-sustaining once again

“

Intermediaries and lenders alike now have a task to help reframe commercial lending, not as a means of last resort but as a practical tool for growth

With most alternative and non-bank lenders largely dependent upon the intermediary route to market, the NACFB community will retain its vital role as a conduit to critical business finance. Brokers will need to be met halfway, and many are still having to navigate shifting criteria, with some lenders refusing to provide for SMEs in certain sectors.

Some lenders publicly state they are open to lend across all business sectors, but in reality, there are many ‘red flag’ sectors in which they are unwilling to provide funding. In February, the NACFB called upon the Government to work closely with the lending community to identify such ‘red flag’ sectors and to incentivise greater activity in these areas. The Association’s calls went unanswered in the Budget, and it is therefore paramount that high levels of transparency and communication are maintained by all parties.

heights of the pandemic. This sizeable cohort of businesses will therefore only ever have engaged with lenders as a safety net. Intermediaries and lenders alike now have a task to help reframe commercial lending, not as a means of last resort but as a practical tool for growth.

Intermediaries also have another critical role: to reposition the very concept of business lending. The BVA BDRC’s quarterly SME Finance Monitor pointed to a sharp rise in what they term ‘Permanent non-borrowers’ receiving funding for the very first time during the

As for lenders, the pandemic found many far better capitalised than at the outset of the 2008 crisis, but the market alone could not respond to the sheer scale of business needs. If we are to face another crisis in the coming years, any response blueprint will need to be far more robust.

The NACFB is also lobbying for greater emphasis on the intermediary channel through the Bank Referral Scheme (BRS).

The BRS mandates that high street banks refer rejected business borrowers to three funding aggregator platforms, which in turn refer applicants to an array of alternative lenders. The Association wishes to establish mechanisms whereby banks can also refer customers directly to the intermediary market, where they can be assured of specialist, personalised support alongside wider market access.

NACFB | 27

A space oddity There is some irony that the term ‘new normal’ became a tired cliché long before any of us had the chance to experience the realities of it.

Before we re-enter anything even resembling normality, we should take pause and reflect on the journey we have undertaken. Again, there are parallels with the Apollo missions.

For astronauts returning to Earth, many experienced a curious cognitive shift known as the ‘overview effect’. This is the experience of seeing first-hand the reality of the Earth in space. From space, national boundaries vanish, the conflicts that divide people fade into insignificance, and the need to create a society with the united will to protect becomes both obvious and imperative.

The distance we have all had from daily life may also provide us with our very own cognitive shift. What made for a solid lending proposition pre-COVID, cannot remain the same in a post-pandemic world. Solid, profitable, and viable small businesses will return, but they cannot be assessed on their performance in the last twelve months alone.

Government responses have concentrated on helping SMEs survive the crisis. Nearly all measures introduced are aimed at improving liquidity through postponement of payments, value transfer to businesses and direct balance-sheet support. Fewer initiatives tackle the longer-term challenges that SMEs will face in adapting to the new landscape, especially if demand does not fully recover when the stimulus runs out. Thus, helping SMEs ride out the tail end of the 28 | NACFB

“

There is some irony that the term ‘new normal’ became a tired cliché long before any of us had the chance to experience the realities of it

pandemic is crucial, but it may not be enough. Businesses need help envisioning a new way of doing business. They need a long-term plan for restart and recovery, one focused on exceeding – and not just returning to – their pre-crisis performance.

The NACFB’s vision remains one of a genuine lending community bound by a sense of real unity. The charge of Moving Britain Forward is not a solitary one, it is a collective task, one to which we will rise. A strong and vibrant SME community is in all our best interests, because a working life without performing clients would leave us all feeling more solitary than any time spent on the dark side of the Moon ever could.

Here to help your client’s business reach its potential At NatWest we are committed to helping businesses grow and thrive. We will provide help and support to your clients as we all adapt to new ways of working.

Dedicated specialist Broker Team who’ll work closely with you to deliver purposeful solutions for clients of any size Access to our Business, Commerical, Corporate & Institutions Banking teams Forward thinking digital financial solutions aimed to make banking simple, easy and efficient Working capital management solutions Wide variety of asset finance options Expert thought leadership at NatWestbusinesshub.com Search NatWest Brokers Visit: NatWest.com Email: brokerteam@natwest.com Or Speak to your Broker Development Manager Finance is subject to status. Security may be required. Product Fees may apply.

National Westminster Bank Plc. Registered in England and Wales No. 929027. Registered Office 250 Bishopsgate, London EC2M 4AA. Financial Services Firm Reference Number 121878.

Special Feature

Out of commission Adapting to new disclosure rules Joanne Davis Partner Auxillias

T

he FCA’s ban on ‘discretionary commission models’ alongside new rules took effect from 28th January 2021.

It will take a while before we get a clear picture on how the new commission models and the disclosure requirements have settled, but firms should ensure that they have implemented the new rules accurately, then review them regularly to ensure that there are no unintended consequences, client harm, or detriment.

To fully comply with the rules, lenders must make changes to their pricing and commission approach. Many have remained conservative at this early stage and have granted other models for brokers that may also be workable under the rules. The next FCA review is pencilled for this coming September, whereby lenders will re-examine the models again and may well be open to discussions on alternatives structures.

Brokers must now operate within the commission rules that lenders have set; this is chiefly to prohibit discretionary commission models.

Those new ‘discretion removed’ models that took effect from January must now have good customer outcomes at the centre of them.

With old models no longer in place, lenders should by now have paid out on the outdated commission structures. However, some lenders have been unable to pay out on old deals and brokers have needed to re-propose transactions under newly agreed commission arrangements.

