Commercial Broker (NACFB Magazine) March 2020

Issue 78 MARCH 2020

Broker COMMERCIAL

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

18 A LENDING LEGACY It’s not about loving money, but loving what money can do

20 KEEPING COVERED All you need to know on a PI insurance market in flux

Communicating with clarity Conveying a message with substance and simplicity

32 PLOUGH YOUR OWN FURROW We’re nearing the end of farm investment stagnation

44 LEADING BY EXAMPLE Intermediaries have a duty to maintain high standards

Contents

In this March issue NACFB News

Special Features

4 6 8 10-11 12-14

24-25

Note from Graham Toy Updates from the Association Note from headline sponsor Industry news round-up Patron news

26-28 30-31 32

34

Aldermore: Backing asset brokers NACFB: Keeping it simple West One: Standing tall UK Agricultural Finance: Ploughing a new furrow Engineering Industries Association: Introducing ʻIndustry 4.0ʼ

Industry Insight 36-37

Newable: Levelling-up the agenda 38-39 Federation of Small Businesses: The roaring twenties?

40-41 OneSavings Bank:

Unlocking value 42 1pm: Committing to sustainable

32

Opinion & Commentary

Case Study

44-45

16

46-47

Think Business Loans: À la carte funding

Patron Profile 18-19

Reliance Bank: A lending legacy

Compliance Update

48-49 50 53-54 56

58

Bluestone Leasing: Leading by example Renaissance Asset Finance: Devil in the detail Cynergy: Beyond London Assetz Capital: Seize the day Barclays: The franchising boom Listicle: Business plan essentials Five minutes with: Kim McGinley, Director, VIBE Finance

not the cause

Ask the Expert 22

NACFBʼs Ann Walsh: PI renewal

Further Information KIERAN JONES Editor & Feature Writer

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

33 Eastcheap | London | EC3M 1DT Laura.Mills@nacfb.org.uk MAGAZINE ADVERTISING T 02071 010359

Magazine@nacfb.org.uk

20-21 NACFB: The symptom,

46

MACKMAN Design & Production T 01787 388038

42

mackman.co.uk

NACFB | 3

Welcome

Graham’s Note

A

s we collect our thoughts on the achievements of Q1, we begin to focus more acutely on our inaugural Commercial Broker Awards in April, as well as our annual Commercial Finance Expo in June.

Each year we look to reinvest in our Expo because, as one of our flagship events, we remain resolute in our desire to maintain and grow its position as the largest commercial finance event in the UK – an award-winning one at that. This year, we are delighted to announce that BBC Breakfastʼs Naga Munchetty will be hosting events in the Expo’s conference theatre. I can also promise you that we have lined up an agenda which will deliver some thoughtprovoking keynote speakers as well as stimulating panel sessions.

Graham Toy CEO | NACFB

Enthusiasm to exhibit at this year’s Expo has continued unabated, with demand for stands well ahead of previous years. To enable you to plan your day to maximum effect, I would encourage you also to make use of the show app which will be available for you to download shortly.

Included in this month’s magazine is a piece on the importance of using plain English when crafting loan documentation. This sits at the heart of our shared desire to ensure that our sector is viewed as professional with an unquestionable enthusiasm to deliver good outcomes to all our clients and customers. Sadly, we are still hearing of examples of poor practices from outside the perimeter defined by our Members and Patrons. This means that we need to harden our resolve to protect the sector that we all value so highly.

You will also be able to read a summary of our reading of the FCA consultation on the motor finance review. We gathered feedback from our Members to enable us to participate in the consultation and await the FCAʼs formal response. Whilst many in the industry have expressed concern about whether this piece of work would generate a read-across to the broader asset finance sector, our conversations with the FCA suggest that this is less likely than originally anticipated.

4 | NACFB

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NACFB News

Association updates for March 2020

NACFB news round-up BBC presenter to host NACFB Expo conference sessions

Secure your place at the 2020 NACFB Gala Dinner

Naga Munchetty will host the conference theatre panel sessions at this year’s NACFB Commercial Finance Expo. Naga is an awardwinning journalist and presenter on BBC Breakfast – the UK’s most popular breakfast news programme.

The NACFB Gala Dinner and Awards ceremony returns to the Park Plaza Westminster on Thursday 26th November 2020. A very limited number of early bird tickets are now available to purchase at last year’s price, and will be until the end of June.

Naga will moderate what promise to be lively debates from a range of lending heavyweights.

Early bird rates are set at £325 per ticket or £3,250 for a table, but from July 1st ticket prices will rise to £340 per ticket and £3,400 per table.

The NACFB Commercial Finance Expo, the UK’s biggest commercial lending trade show, returns for the eleventh time to Birminghamʼs NEC on Wednesday 17th June 2020.

From July 1st we will also begin accepting entries from lender Patrons for this year’s Gala Dinner Awards across a range of categories, from Asset Lender of the Year to Buy-to-Let and Commercial Lender of the Year.

Graham Toy, NACFB CEO, said: “Naga has grilled countless political heavyweights from Hillary Clinton, to David Cameron and Tony Blair, so she’ll be well prepared to grapple with our industry’s best and brightest. Our Expo is primarily about doing business. But it’s also the best place to build your network and to enhance your knowledge of the latest products on the market.

“We’ll be launching a full conference programme shortly; this will include pertinent topics with relevance to all modern finance professionals,” Graham added.

The free NACFB event is open to anyone with an interest in commercial finance and 2020ʼs event will host a wider spread of exhibitors than ever before – with 134 already confirmed to exhibit.

Register today at commercialfinanceexpo.co.uk 6 | NACFB

The NACFB Gala Dinner is one of the most prestigious events in the UK commercial finance calendar, with over 750 industry players expected to attend on the night.

The event, which will be sponsored by Lloyds Bank, provides an annual forum for the UK’s most highly regarded lenders and dynamic brokers to engage socially and celebrate the successes of their collaboration.

Be sure to secure your place early, as last year saw all tickets sell out in just three months.

Secure your place today at nacfbgaladinner.co.uk

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Note from our Sponsor

Make this your year of opportunity Andy Bishop, UK Director Broker Development, SME & Mid Corporate Banking, shared with the NACFB his views on the broker market

Lloyds Banking Group recently announced an £18 billion lending commitment for 2020, the same as last year, could you explain the thinking behind this pledge?

Quite simply, our commitment to supporting UK businesses remains undiminished. By the third quarter of 2019, we had lent £15 billion of our £18 billion pot and it’s right for us to remain ambitious even when times are challenging. We know that during uncertain times our customers look to us not just for financial support but also for expert guidance to navigate the tests they may face. Whatever the future brings, we will continue to support businesses as part of our commitment to help Britain prosper.

What are the strategic priorities for Lloyds Banking Group and this £18 billion pot?

With this new lending commitment, one of our key priorities is to support business growth aspirations and assist with their transition in becoming more sustainable enterprises. We’re on course this year to meet our ambitions to support existing and new customers with energy efficiency improvements for a further one million square feet of commercial real estate as well as delivering renewable energy projects capable of powering 3.5 million homes.

Presumably the broker remains key to this drive?

Yes absolutely, and you can see this through the results of the NACFB survey. The £15 billion figure originating from the Association’s brokers demonstrates not just the value but the depth, breadth and reach of commercial finance brokers. The figures were heartening, as we move into an increasingly digitised world; the fact that brokers are maintaining their trusted adviser status is great news for us as a lender and the finance community at large.

What was your view on the findings from the NACFB broker survey?

Some of the most interesting figures were on the average deal sizes, 8 | NACFB

indeed the average deal size of £450,000 tallies with some of our own findings. What we have seen in the last few years is brokers moving up the value chain, part of this is through the increasing skill and professionalism in the sector but also the proliferation of online platforms that are operating lower down the value chain.

That said, even for the smallest of brokerages there is still value to be found out there.

The survey highlighted common reasons lenders will turn away a broker’s deal, how did you view this?

One reason that stood out for me was that one in five brokers said that not having enough collateral was a main reason for being turned away. For these deals, the broker has a responsibility to make their clients aware of products like the Enterprise Finance Guarantee (EFG) from the British Business Bank, who guarantee loans to fund the future growth or expansion of a business, from £1,000 to £1.2 million.

Lloyds Bank have been putting extra resource into the mid-corporate tier funding, what has driven this?

We are seeing an increasing number of mid corporate businesses accessing funding through brokers and are determined to support this activity – more widely we also now provide personal lending for high-net worth clients of our brokers and also those businesses seeking off-shore funding to invest in the UK.

What advice would you give to brokers seeking to make the leap between financing SMEs and larger corporates?

For me this is all about continuing professional development. The onus is on lenders to help brokers upskill themselves, as we want to grow with our brokers, and we will support all brokerages as they do.

This upskilling has in part come from regulatory developments but also through the increased competition in the market.

For more information go to lloydsbank.com/businessintermediaries

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Industry News

Industry News

1 1. Growth rebounds as Brexit fears subside The CBI’s growth indicator has revealed that private-sector activity in Britain continued to decline in the three months to January, although at a slower pace than the previous three months. A balance of 16% of firms – those reporting a fall versus those recording a rise – said output fell in the November to January period, lower than the 20% negative balance in the August to October period. Consumer services fell at a slower pace, as did business and professional services.

2. MEIF makes further £40m available The British Business Bank’s Midlands Engine Investment Fund (MEIF) has made £40 million available to invest in the region’s SMEs. The FSE Group will manage the cash with the freedom to invest between £100,000 and £1.5 million in businesses. Local government secretary, Robert Jenrick MP, who is also the government’s Midlands Engine champion, said: “More businesses in the Midlands will be able to secure the backing they need to develop their ideas, grow their companies and create more well-paid local jobs.”

10 | NACFB

3. UK planning to create up to ten freeports

5. Challenger banks lend record amount

The UK government is set to open a ten-week consultation on freeports with bidding from towns and cities across the UK to follow. Ministers hope to announce locations by the end of the year and open the freeports in 2021. Freeports allow firms to import goods and then re-export them outside normal tax and customs rules. The Treasury says the new zones would create thousands of jobs and “turbocharge” growth.

New figures show that challenger banks lent a record £115 billion in the UK last year, although growth was slower than in previous years. Challengers lent 3% more last year than in 2018, a significant fall from the previous growth of 19%. One analyst suggested that SMEs were spooked by turmoil over Brexit and avoided borrowing.

However, Leigh Treacy, head of financial services advisory at BDO, said: “Challenger banks have stepped in over the last decade and proven to be a critical source of funding for many entrepreneurs.”

6. Yorkshire emerges as build-to-rent hotspot

3 4. Global investors eyeing London commercial assets A study by Knight Frank forecasts that global investors are set to increase the total capital targeting London commercial assets to £48.4 billion in 2020. The research revealed that this would represent an increase of 21% compared with 2019 (£40 billion) in terms of commercial real estate investment. However, investors are expected to face strong competition, which is expected to drive values higher this year, with just £2.3 billion of buildings available for sale.

Recent figures from the British Property Federation show that the number of build-to-rent developments has soared by 50% in the UK regions, with Leeds and Sheffield emerging as key hotspots.

Manchester and Salford lead the way, but the market is becoming more saturated, as developers look to expand the concept to the suburbs where they will seek to construct family-size properties and flats for the over-55s.