30 | NACFB

Accurately disclosing The new commission disclosure rules apply to all regulated credit agreements, including regulated consumer hire agreements, whereas the new commission models only apply to regulated credit agreements. However, many lenders that offer both products will have implemented the new models across both products. Whilst the commission models only apply to motor vehicles, lenders are taking the decision to apply the rules to other assets as well.

The disclosure rules apply before the agreement is concluded and at two key stages. Firstly, within financial promotions and all communications with customers. It will be important for brokers to indicate to their customers in a prominent way, the existence, and the nature of any commission arrangement, and as the broker may have different arrangements for different lenders it will be important

“

Whilst the commission models only apply to motor vehicles, lenders are taking the decision to apply the rules to other assets as well

“

Whether these new commission models are actually working as intended within the marketplace, only time will tell

that they explain each of these clearly. The good news is that these disclosures must be made in general terms meaning that brokers do not need to provide a full illustration.

Secondly, during any pre-contractual information, brokers are required to disclose information to the client, prominently and in good time. This should be done before the customer decides whether to proceed with their agreement. The existence and nature of any commission (or other remuneration) arrangement with the lender should be disclosed alongside how this may impact the amounts payable by the client.

Whether brokers do or do not make a recommendation, they would need to cover this information in the disclosure statement. We would advise that brokers seek advice before deciding if they are going as far as recommending products.

Another area of drafting, that may yet see some variation, falls within the requirement to confirm the extent of the broker’s scope, and whether the broker operates either independently or exclusively.

For example, it might be that the broker works for a limited number of lenders. If this is not the case, brokers must explain clearly what the arrangements are. If you are a franchised dealer, for example, with an arrangement with a captive, you should make it clear that the customers will be introduced to the captive first, and that if this lender is not prepared to make an offer of finance, that the broker will then seek to introduce them to other lenders on the panel.

Currently, many brokers’ disclosure statements that I have seen still need some work to be fully compliant.

What about the lenders?

Lenders should have also made changes to their pre-contract information sheet and to their regulated credit agreements to reflect the new rules on commission disclosure. The statement contained in the lender’s agreement may direct the customer to ask the broker to tell them in good time, before the agreement is made, about the commission arrangement. If requested by the customer, the amount of the commission that the broker earns must then be disclosed.

Brokers should be prepared for this and have a process to deal with customer requests to disclose the amount of commission.

FCA monitoring Whether these new commission models are actually working as intended within the marketplace, only time will tell. However, lenders and brokers should regularly review this to make sure that there are no unintended consequences, especially ahead of the FCA’s September market review.

There are of course other key regulatory areas, including the management of the rules in CONC which specifically relate to brokers’ duties and the conduct of business that are equally as important for brokers to comply with, we will cover this off in our next article.

NACFB | 31

Special Feature

What goes up must come down Or does it?

Phil Derbyshire Managing Director Goldentree Financial Services

T

he resilience of the UK property market during the pandemic has been one of the few bright lights amongst the gloom.

Sat reflecting on the contents of an unprecedented press conference, at 20:35 on Monday 23rd March 2020, few people would have predicted that the average UK house price would rise 7.9% by December 2020.

But rise they did. In fact, since the slump following the financial crisis at the end of the 2000s the average UK house price has risen from £154,452 to £251,500 – 62% over the decade.

So, what does post-Budget 2021 have in store for UK house prices and what is the outlook for the many SME housebuilders developing in the UK? The stimulus provided by the Government in response to the pandemic has undoubtedly helped, mainly the stamp duty holiday and the rush caused by the cessation of the ‘old’ Help to Buy scheme in April 2021. But the fiscal response does not paint a complete picture.

Here in the UK, we pride ourselves on being a nation of homeowners – ‘our home is our castle’ – and a seismic change in our lives, such as that brought about by the pandemic, creates a significant change in behaviours and demands. Walking distance to a mainline train station and proximity to a city center may have been crucial buying criteria before, now replaced by a garden, a small home office and fibre optic broadband connectivity.

This has resulted in incredible demand in the housing market, 32 | NACFB

outstripping supply, fueling growth in prices. A great time to develop right?

The scales are now finely balanced. On one side you have the extension of the stamp duty holiday with a tapered end, the new 95% mortgage guarantee scheme, the success of the vaccination programme and the re-opening of the economy. On the other side, the end of the furlough scheme in sight and the threat this may pose to income levels and unemployment.

Fundamentally however the key principals of residential development remain. Building the right product, in the right location at the right price. Consumers still want quality and value and whilst their buying criteria may have changed due to the pandemic, those property developers who react and adapt quickly to provide the marketplace with the products it demands will undoubtedly prosper.

There will be winners and there will be losers, but in adversity there is always opportunity, and that maxim remains true to those building homes in the UK. The secret is, as it always has been, in understanding the customer and giving them what they want.

“

The key principals of residential development remain. Building the right product, in the right location at the right price

Asset Finance

Helping you deliver extraordinary service, for out of the ordinary transactions Here at Shawbrook, our intermediary team has the asset and sector knowledge to provide bespoke facilities for those more specialist requirements.

Speak to us today to find out how we can work with you to deliver the service and solutions your clients need.

“ We were delighted to work alongside Shawbrook and knew right away that this kind of niche project would be one that would fit nicely with their position as a specialist lender.”

Matt Vaughan Asset Finance Solutions

Get in touch

0345 604 0976

partnerproposals@shawbrook.co.uk

Proudly different

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

Special Feature

Transitioning to transit Funding growth in the transport sector Dale Trenam Head of Transport Finance Paragon Bank

K

eeping the UK moving is vital to our economy, more so than ever as we face the ongoing challenges of the pandemic.

The latest figures from Companies House show the increasing demand on the transport and logistics sector, both during 2020 and throughout the years prior to the onset of coronavirus. The latest data release shows that this sector has grown by over 155% since 2013.

Over 163,000 companies were registered during the year 2019-2020.

Since the onset of the pandemic last year, online shopping has seen a huge increase. During the pandemic’s initial peak in April 2020, ONS figures show that internet sales formed over 30% of total retail sales which were up 49% on the same month in 2019. Online retail sales are still booming in the wake of the most recent lockdown and this continues to put huge demand on delivery firms.

Carriers such as Hermes have been overwhelmed with demand from retailers and more and more independent courier businesses have been established as online retail continues to surge. Last year, Hermes UK announced it would spend £100 million on expanding warehouse capacity and recruiting new staff and this was after it had already spent around £30 million on opening new depots and acquiring additional vehicles to strengthen its infrastructure.

During the lockdowns and ongoing restrictions, travel within the UK has been halted for much of the past year, so coach firms serving the leisure industry have taken a huge hit. However due to social distancing measures in place within schools, demand for coaches for school travel has increased sharply to ensure that pupils can travel safely and within COVID-19 guidelines.

34 | NACFB

The recent announcement regarding coronavirus testing for UK hauliers crossing the border to France is expected to impact the sector and slow haulage. Hauliers are now required to test negative for the virus within 72 hours of leaving the UK for France to be able to continue their journey. However, the ongoing roll-out of the vaccine means a network of refrigerated delivery lorries is needed to deliver the vaccines around the country, which has been supported by several distribution firms.

COVID-19 aside, the Department for Transport is making large scale investments in transport infrastructure, which includes the UK’s road network. A major project is the A14 road upgrade, which provides a vital link between the Midlands and East Anglia and will be of huge significance to hauliers.

The increasing demand for more eco-friendly travel and green initiatives within the industry is also having an impact and remains at the forefront of the sector’s mind. A huge proportion of HGVs on the UK’s roads are running on empty as they return to depots following deliveries, resulting in wasted fuel, money, and time. More and more haulage companies and couriers are beginning to network with each other to collaborate and find back loads to reduce this ‘empty travel’.

“

Online retail sales are still booming in the wake of the most recent lockdown and this continues to put huge demand on delivery firms

Green couriers are beginning to emerge, that operate fleets of battery-powered and ultra-low emission vehicles. Larger companies are also following suit, including the likes of Amazon, which has unveiled an all-electric fleet of delivery vehicles. The company plans to have more than 20,000 of these vehicles operating by 2022 and it is highly likely that other couriers will follow suit.

Resource availability has been stretched because of the coronavirus pandemic, with international travel under huge scrutiny. Keeping our

globalised world connected through shipping and freight has been vital to ensuring medical supplies and essential products get to their destinations. But with less manufacturing and shutdowns to entire sectors, supply chains will take some time to reignite, and what will the demand be for items that people lived without for so long? And how can we reduce the impact on the environment from a restoration of these high-intensity routes? Low-carbon travel across populations as well as within business needs and cargo distribution will also play a huge role on meeting climate emissions targets.

Industry Insight

Making progress There is light at the end of a long tunnel Fhaheen Khan Senior Economist Make UK

James Brougham Senior Economist Make UK

M

anufacturing is traditionally a sticky sector that makes it difficult to shift production lines to new products, yet advancements in technology have allowed many to realise the sector is more malleable than previously thought.

At the onset of the pandemic, manufacturing rallied to a call to arms in support of the NHS. A stampede of manufacturers redirected resources to provide much needed PPE, sanitation products, medical devices and even food to keep the nation going.

With the UK’s vaccine programme starting to bear fruit, the UK manufacturing sector has responded with an improvement in business and economic confidence. As the UK’s leading barometer of manufacturing economic activity, Make UK and BDO’s latest Manufacturing Outlook survey has indicated that the sector is slowly arriving at the end of a long tunnel. Output levels are on the rise for many manufacturing subsectors across the nation as businesses come to grips with a post‑Brexit, and soon to be post-Brexit-COVID-19, world.

However, the export performance remains a concern for manufacturers, particularly SMEs, who face the consequences of exiting a single market. In the past, shipping goods to France or Germany was as easy as manufacturers in the North East transporting goods to the south of England. Now businesses are faced with a plethora of red tape and bureaucracy which will disproportionately impact the smaller companies which lack the 36 | NACFB

expertise of the larger firms more able to absorb these costs.

Fortunately, Q1 2021 reported an end to the continued decline of domestic orders, which has lasted almost two years. This is primarily a reflection of the economy re‑opening and has positively affected order books. Although it is too early to tell, it may also indicate a substitution of supply-chains from overseas inputs to more domestic sources, where these are available.

The extension to the Job Retention Scheme will go a long way in supporting struggling businesses until the economy reopens completely. However, the survey indicates job losses remain high, albeit the rate of loss is slowing.

Investment intentions have improved in the first quarter of the year, although they remain negative on balance since Q2 last year. Investment is the lifeblood of the manufacturing sector, and the recently announced super-deduction scheme, which will allow businesses to reduce their tax bill by up to 25p per £1 invested may turbocharge investment intentions in the short run. What is not clear about the impact of this incentive is whether it will increase new investments, or only bring forward investments that were already planned.