6

7. Regulators issue warning over data protection breaches

8. HMRC adjusts IR35 rules ahead of rollout

10. Small UK businesses have big plans for the US

The FCA, the FSCS and the Information Commissioner’s Office have issued a joint warning to insolvency practitioners and FCA-authorised firms over the unlawful sale of customer data to claims management companies. Any breaches of data protection legislation will be dealt with appropriately, the FCA and ICO said.

Changes to the operation of IR35 rules, which require employers to assess whether a contractor is genuine or effectively working as a full-time employee, will only apply to payments made for services provided on or after 6th April 2020, HMRC has announced. Previously, the rules would have applied to any payments made on or after 6th April 2020, regardless of when the services were carried out.

A report from the Federation of Small Businesses (FSB) and the UK Trade Policy Observatory at the University of Sussex Business School has found that the US will be the top destination for UK SMEs to trade with over the next three years. Trading with the EU would also continue, with Germany and France the next best trading destinations after America for UK small business post-Brexit.

9. FRC replacement due by end of month

7

The government has confirmed that it will replace the Financial Reporting Council (FRC) with the Audit, Reporting and Governance Authority (ARGA) as soon as parliamentary time is available. The Department for Business, Enterprise and Industrial Strategy (BEIS) will give a clearer indication of its plans for ARGA by the end of March.

10

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NACFB | 11

Patron News

Patron News Glenhawk reaches £100m of lending and becomes FCA regulated

Aldermore: Landlords inject £3.61bn into local economies annually

Glenhawk, one of the UK’s fastest-growing challenger lenders, has received authorisation from the Financial Conduct Authority (FCA), as it targets an expanded product offering in 2020 following a record 2019.

Aldermore’s new Buy-to-let research, surveying 1,000 UK-based landlords, highlights the important contribution landlords make to their local economy with eight in ten (81%) turning to a local tradesperson when their property requires work or renovation.

The FCA regulation provides a platform for Glenhawk to offer a range of homeowner loans, a circa £70 billion per annum market in the UK, as part of its significant 2020 growth ambitions.

Landlords spent on average £1,443 in the last 12-months on services such as plumbers, builders, letting agents and other tradespeople, with many hiring from the local community for most of their requirements.

Glenhawk is targeting the launch of its first FCA regulated product in the first half of this year. It follows a record year for Glenhawk during which it achieved a number of significant milestones, most notably reaching £100 million of lending. The company has also maintained its record of no defaults and no capital losses on its loans.

Seventy-four loans totalling £59.1 million were underwritten by Glenhawk in 2019, reflecting a 150% increase over the previous year, with a record third quarter and month in September, during which £24.8 million and £12 million of loans were originated respectively.

Guy Harrington, CEO of Glenhawk, commented: “After a year of extremely strong growth we now enter 2020 fully authorised by the FCA to provide regulated products. This is a significant step forward for Glenhawk as it allows us to build on the success and momentum we have built in the short-term bridging market and start providing loans to a much wider universe of borrowers, whist remaining true to our ethos of responsible lending and diligent underwriting.”

12 | NACFB

Of the total amount paid to local service providers, landlords spent the most on letting agents coming to £879 million in the past twelve months, followed by £442 million on general handy-workers and £396 million on plumbers. Also, landlords spent £375.4 million on electricians, £377.3 million on builders, and £243.2 million on cleaners.

Over a third (39%) say trust is the main reason why they turn to someone local, while one quarter (26%) say, due to not living close to their rental property, having local people do maintenance is reassuring to them.

Damian Thompson, group managing director of Retail Finance at Aldermore, said: “Our findings show supporting local economies also brings benefits to landlords’ own businesses. Local workers bring a lot of value to landlords with respondents to our survey citing the quality of work, cost effectiveness and the understanding of local areas as key benefits.”

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Patron News

Patron News Roma Finance cuts bridging and development rates

Wesleyan Bank provides block discounting facility to Liberty Leasing

Roma Finance have cut rates across their product range. Further funding lines with Royal Bank of Scotland and Cambridge Building Society have recently been secured to provide for growth and an increase in business levels.

Wesleyan Bank is supporting Liberty Leasing’s funding strategy with a £3 million block discounting facility. The facility will enable Liberty Leasing to fulfil the increasing demand from UK businesses for its multiple asset and vehicle finance solutions.

The standard rate for residential investment property purchases or refinancing has been reduced to 0.75% per month with no exit fee on loans from £50,000 to £5 million with a maximum LTV of 75%.

Loan terms are three to 12 months.

Wesleyan Bank’s recently launched block discounting offering is a wholesale finance facility. It is primarily aimed at alternative finance companies wanting to release capital from future income streams, including those businesses funding hire purchase, lease and loan agreements.

For partly built development sites, rates are now available from 0.79% per month for sites of up to five units where the properties have already been made watertight. Loan sizes start at £100,000 with a maximum term of 18 months.

Scott Marshall, managing director at Roma Finance, said: “With new and sustainable funding lines in place to help us keep pace with the growing demand for our products, now is the right time to cut rates for our priority business lines.

“To cope with higher business levels, we continue to expand the Roma team and we are seeing growth in our lending for property acquisition and refurbishment. The new lower rates will further stimulate our business in a focussed and strategic way, and we will continue to deliver excellent service to our introducers and customers.”

14 | NACFB

Richard Baker, head of block discounting at Wesleyan Bank, said: “This should be a really exciting year for Wesleyan Bank’s block discounting business. Our launch into this sector allows us to further enhance our product offering through niche receivable solutions, which will assist our partners to provide additional funding to their customers.”

Richard continued: “Liberty Leasing is an established, flourishing business with extensive experience of utilising bespoke finance solutions to underpin its growth strategy. We’re delighted to announce Liberty as our first signed facility, which gives us an excellent platform to rapidly expand our block discounting portfolio.”