To read the full Manufacturing Outlook Q1 2021 report visit: makeuk.org

“

What is not clear about the impact of this incentive is whether it will increase new investments, or only bring forward investments that were already planned

A New Identity for a World of Difference We are a forward-thinking asset finance specialist, growing our service and adapting our identity to emphasise our market position.

But some things won’t change because our foundations are built on our heritage. We’re committed to developing funding solutions that fit the needs of your customers. So, whilst our look may have evolved, our award-winning service is always at the heart of everything we do.

• Hire Purchase • Leasing • Refinance • Bespoke Solutions

Dedicated broker support: 01254 685850 newbusiness@haydockfinance.co.uk

FOR INTERMEDIARY USE ONLY. Haydock Finance Ltd is authorised and regulated by the Financial Conduct Authority. Financial Services Register no. 722545.

Industry Insight

Innovation and good outcomes The customer journey in a digital world Harry Hughes Senior Insight & Support Manager Lending Standards Board

I

nnovation and the pace of change in financial technology means more choice and greater access for customers.

But there are also risks, with new products and offerings being introduced which, without proper consideration, could lead to unintended consequences. At the same time, COVID-19 is accelerating a shift towards digital channels and intensifying customer expectations when it comes to the digital banking experience. By thinking about the customer journey in the digital space, both lenders and brokers can consider how to tailor their products and services to ensure good customer outcomes.

Over the last twelve months we have witnessed a seismic shift in the way technology is being used in financial services, particularly when it comes to firms interacting with their customers.

In the immediate term, those lenders that provided banking services predominantly via branch or telephone had to adapt quickly, whilst experiencing mounting pressure on resources due to staff shortages and branch closures.

In the long term, we are seeing an increased reliance on digital services among banking customers. In fact, more of us are using digital channels then ever before. According to research by RFi group, 73% of UK customers are using digital banking channels weekly 38 | NACFB

(higher than the global average at 71%), whilst mobile banking use has risen among UK customers, notably from 52% to 57% between H2 2019 and H1 2020.

In a bid to adapt to this new reality, lenders are increasingly looking to enhance their digital offerings for business and personal banking customers. In this environment, a seamless digital customer journey will be key if both lenders and brokers are to win and retain new business. But what does this actually look like in practice?

As a first step, it is vital to ensure that robust oversight and assurance models are in place across the customer journey. This involves lenders and brokers working together to understand the frameworks in which the other operates and identifying anything that might have a detrimental impact on the customer.

Oversight is always important, and especially so following a digital transformation project or change in communication strategy.

“

Managing expectations is crucial to ensuring an effective customer journey

Brokers must seek to understand how lenders are adapting their offering (for example, have they introduced a new service to the app for online accounts?) to consider how this will impact their customers.

When adopting new digital processes, firms need to have confidence that their product and channel offerings are suitable for the wide pool of potential customers. This should include considering any impact on customers who may have accessibility or other needs.

Firms should also have plans in place should the digital channel become unavailable, for example, because of a technology or platform failure.

Managing expectations is crucial to ensuring an effective customer journey. Both lenders and brokers should guarantee that the customer is provided with all of the information needed to make a decision and explain what the rest of the customer journey will entail beyond the point of sale.

For example, if a lender has a digital only customer journey but uses brokers who interact over the phone, the brokers must ensure that the customer understands how the process will work for them and what its limitations may be going forwards. Managing expectations in this way increases the likelihood of good customer outcomes, satisfaction with product choices, and trust.

Ultimately, whether customers apply for a product directly through the lender or via a broker should not have a bearing on the success of the customer journey. Both lenders and brokers must be equally confident in their ability to help customers at certain crunch points along the way, especially as they look to navigate the roadmap

“

Whether customers apply for a product directly through the lender or via a broker should not have a bearing on the success of the customer journey

out of lockdown. With temporary business support measures such as the new Recovery Loan Scheme, which has replaced BBLS and CBILS, business lending customers in particular will be looking to their providers for the information, tools, and support they need.

Firms should make sure that any support currently offered to customers is not removed without consideration being given as to what replaces it.

There is no doubt that the pandemic has accelerated existing trends towards digital banking. Now, there is a significant opportunity for lenders and brokers to work together to optimise the customer journey and keep these customers on the digital path. Those that fail to recognise the importance of this risk being left behind.

NACFB | 39

Industry Insight

Technology only provides answers We remain responsible for asking the right questions Chirag Shah Chief Executive Officer Nucleus

W

e find ourselves in an age where fully self-driving cars are on the horizon, so it’s safe to say that one-click loan decisions are set to become the norm in the near future. Fintechs are leading the lending crowd and at some point, traditional lenders across the board are going to catch up.

With that in mind, brokers far and wide will eventually transition entirely to this new way of working and as such, will play a vital role in enabling the use of tech in everyday lending.

A click of the fingers, not the mouse As lenders, we know that technology will continue to dominate day to day operations, but the reality is that we can only do so with the support of our valued broker network. Introducers are the first port of education for thousands of businesses across the country and therefore must pave the way when it comes to making customers feel at ease with this tech-minded future of funding.

At Nucleus, we have created a user journey where more than 80% of our deals are decisioned within two hours, with a further 5% decisioned within a day. We are working towards a future where most deals are decisioned in just seconds and that is an approach that will no doubt become universal in the fintech landscape.

40 | NACFB

However, we must all be mindful of the fact that many businesses are somewhat reticent about the use of technology where money is concerned and will perhaps sway towards more traditional options as a result. But as a broker, it is of course your job to establish what a customer needs and to seek the right provider – that provider may well heavily incorporate technology in the application process and the emphasis for brokers should be about advocating this tech so that customers can feel at ease with it.

Data-driven decisions Open Banking has faced plenty of scrutiny as the new kid on the block, but customers must realise that this is the most secure way of providing financial data, as nothing can be forged, and third-party providers only receive read-only access.

AI has enabled fintechs to speed-up the lengthy processes usually involved with commercial lending, with auto-decisioning and auto-underwriting proving to be hugely successful in recent years.

Finally, eKYC and digital AML provide an extra layer of protection, but when errors are made whilst providing information during the application, delays and frustration for all parties involved become likely. To get customers invested in the use of tech moving forward, lenders and brokers need to work together to ensure accurate information is provided during the application process. Exercising patience and making the effort to get it right first time will help avoid disillusionment about tech-driven decisions and enable swifter, more consistent decisioning for UK businesses everywhere.

Let’s keep this simple.

Our bespoke Introducer Portal was rated as good, very good or excellent by 96% of brokers for ease of use.* • • • •

Make simple online applications Track applications in real time Manage all your deals in one place Fund more SMEs

Combined with access to our expert relationship manager team, you can expect clarity, consistency and collaboration from Allica Bank every step of the way.

Find out more at allica.bank/introducers or give us a call on 0330 094 5555 COMMERCIAL MORTGAGE LENDER OF THE YEAR PATRON OF THE YEAR

BDM TEAM OF THE YEAR

*Source: Allica Bank’s Q1 2021 Broker Survey of 131 brokers

Allica Bank Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (FRN: 821851). Registered office: First Floor, Eldon House, 2-3 Eldon Street, London EC2M 7LS. Registered in England and Wales with company number 7706156.

Industry Insight

All that glitters Deals that seem too good to be true, usually are Deborah Hutchinson Managing Partner Channel Capital Advisors

O

ne thing that is becoming quite evident from the pandemic is the rise of fraudulent activity that can – and will – impact funders, brokers, and their clients.

Action Fraud data shows that there were 89,153 reports of fraud at an estimated cost of £406.5 million in the first two months of 2021, and that of the total there were 4,450 reports of investment fraud valued at £109.6 million over the same period. Whilst many brokers may only be too grateful to see an uptick in enquiries, one should always look a gift horse in the mouth.

There will be individuals out there who will undoubtedly appear to be highly professional in their approach but will be looking to prey on the unsuspecting business owners. As the race to re-establish healthy turnover and profitability ensues, we should all be ensuring that high standards of due diligence are maintained.

Fundamentally, we shouldn’t be afraid to get back to basics to make life harder for fraudsters. When an enquiry is received from a new or existing customer, does it make sense? Does it look and feel right?

We’ve collated below some pointers and possible red flags: • Is the enquiry expected? Can you trace the lead to a source – or has it simply landed?

• Have the negotiations surrounding pricing, terms and conditions, been too easy or even non-existent?

• Are you dealing with the person they claim to be? It’s worth checking LinkedIn profiles and do not be afraid to message them to verify they are who they say they are.

• Does the business itself look legit? Are there typographical errors or omissions in literature?

42 | NACFB

•

Check the website content, domain names, email addresses, telephone numbers. Use a search engine to check that the stated phone numbers are correct and call that number to ensure any other numbers or addresses given, are indeed correct.

• Is the physical business address consistent with the type of service being fulfilled?

• Has the client expressed a keenness for haste? Are you being pressured to deliver funding quickly?

•

Is the credit rating of the client sound? Has there been a rapid increase in credit searches or requests for higher-than-normal credit limits on the buyer? This could indicate a sudden change in activity for any number of reasons.

Whilst not exhaustive, these are all checks that brokers – and their invoice financiers – can utilise to help stop the fraudsters in their tracks.

Business owners and their advisers may well choose to engage with an invoice financier to not only help improve working capital but to also enhance risk mitigation, by conducting credit checks as well as invoice and paper trail verifications.

We can share all manner of tips, red flags, and pointers, but more often than not a fraudulent application can be felt in your gut before anywhere else. Listen to your gut – and trust your instincts.

“

Fundamentally, we shouldn’t be afraid to get back to basics to make life harder for fraudsters

Property, meet simpler finance Technology-enabled lending • Faster underwriting with Open Banking • Less paperwork with digital ID and credit searches • Dedicated teams for deals of every size Property finance made simple

lendinvest.com LendInvest Limited is registered at 8 Mortimer Street, London, W1T 3JJ (Company 08146929).

Your client’s property may be repossessed if they do not keep up repayments on their mortgage.

For intermediaries only.

Broker Voice

The true cost of capital Maximum profit, minimum equity Julian King Asset Finance Advisor Arc & Co.

W

hat is the true cost of capital? When looking at development finance, many borrowers focus on the rate of interest that is applied to the loan, however this is only a small fraction of the total cost of capital and there is much more to consider. It is not always the lowest interest multiple that generates the lowest cost and the most suitable loan.

The first and maybe most obvious consideration is gearing. How much leverage is required? The higher the leverage, the higher the risk. The higher the risk, the higher the price. Once you have worked out how much leverage you require to fund the development, you can then start to look at how to structure the loan in ways that maximise your profit and/or minimise your equity, increasing your return on equity (ROE).

Some borrowers require low leverage and low pricing to maximise their profit margin, but this is equity intensive resulting in a low ROE. In real terms, this approach is very expensive as equity is more costly than debt, both in pricing should you need to raise it, but also in

“

If the interest rate is low, but the entry fees are high, this is likely to reduce the day one advance

opportunity cost should you already have it, limiting the number of developments that you can construct at any one time.