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Case Study

Going off-menu Restaurant secures £150k in two days for refinance and stock purchase

Jamie Stewart Chief Executive Officer Think Business Loans

W

e all know that business funding is no easy feat when affordability, quality and security are key challenges.

Our main focus this year will be to continue to be one of the most efficient credit brokers in the UK by delivering the fastest possible loan turnaround times regardless of the endless paperwork and parties involved.

Our lending managers have been working hard this quarter with our iFunds technology to enable businesses to view their eligibility for funding without the need for a hard credit search.

Having launched our technology last year, the team has now perfected the behind the scenes processes that allow us to deliver fast finance, without compromising on service.

So, when a broker approached us recently with a difficult case, the team saw it as an opportunity to demonstrate the effectiveness of iFunds, by combining human expertise and world-beating technology.

The challenge The borrower, an experienced restaurateur, required funding to refinance his high interest business loan as well as stock purchase.

But despite previously receiving funding from his lender, he was struggling to obtain the additional funding he needed due to a CCJ he had incurred. £150,000 was required to refinance his existing loans onto a longer term at a lower rate to help ease cashflow.

But despite having a high lending amount coupled with a CCJ, a case like this isn’t always easy to manage. Instead of refusing the customer away as many other master brokers had done before, we took the time to assess the borrower’s situation. We queried the outstanding CCJ and discovered he was in the process of contesting and settling the charge.

16 | NACFB

With the CCJ now being settled, our lending managers were able to use our iFunds technology to get an accurate check of his eligibility against our panel of 200 commercial lenders. We were pleased to discover that the borrower was also eligible to apply for finance with Esme which was more affordable.

Financed in just two days Our lending managers worked closely with Esme’s underwriting teams to approve a £154,000 facility over a 60-month term. Not only were they approved, they were also able to secure a lower competitive rate of 1.95% a month, saving him approximately £9,600 per year. With this structure in place, we had the ability to have the funds paid out within two days of receiving the application. Needless to say, the client was over the moon.

Think Business Loans are proud to partner with a variety of external brokers and TPI businesses to help assist them with their clientsʼ needs.

As a result of this challenging deal, we received a glowing review from the broker, stating: “Think is always extremely helpful and great with providing information on deals quickly when asked. We know once we have sent a deal over to Think that we can trust that our customers are in good hands and that we can leave it with them until the deal has completed.”

“

But despite having a high lending amount coupled with a CCJ, a case like this isn’t always easy to manage

A little something from us We’re giving your clients £500 cashback on legal fees for certain products in our Buy-to-Let range.

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Patron Profile

A lending legacy We donʼt love money, but we love what money can do Paul Wedderspoon Relationship Manager Reliance Bank

A

ttitudes are shifting, and increasingly business owners are looking to partner with funders who align with their own ethical and more responsible world view. Some of your business borrower clients may like to consider a lender that has the power to change lives for the better.

Reliance Bank has been at the forefront of socially responsible banking since 1890, when we were founded as the bank of The Salvation Army, and our mission is to serve borrowers and communities with compassion and integrity. From day one, social good has been at the heart of the Bank’s mission.

We donʼt see money as an end in itself. For us, and our business customers, the real value of money is in what it can be used for – making society a better and fairer place for all.

I know what you’re thinking, but these aren’t just well-meaning but empty words. We put our money where our mouth is in two main ways.

We give up to 75% of our profits to The Salvation Army International.

This money is then used to support The Salvation Army’s evangelical 18 | NACFB

and charitable work abroad. We have already donated over £8 million to The Salvation Army both in the UK and abroad in the last 15 years.

We also prioritise our business lending to organisations that deliver a positive social impact in the UK. We are particularly keen to support social purpose organisations who may be overlooked by some mainstream banks. This is a well-embedded philosophy and through this we’ve been changing lives for the better for well over a hundred years.

“

We donʼt see money as an end in itself. For us, and our business customers, the real value of money is in what it can be used for – making society a better and fairer place for all

A deal with Reliance So how might a typical broker-introduced deal with us look? The case study below demonstrates how our funding has the power to change lives for the better: An NACFB Member broker provided Reliance Bank with a lead which came from a charity which is a Buddhist ethnic group.

The charity was seeking to purchase a property to provide social events, English speaking classes and other educational and humanitarian services to the local Nepalese community.

The request was for a commercial and interest only loan of £400,000.

The term-loan was for capital repayment up to 20 years and the target property was yet to be agreed with a guide price of £600,000.

The rate we offered was 4.00%. The arrangement fee was £6,000 (split 50/50 with the broker) and the security was a first legal charge over the target freehold property – there was no repayment charge.

I acted as the Bank’s relationship manager and was referred this case on a Wednesday and issued a facility letter to the customer on the following Tuesday subject to the suitability of the property which had yet to be agreed.

The charity provided validation that their membership fee income would cover the repayments of the loan and allow them to afford the bills and expenses to continue their extensive cultural programme

which includes English speaking classes for the charity members and their families.

We were satisfied that the loan repayments could be funded, and that the charity could afford the refurbishments required to adapt the proposed property in order to provide catering facilities for cultural events. We agreed a loan in principal of £400,000.

This proposed funding would enable the borrower charity to buy the property and provide a function space with a capacity to hold 60 people.

The commercial loan was deemed to be affordable and would enable the provision of a safe and valuable facility for a community who are currently lacking resources.

This commercial loan would enable charity members and their families to attend cultural events, such as festivals of dance, music, and food as well as engage in humanitarian, social and educational activities. This gives a sense of permanence for future generations, providing a haven from which they could embed themselves in the community.