To minimise the equity required you need to look at maximising the day one land advance, which comes with increased leverage and is the amount contributed by the debt facility once all other delivery costs including interest have been funded. It is not always the loan with the cheapest interest that maximises the day one advance. A borrower needs to understand the in and out fees and how they are apportioned to the loan. For instance, if the interest rate is low, but the entry fees are high, this is likely to reduce the day one advance. Some lenders will back end the fees meaning that there is more to pay on the exit of the loan. The lender is taking more risk and therefore this might be reflected in the interest rate charged to the debt.

The delivery programme is just as important as often this is where interest is saved, regardless of the rate at which it is charged. Most construction drawdowns are calculated on an S-Curve basis,

meaning you are only paying interest on the amount of debt that is drawndown. Simply put, capital that is not being used is not charged upon. The only way to accurately assess this is to build a realistic cashflow model and likely drawdown profile to properly analyse debt required and the associated interest coupon. Some borrowers will work on a peak debt basis, further reducing their cost of borrowing by optimising their drawdown profile. This works well when building houses but is very difficult in residential blocks.

In summary, to accurately calculate and compare the true cost of capital you need to measure it as a percentage of the total cost of finance by adding together the entry and exit fees, the interest apportioned to the loan and cashflow divided by the gross loan amount. This percentage can then be measured against ROE and it is often surprising that the loans with the lowest interest rate are not always necessarily the cheapest overall cost of capital. The biggest factor that affects how cost effective a borrower’s capital really is, is ultimately down to the performance of the project, construction, sales, and time.

NACFB | 45

Opinion

Opening up to the possible Putting your recovery plan into action Peter Nicholls Senior Health & Safety and Environmental Consultant NatWest Mentor

Jenna Carberry Employment Law and HR Adviser NatWest Mentor

T

increase in productivity and employee wellbeing while staff worked from home. But a permanent shift to flexible work practices is more complicated than sporadic home working during a crisis.

SMEs should be encouraged to review what worked during the pandemic to identify the tasks that can be performed in different ways or in different venues. Flexible working policies need to be updated and a home working policy created if they do not have one.

To avoid confusion, fear of change and unrealistic expectations, it is crucial to consult staff closely and explain all reforms.

Reviews of home working equipment should include a workstation risk assessment, and attention must be paid to cyber security and data protection.

he worst of the COVID-19 pandemic is almost certainly behind us and recovery beckons, but British businesses now face the challenge of adjusting to the ‘new normal’.

From adopting flexible working practices to finding the right vaccine protocols, there are enough changes ahead to test even the best-resourced management teams, let alone firms that are still struggling to recover from almost 12 months of lockdown restrictions on their businesses.

To help SMEs lift their productivity and protect staff wellbeing, here are the top tips from Mentor, one of the UK’s leading consultancies on employment law, human resources, health and safety and environmental issues.

Be clear on new working arrangements A study of 1,420 British businesses by the Flex Appeal campaign found more than 72% of employees wished to retain home working after the pandemic. Meanwhile, many employers reported an 46 | NACFB

“

SMEs should be encouraged to review what worked during the pandemic to identify the tasks that can be performed in different ways or in different venues

“

Line managers can find it harder to motivate, lead and monitor staff when they are not physically working together and attending in-person meetings

Rethink ways of managing Massive changes in work practices are likely to require revamped management structures, resources and training.

Line managers can find it harder to motivate, lead and monitor staff when they are not physically working together and attending in-person meetings. That means managers may require extra support and training to identify the needs of individual staff. Young workers, for instance, can struggle to adjust to corporate culture when working from home, and research suggests even the most promising home workers can be overlooked for promotion compared to colleagues who spend more ‘face time’ in the office.

Managers’ duty of care includes ensuring staff have safe home working set-ups, monitoring their workloads, and making sure they are not worn out by seemingly limitless video meetings caused by careless scheduling. Businesses should consider adopting ‘flatter’ reporting structures to provide more contact with workers and ensure line managers can detect the warning signs if employees are struggling. Encouraging a culture of checking in with colleagues can prevent problems spiralling out of control.

Make sure the business is COVID-compliant It is important to document COVID risk controls to promote best practice and protect the business if there are any problems. Risk assessments must stay abreast of changes within the firm and the latest guidance from the Health and Safety Executive (HSE), industry associations and advice from Mentor. Reviews need to be recorded, as do training sessions and instructions provided to staff.

The HSE makes frequent visits to workplaces and responds to complaints of unsafe working practices; it can also issue formal notices for improvements to be made. This underlines the importance of undertaking COVID-19 risk assessments, implementing appropriate procedures and making sure staff are following them. Mentor can assist with this process.

Encourage vaccines Some businesses would like to make vaccinations mandatory for their staff, but that could result in legal risks and issues with morale, so we would encourage firms to seek advice if they are considering such a step. If employees refuse to be vaccinated, the appropriate response should be based on their circumstances and their reasons for refusing.

There are some actions any business can take right now to encourage vaccine uptake, such as providing staff with information and education about the benefits. There is no statutory entitlement to paid time off to be vaccinated but it could be a good investment in ensuring a safer workplace and a more resilient business.

When it comes to vaccines and other workplace issues, SMEs should seek expert advice when they need it. Mentor has been supporting businesses since 1996 and has 20,000-plus clients. It provides free digital services and a dedicated COVID-19 hub, as well as e-learning modules and year-round telephone advice with its subscription services. Mentor’s subscription services incur a cost.

If your clients are not already a Mentor customer, you can find out more for them via your NatWest BDM. NACFB | 47

Opinion

The lockdown roadmap Our path is leading to a short-term lending bounce ​​Alan Margolis Director of Bridging Masthaven Bank

F

or over a year now, every single person in the UK has lived their life under some form of COVID-19 restriction, from tiered controls and stay-at-home orders through to total lockdowns. No part of the economy has been spared, but the pandemic has had a profound effect on the lending market.

The pandemic has been the latest and perhaps largest challenge for the industry, but immediately prior to the pandemic, the market also had to cope with much political uncertainty. A general election and an unclear Brexit deal left many borrowers sitting on their hands, waiting for more clarity about their future. As a result, the market has been like a corked bottle waiting for release.

The government has now provided some light at the end of the tunnel with its roadmap for the gradual and cautious re-opening of the country. As a result, we are likely to see a significant bounce in short-term lending as life begins to return to normal. Lenders and brokers alike should therefore start to prepare for this surge, as borrowers embark on their own personal roadmaps towards a post-COVID life.

Opportunities and obligations Without a doubt, the easing of restrictions and the return to a less disrupted way of living will open a host of opportunities, many of 48 | NACFB

which may require additional capital. Britons have spent more time trapped at home over this last year than ever before, which has already led to a well-documented DIY boom. As restrictions are lifted and homeowners feel more comfortable embarking on even larger projects, we are likely to see even greater demand for short-term finance to fund home refurbishments.

Rather than change their current home, some buyers will be looking for a new house altogether. At times it has felt like the pandemic has forced life to a standstill, but in reality, children have kept on growing, families have kept on expanding and their needs have changed accordingly. As a result, many families have been trapped in a house that they are outgrowing and will be eager to move to a larger property.

“

Now is the time for lenders and brokers to ready themselves to support their customers in this next phase of their lives

At the other end of the spectrum, there will be households looking to downsize. If large numbers of people decide to move this year, we could see a boom in long and complex property chains.

This is exactly the kind of situation that bridging loans were designed to handle, so brokers need to be aware of these products and understand the benefits they can offer to customers in this predicament.

The pandemic has also had a significant impact on the personal finances of a great number of people in the UK, which means that many will exit the final stages of lockdown with considerable financial obligations. For some individuals facing urgent financial obligations that can’t be met through other means, unlocking some of the equity held in their home might be the best way to meet these challenges.

At White Oak, we finance growth FAST, FLEXIBLE, FRIENDLY, FAIR, FOREVER At White Oak, we understand the power of capital - whether it’s growth, expansion or cashflow management. With a network of dedicated support and credit professionals, we can help brokers in providing fast, flexible lending.

To find out more about how White Oak can help you thrive, visit: www.whiteoakuk.com or call 0333 3317565

Time to prepare As we begin to move towards the end of lockdown, now is the time for lenders and brokers to ready themselves to support their customers in this next phase of their lives. Lenders should be clear and vocal about the short-term lending options they can offer and let the market know they are open for business. Brokers, meanwhile, should familiarise themselves with the options available and consider where they can make best use of these products to support their customers post-COVID. Of course, the circumstances of every borrower are different, but there is a clear and important role for short-term lending in the post-virus economic recovery. As we enter the final stages of the pandemic, this recovery is hopefully not far away.

Opinion

Turning the corner Puncturing the property pressure Andrew Ferguson Managing Director – Buy-to-Let West One Loans

I

f you can remember back to before the COVID pandemic, mortgage rates were very competitive, with pricing geared towards the lower end of the scale and record low interest rates available. The mortgage market witnessed a strong start to 2020 and we had a positive outlook for the year ahead.

But that soon changed as it became clear that COVID was turning into a pandemic and the country was put into lockdown in March 2020. Uncertainty swept through the mortgage industry and we saw a significant reduction in product availability, and tightening of criteria, amongst the lending community because of the perceived risk.

The buy-to-let (BTL) lending community continued to function with a degree of normality, despite the uncertainties in the market and difficulties in obtaining valuations. However, pricing did increase both to control the flow of lending and to reflect heightened risk.

Criteria was also tightened to make sure credit decisions were robust and sustainable. As a lender we continued to lend throughout the pandemic but in a controlled way.

Gradually, over recent months we have been returning to normal and coming more into line with what it was like before the pandemic in terms of pricing and lending criteria. Competition has returned to the market and we are extremely busy as demand for property and mortgage finance is strong. Despite the second lockdown in November, more optimism has prevailed with less of an impact on our sector, with valuations remaining available and an increasingly positive sentiment for the future as the vaccine roll-out marches on at pace.

As a non-bank lender, we are funded by several institutions and via the capital markets. Pricing undoubtedly includes an element of 50 | NACFB

competitive tension; however, we price according to our own risk appetite objectives. The start of this year has been positive for us with the introduction of new products and an enhanced BTL offering including an increase in our maximum loan size from £1.5 million to £5 million. The product improvements also saw a return to an 80% LTV product following a more stable economic outlook and we improved our pricing in our specialist range including HMO/MUBs, holiday let and expat lending.

Growth in BTL mortgages has been supported by the stamp duty holiday, introduced in July 2020. As a result of this incentive, we have seen a rise in the number of landlords wanting to develop their portfolio and interest from first-time landlords looking to invest in property.

Now that the stamp duty holiday deadline has been extended until 30th June and the threshold to start paying it has been raised from £125,000 to £250,000 for three months after that, it is going to be a busy time for mortgage lenders and brokers.

Buy-to-let remains attractive to investors as a long-term investment and from a lender perspective has proven one of the most resilient segments of the property market during these unprecedented times.