We back up our offering with some of the best support in the industry, last year we outperformed many high street banks in the 2019 Charity Finance Banking survey. We were delighted to come first in the telephone service, sector knowledge, fees/charges, interest rates and commitment to Corporate Social Responsibility customer satisfaction categories.

NACFB | 19

Compliance

Addressing the symptom, not the cause Our response to the FCA encourages a more nuanced approach James Hinch Senior Compliance Officer NACFB

F

ollowing publication in March 2019 of the findings from its review of the motor finance sector, last October the FCA opened a consultation on plans to implement a ban on discretionary commission arrangements in the motor finance sector. They also proposed to update the commission disclosure requirements in the Consumer Credit Sourcebook (CONC) – part of the FCA handbook – for all providers of consumer credit.

The NACFB is well-placed to respond to the regulator’s request for feedback and late last year we approached our vehicle and asset finance brokers to gauge and collate their views on the proposed changes. In short, we believe there was some merit in the FCA looking into the fee arrangements, but we fall short of calling for an outright ban – more on that later in the article – but first, for those not familiar with the proposals, some background.

The proposals The FCA reached their decision based on the findings from their initial review. The results have raised concerns around the widespread use by lenders of commission arrangements which link fees paid to brokers or dealers to the interest rate paid by a consumer. Such arrangements also allow the same broker and dealer a wide discretion to set the interest rate and gives rise to a conflict of interest; potentially inflicting additional costs on to consumers.

20 | NACFB

The FCA believes it is necessary to ban motor finance commission arrangements that incentivise brokers and dealers to set customers a higher interest rate to earn more commission. It is of the view that breaking the strong link between customer interest rates and broker and dealer earnings should decrease financing costs for consumers. The FCA further observed that the existing rules on disclosure of commission arrangements were both poorly understood and implemented.

“

In the asset and premium markets, the regulator has already stated that they do not believe there is an issue, that is because the broker has competition

“

We have encouraged the regulator to review what it did when it saw that motor dealers were dictating pricing in the insurance market

Our thinking

Our response

It is quite common in business sectors across the economy for firms that act as brokers to set the final price and, therefore, their own profit margin. Equipment dealers do it, travel agents do it, and some retailers do it.

We think the FCA’s proposals are treating the symptom but missing the cause. We have encouraged the regulator to review what it did when it saw that motor dealers were dictating pricing in the insurance market. It didn’t attack the commission structures; it stopped the dealer controlling the consumerʼs choice of provider.

This is exactly the same scenario; and we question why the regulator is adopting an alternate stance.

Where regulators get concerned, and again this happens in business sectors across the economy, is where firms take advantage of a lack of competition to exploit customers. It has been proven that this can happen at the ‘point of sale’ in some situations.

Consider the accounts of the motor dealer groups that have historically relied on commission from the sale of insurance and finance to actually make a profit, as a result, they have always tried to ensure the consumer has to take their insurance and finance products. The regulator identified this as an issue in the insurance market some time ago, when it noted that the insurance products being sold by the motor dealers were invariably more expensive than those being offered by other providers, because the dealers were taking more commission. As a result, it banned the sale of conditional insurance products at the point of purchase.

In the asset and premium markets the regulator has already stated that they do not believe there is an issue, that is because the broker has competition and the consumer will receive a price that not only reflects their financial status but also the fact that there are probably multiple parties quoting on the same piece of business. The fundamental difference between these markets and the motor finance market is the dealer’s ability to control who the consumer can deal with.

We also relayed that the FCA should not treat all firms carrying out regulated credit broking activity the same. There are two very separate types of firms doing this – car dealers; and motor or asset finance brokers. We have called for a distinction between the two types of firm, pointing out that competition firmly remains for brokers; who will often approach multiple lenders before selecting the right fit for their client.

We further proposed that instead of banning certain fee arrangements; they seek to increase disclosure requirements of commission models and the commission structure to consumers.

For all concerned parties, this will not only support competition within the market but allow consumers to make more informed decisions, and help them better understand the true cost of the product.

The NACFB met with the FCA in January to discuss their views and share some of the feedback in person. Dialogue with the regulator remains open and we await their response to our position, a position we believe further champions the role of the finance broker.

NACFB | 21

Ask the Expert

Renewing your Professional Indemnity insurance

Q Ann Walsh Business Development Manager NACFB

What developments have you seen in the Professional Indemnity (PI) insurance market?

&

A

capacity for underwriting PI risks, and an increase in sector scrutiny from both the FCA and FOS. In this environment all insurers are reviewing their appetite for risk and how they deploy and price their capital.

Could this impact my renewal process?

You may already be aware from recent press coverage that there is increasing scrutiny around the suitability of interest only mortgage products and, specifically, advice given to customers in relation to these products. Several law firms are now farming and progressing claims on behalf of consumers and Professional Indemnity insurers are experiencing a sharp rise in claims as a result.

We have been advising brokers to expect a more robust and detailed underwriting process at renewal, combined with potential increases in premiums. It is likely that we will be asking for more detailed information about your business, trading history, and record keeping. We recommend that you set some time aside to ensure you are able to respond to such requests for information.

What impact is this having?

What advice do you offer NACFB Members seeking to renew their PI cover?

Unfortunately, these developments are taking place in an insurance market which has hardened significantly over the last 18 months – particularly in the financial services and construction sectors. Such a change in underwriting appetite is driven by a number of factors, including; the Grenfell Tower disaster, a withdrawal of 22 | NACFB

You’ll find that it’s easier to secure PI insurance terms if you can evidence that your clients are receiving the appropriate level of service. Keeping excellent records of your service, including review meetings, can show an insurer that you’re doing what

you say you will. If you receive a complaint in the future, you can demonstrate that you did exactly what you said you would.

This proof will be important.

When should brokers begin the renewal process?

Start the process early. Deal with your PI insurance as soon as you receive the renewal invite. Think about approaching your provider well before the renewal date of your existing cover. Starting the process early gives you more time to search the market and to find the right cover for your business.

How can brokers improve their submissions?

Insurance is all about managing risk, and your proposal form is a representation of the quality of your business to the insurance market. So, if you can make your submission attractive to an underwriter, you will increase your chances of getting competitive terms. Ideally, you should supply a written document that outlines your philosophy and sets out the framework within which your business operates.

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Special Feature

Advertising Feature

Backing asset finance brokers Supporting a sector with high growth, liquidity and competition Patrick Jelly Commercial Director for Asset Finance Aldermore Bank

I

n recent years, Aldermore has established itself as a leading asset finance provider with a broad appetite for funding assets of all shapes and sizes – lending to a diverse range of markets with targeted specialisms underpinned by technology and human expertise. Whilst we recognise that some brokers want a breadth of funding for their customers, there are some niche specialists who have different needs.

As such, Aldermore has adapted to change. For example, we quickly realised that the car financing side of our business was growing at a faster rate than other parts of the bank. We wanted to understand how Aldermore could build a specialist approach to the market. In early 2018, this led to the launch of a dedicated team providing asset finance for specialist, classic and prestige cars where we saw a specific opportunity, and into which we have further invested resource over the last year. Overall, it’s become a very successful proposition, with competitors now trying to enter the market behind us.

We can apply that experience to launch into other asset categories where we have identified gaps in specialist markets, something we’re working on right now in agriculture and soft assets.

Aldermore wants to increase the supply of finance available to SMEs in these specialist markets, developing propositions underpinned

24 | NACFB

by technology such as our new Asset Backer portal and enhanced automated decisions that can be used to better serve these markets.

Asset Backer has been developed to provide a user-friendly and easily accessible platform that simplifies and improves the efficiency of transactions between small businesses and brokers.

There are a number of features on the portal helping brokers to manage their portfolio conveniently in one place. Asset Backer lets brokers calculate and deliver quotes, as well as generate documentation, with the added ease of electronically signing agreement documents. In addition, the portal allows brokers to submit new business proposals which are sent directly to Aldermore’s underwriters for review, further streamlining the process. Brokers will then have the ability to track the status of their proposals on-the-go.

Alongside Asset Backer, we have also developed our own automated credit underwriting system known as Aldermore Credit Decisioning System (ACDS). The system reduces the time it takes for us to reach credit decisions on deals by automating part of the process.

The launch of both Asset Backer and ACDS, complements Aldermore’s current offering to our asset finance customers and strengthens our support and commitment to brokers and small business owners across the UK, working to drive SME growth.

We recognise that technology is not always the answer and that in our industry you can’t replace the expertise and personalised service that named contacts can give you. As a result, Aldermore offer a dedicated virtual sales support team, aligning specialist resource

where it can add value most to our brokers and investing in detailed training for our underwriters. The best service comes through a combination of people and technology, and that’s a balance we’re determined to get right.

These developments have been carefully identified through in depth research with our broker partners to understand where we can enhance our service proposition and remain one of the leading independent providers of asset finance facilities in the markets, whilst at all times remaining easy to do business with.

Market conditions & regulation Whilst we await the final figures from the Finance & Leasing Association, all indicators point to last year being another strong year for the asset finance broker market. This growth attracted high levels of liquidity and competition, it also brought with it new opportunities from which Aldermore continues to grow and support more SMEs across the UK. Looking ahead, Aldermore wants to provide better consistency, both in terms of our service and being there for our brokers and SME customers throughout economic fluctuations. We don’t see competition falling away, so differentiation will play a key role if we hope to continue enjoying this growth and we see using the best of both worlds, human expertise and digital processes, being a key enabler to this.

We can’t reference market conditions without recognising that regulation, specifically the FCA motor finance review, is a hot topic in the industry at the moment. Whilst it primarily affects the

consumer car market, there will no doubt be a read across into the commercial lending market.

It’s important that brokers operating in this space keep themselves appraised of the FCA’s communications around the new rules. The FCA will be publishing final rules this year, so it’s important for brokers to take their own legal advice to be prepared for these changes.

“

We don’t see competition falling away, so differentiation will play a key role if we hope to continue enjoying this growth and we see using the best of both worlds, human expertise and digital processes, being a key enabler to this

NACFB | 25

Special Feature

Keeping it simple Why connecting in a clear and precise manner can be key to success Norman Chambers Managing Director NACFB

W

e live in a complex world. One where we’re faced with a seemingly relentless barrage of information that we’re expected to comprehend and retain. This is especially true in the world of commercial finance, with all its jargon and acronyms. It’s perhaps little wonder that consumers are drawn to the simple – Apple’s advertising, one-click purchases or even effective political sloganeering.

In the same way, our overloaded brains appreciate plain-language messaging that is both clear and concise. Whilst the wider lending community is viewed as a largely transactional one, brokers rely on more personal and face-to-face elements to conduct their business and it is vital that the often-complex components of a deal are relayed in an effective manner.

So, where does the balance between clear and accurate communication lie? A common skill of the best brokers lies in their social accommodation; being able to deploy appropriate terms and language to the right person at the right time, but this is far easier said than done.

The case against: deciphering the jargon I have often asked suppliers in our industry to explain what it is they actually do and how their organisation brings value. Frequently, I’ll ask them to re-explain, or to ‘Janet and John’ their offering, as some tend to get lost in buzz words and relatively meaningless verbiage wrapped in corporate management-speak.

26 | NACFB

It can go a little something like this: “Should you have a window of opportunity; I will reach out and cover off the key issues in the arena.

Once brought up to speed with the blue-sky agenda, you will be able to get your ducks in a row and hit the ground running and solutionise the issue…” and so on.