“

Gradually, over recent months we have been returning to normal and coming more into line with what it was like before the pandemic in terms of pricing and lending criteria

HELP YOUR CLIENT MEET THEIR PROPERTY DEADLINES WITH

£

Access to our in-house funds

Rates starting from 0.59%

020 7060 1234

Direct contact with underwriters

info@mfsuk.com

Upfront, with no hidden costs

Fast response within 4 hours

www.mfsuk.com

Listicle

ways the Budget will impact SMEs

H

elping the UK get back on its feet in a post-pandemic world or kicking the debt can down the road? Whatever your stance, the Government has said that Chancellor Rishi Sunak’s Budget 2021 will deliver an investment-led recovery and there were several measures announced that will directly affect SMEs. Here are just five.

1. Furlough scheme continues to September Although progressively less generous, the furlough scheme has been extended to 30th September 2021. In July, employers will have to contribute 10% of wages, increasing to 20% in August.

2. New government-backed loan scheme By now you will have seen that the Recovery Loan Scheme has replaced CBILS and BBLS. The new scheme allows businesses of any size to apply for a loan or overdraft of between £25,001 and £10 million, repayable over six years. With terms over three years, the scheme also offers asset and invoice finance between £1,000 and £10 million.

Both will be backed by an 80% government guarantee. Once received, the finance can be used for any legitimate business purpose, including growth and investment.

4. 130% super-deduction on plant and machinery From April this year until 23rd March 2023, companies which invest in qualifying new plant and machinery assets can claim a 130% super-deduction capital allowance plus a 50% first-year allowance for qualifying special rate assets. According to the Treasury, the super-deduction will allow companies to cut their tax bill by up to 25p for every £1 they invest, ensuring the UK capital allowances regime is amongst the world’s most competitive. It is hoped that this super-deduction will encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow, and to make those investments now.

5. Increases in the national living wage 3. 25% corporation tax from 2023 From April 2023 corporation tax will increase to 25% from its current level of 19%. Despite the rise, the rate will remain among the lowest in the G7. To help companies with annual profits below £50,000, the rate will remain at 19%. The Government says this will affect around 70% of actively trading companies. Only corporations with profits in excess of £250,000 will pay 25%. For those in between there is a sliding scale.

52 | NACFB

Eligibility for the top rate of the National Living Wage will be lowered to those aged 23 and over (from 25 and over in 2020). The actual rate of pay for this group will rise on 6th April to £8.91 per hour from £8.72. Rates for younger employees will also increase.

Business owners would do well to remind their payroll staff about these changes. As food for thought, according to the Living Wage Foundation the UK’s real living wage is £9.50, or £10.85 for those residing in London.

It’s good to know that despite the challenges of the past year, some 7,000 UK employers voluntarily pay this higher amount.

We’re ready when you are We understand that situations may not always go as expected and businesses may need to adapt their plans and direction.

At Close Brothers Business Finance, we support brokers with strong, secure asset finance solutions that can help protect their customers now, and in the future.

Refinance/Capital Release – Access cash held in existing assets and ease cash flow Hire Purchase – Spread the cost of an asset purchase over time Lease – Low initial outlay, but quick access to what is needed Ask us, we’re here to help you, help your customers.

0330 134 6787 www.closebusinessfinance.co.uk

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 office is 10 Crown Place, London, EC2A 4FT.

Modern Merchant Banking

Five Minutes With

​ ive F Minutes with: Ian Ford ​​Ian Ford Investment Manager Blackfinch Property Describe your role in ten words or less?

Management of bridging/property development propositions and active loan management.

How do you make a difference?

Giving my all every day, listening to what people have to say and being kind and courteous to those I come in contact with.

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

The proposition must make sense. Does the sponsor have the required experience and financial standing? Is the proposed development suitable for the location and demographic? Have all elements of the development been suitably costed? The more accurate the proposal, the more confidence you have in it from the start.

What’s the most common reason for turning away a deal?

Since coronavirus, the most common reason for declining a proposition would be its position in the development sector. There is still significant uncertainty around the commercial/retail sector and the impact of the pandemic on value.

54 | NACFB

What recent professional accomplishment are you most proud of?

Not every deal is suitable for all lenders, and you need to be able to communicate this to the broker.

Last June, I was made redundant due to coronavirus. Within 24 hours, two prior customers had offered me consultancy work, proving the strength of the relationships I had built with them.

If you could have dinner with anyone from history, who would it be and why?

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

Provide the proposed funder with the full picture, first time. Paint an accurate picture of the proposition including detailed build costs, ALIEs (Assets, Liabilities, Income and Expenditure), prior valuations, planning consents, etc. The better the proposal, the more confidence a funder will have in it.

What are the key elements to maintaining a strong lender/broker dynamic?

It’s about building strong personal relationships. This way you can have honest, open dialogue about propositions.

Robin Williams. One of the funniest men to have graced the earth.

What has been your lockdown essential?

My iPhone has been invaluable during lockdown, keeping me connected to colleagues, family, friends and the outside world. However, the appeal of Zoom/ Houseparty has significantly reduced over the last 12 months.

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

The pandemic has proved flexible working is viable. I think there’s value in empowering staff to manage their time efficiently between home and the office. It will also see major organisations looking at overheads including office space requirements.

Housing Accelerator Fund Working in partnership with Homes England 70% LTGDV | Loans up to £10m

Development Finance 60% LTGDV | Loans up to £30m Development Exit 70% LTV | Loans up to £30m

BUILDING ON A PARTNERSHIP United Trust Bank, supporting the building activities of Developers and House builders to deliver much needed homes across England & Wales.

T: 020 7190 5555 E: development@utbank.co.uk

we understand property finance