We’ve all heard it and, dare I say it, we’ve all been guilty of using such terms. It’s easily done. We slip into such clichés because they connote a sense of professionalism with the added benefit of being ambiguous enough so as not to convey any precise meaning. They can be viewed by some as mere window dressing to floaty and untethered thought.

To use such terms liberally can often go unnoticed, but for them to form the basis of any deal-making dialogue can be fraught with risk.

A potential client is looking for honest advice and clarity, how you present yourself and your business through your language sets the tone of engagement – and you never get a second chance to make a first impression.

However, the meaning of buzz words is often obscure, even among colleagues. Gobbledegook can almost always be replaced by plain English alternatives that are less long-winded and clearer in meaning.

The case for: field-specific terminology To be fair, it is important to separate the use of corporate-speak and the use of jargon. The word ‘jargon’ comes from an old French word meaning ‘the twittering and chattering of birds’. It came into English in the fourteenth century, when its meaning was extended to include ‘meaningless talk’ or ‘gibberish’.

Jargon is often written off as a bad thing. But technical jargon is both necessary and useful for brokers to communicate with each other.

You could say that at best, it acts as a kind of universal shorthand,

allowing experts to express specialist concepts concisely. It therefore improves communication – with the potential to save both time and money.

online research and, perhaps most importantly, they will feel that the professional credited them with the interest and intelligence to hear and use the field-specific term.

Take the analogy of someone going to see their lawyer or even a doctor. They want to have a clear explanation of their problem, in layperson’s language, but they may well find it useful to be have the legal or medical term too. They will then know if their issue is the same as that of someone else they know, they can conduct their own

Buzz words can be similarly useful as a type of shorthand, with their plain English translations often being considerably longer. The problems only start when technical jargon is used in writing to people who are not familiar with it, without explaining what it means.

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NACFB | 27

Don’t just take our word for it Such drives for clarity in our sector are not just a matter of personal bugbears or pernickety pedantry, the regulator too takes a keen eye on how finance professionals communicate. The FCA has the power under the Consumer Rights Act 2015 to seek an undertaking from a firm where a term is not transparent, which means that it has not been expressed in plain and intelligible language or is not legible.

For additional guidance it is worth referring to the FCA Handbook (CONC) too. Senior compliance officer at the NACFB, James Hinch, explains further: “The regulator directly outlines that broker firms are required to have received from the customer a reply in durable medium to the ‘information notice’ in which the customer acknowledges both their receipt and confirms their awareness of its contents.

“As a trade body, we continue to drive broker standards higher across all aspects of the deal journey. We regularly review our template documents to ensure they are clear, not misleading and written in plain English,” James added.

Can we do better?

Whether it is on your website, in your press release or in a speech, your audience should not have to read, or listen to, your content multiple times to comprehend its meaning. You don’t want your prospective client to engage with you and be left wondering what type of finance you’re providing or why you’re better than the competition. Simply put, when you craft your message in simple language, it’s easier to understand and remember.

28 | NACFB

Unfortunately, simple messaging through whatever means is not simple to create and is arguably harder to craft than jargon-filled messages with meandering sentences and buzz words. Careful crafting of measured and metered language is time-consuming and sense-checking your own work can be difficult.

There is however real merit in reviewing how we communicate, ensuring that we put the needs and the journey of your clients at the heart of what you do. Marginal gains can be made when we say what we mean with clarity, when we ask the right questions and when we listen carefully to what is said in return. Through such conscious reflection and introspection, we can fly the flag for industry professionalism and further establish the intermediary channel as a network of trusted advisors.

“

Such drives for clarity in our sector are not just a matter of personal bugbears or pernickety pedantry, the regulator too takes a keen eye on how finance professionals communicate

Special Feature

Separate yourself from the rest Our guide to packaging a development deal

Guy Murray Development Finance West One

Information

Essential

Development overview (site history, location overview, reasons for developing, exit strategy, financing needs explained, developerʼs equity input)



Development appraisal (containing GDV, build costs, professional fees, CIL/S106, finance costs, profit, purchase price/current value)



CV containing development experience



Lenders spend a large part of their day assessing and analysing new enquiries received from different areas of their distribution network.

The quality of information contained within these enquiries varies widely and, in our experience, generally falls short of answering all questions a lender might have in order to produce a term sheet.

Planning permission approval



Site plans, floor plans, unit breakdown



The ensuing result is lenders and introducers going back and forth between themselves for days or weeks before all the information becomes available. This is inefficient from a time and productivity perspective as we’d need to reassess the development each time more information becomes available as opposed to assessing it once and issuing terms.

Asset and liabilities statement

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well-packaged development finance enquiry leads to a quicker decision from the lender, a faster timescale for a term sheet and generally speaking, a more competitive offer.

In order to make the packaging stage as efficient as possible, we’ve come up with a checklist which clarifies the information needed before submitting an enquiry to a lender, categorised into two groups; essential points and bonus points. The idea is to ensure all essential points are compiled before submitting an enquiry, as well as covering off as many bonus points as possible without delaying the submission.

30 | NACFB

Bonus

Professional team (building contractor, architect, structural engineer, EA)



Comparable evidence to support gross development value (GDV)



Specialist reports (ground investigation surveys, right of light, structural surveys)



Timeline for outstanding needs (discharge of pre-commencement planning conditions, party wall awards, specialist report timelines)



After receiving the overleaf information, spend some time processing and challenging the information just as a lender would. If any new questions arise from this analysis, find the answers and add them to your submission. Finally, pose the following question: “If I was providing the debt, would I lend my own money towards this development?” If the answer is YES, the next step is to contact potential lenders.

As lenders, it’s appreciated when developers or introducers take the time to give us a quick five-minute call to discuss the potential site, gauging interest levels and appetite for lending on the development in question. This call helps to paint a wider picture, allowing us to pose any initial questions we may have.

While there’s a lot to consider when structuring a development finance facility, there are often three key aspects which we like to understand early in the process:

Understanding the primary transaction taking place Is the development a purchase or refinance? If it’s a purchase, it’s pertinent to understand how much money the developer is putting into the site to ensure there’s enough skin in the game – this tells you a lot about the borrower. If it’s a refinance, understanding the site history is crucial. For example, what was the original purchase price, when was planning granted, what debt have you raised on the site to date and who with?

Understanding your borrower Whatʼs their professional background? How much development experience do they have with similar schemes? Are they local to the

site they are developing, and do they understand the market? What’s their credit history like? Who have they borrowed from in the past?

What do their assets and liabilities tell you?

Understanding the security What does the development have planning for? Is that development supportive of the local market giving the location? Is the location attractive? Does comparable evidence support the value of the security? Will the properties be liquid once complete?

If you’re already providing the aforementioned information when submitting enquiries to lenders, then you’re already ahead of the majority. If you’re not providing this level of detail, then perhaps you can relook at what information you’re providing to lenders in order to receive a term sheet. You might be surprised at the benefits which flow from a more detailed fact find at the outset of any new development finance transaction.

“

If you’re not providing this level of detail, then perhaps you can relook at what information you’re providing to lenders in order to receive a term sheet NACFB | 31

Special Feature

An end to farm investment stagnation?

Brokers should consider the farming sector as confidence grows Rob Suss Co-founder UK Agricultural Finance

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nvestment plans are starting to evolve in the farming sector after a period of uncertainty due to Brexit, and with demand for finance on the up, there could be plenty of opportunity for brokers.

Where there is political indecision, people sit on their hands, but with the election now behind us and a Conservative majority in Parliament things are starting to happen. We’ve had more enquiries over a two-week period in February than in any two months last year; since the election there is a realisation that the country can now move forward.

With investment having slowed down considerably since the EU Referendum in 2016, pressure has been building on farmers to allocate fresh capital. Combined with renewed confidence since the recent election, this has triggered a spate of interest in new loans this year.

Farmers still face considerable uncertainty given the complexities of Brexit and emerging trade deals, but they can’t put plans on hold indefinitely. The government has recognised that farming requires high levels of investment and the lack of sufficient funding is a major threat to these businesses and their prospects.

Following the financial crash, many traditional sources of farm finance have disappeared. There is a gap in funding, with most high street banks having reduced lending and lost their specialist agricultural teams, while the many new lenders and challenger banks find the sector too complex.

32 | NACFB

But farm finance is an attractive sector for brokers as competition is limited, loans tend to be large and secured against real assets. Brokers who are able to access specialist business lenders can really help their clients build their enterprises.

Restructuring of finance is one big area of interest, with farmers exiting high street loans into something more suitable for their circumstances, which provides flexibility, a quick and reliable response, as well as a genuine interest in helping farming businesses. As an agricultural specialist we can offer a strategic view on lending, compiling a tailored option rather than the off-the-peg packages offered by mainstream banks.

Other areas in which farmers are seeking to invest include renewable energy projects, farm expansion or improvements, land acquisition and diversification. We can provide loans of between £100,000 and £10 million over a term of one to seven years, secured against agricultural land and property.

So, what should a broker look for when sourcing this type of finance?

Firstly, it’s important to work with specialist lenders who understand the complexities of agricultural finance. Also, look for opportunities where a farmer can demonstrate a loan is affordable, and has a credible plan to repay it without relying on subsidy payments.

Typically, bridge finance loans cost around 1% a month, while term loans of three to seven years are in the region of 6.5-8.5%. With bridge loans averaging about £2 million and term loans around £500,000, these can generate strong broker commissions.

And it’s an interesting sector in more ways than one. The future of our farming landscape is yet to become clear and farmers will need advice as they look to introduce new revenue streams and underpin their existing farming enterprise. Brokers who have good relationships with specialist lending teams and farmers will be ideally placed to secure repeat business, and to help identify the best financial solutions for this vibrant and highly attractive sector.

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Special Feature

Heralding ʻIndustry 4.0ʼ Embracing more responsive technologies Karen Finegold Executive Director Engineering Industries Association

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anufacturing remains vital for the country’s balance of payments. In the last twelve months we saw great fluctuation in the sector with companies initially stock building, these businesses are now suffering with European customers reluctant to place orders until they understand what the terms of trade will look like.

The manufacturing industry needs to digitalise and embrace what we term ‘Industry 4.0’. Such progress is transforming the way businesses operate, gather data and analyse information. These technologies enable faster, more responsive and more efficient processes to deliver high-quality products at a reduced cost.

What is Industry 4.0?

Industry 4.0 is a convergence of technologies and capabilities which organisations can adopt individually or as multiple elements.

Computers are connected and communicate with one another to ultimately make decisions with little human involvement. A combination of cyber systems makes Industry 4.0 possible and the smart factory a reality and comprise of the following capabilities: The Internet of Things and the Cloud: a key component that is characterised by connected devices. It helps with internal operations and, using the Cloud environment where data is stored, equipment and operations can be optimised or allow smaller mechanisms access to the technology they would not be able to on their own.

Big Data: Connected machines collect a lot of data and that can inform the operator of maintenance, performance and other issues, and can analyse that data to identify patterns and insights that would be impossible for a human to do in reasonable time.

34 | NACFB

Artificial Intelligence (AI): Industrial AI can be embedded to existing products or services to make them more effective, reliable, safer, and to enhance their longevity. AI algorithms can also be used to optimise manufacturing supply chains, helping companies anticipate market changes.

Blockchain: Blockchain can simply be defined as record-keeping database technology that stores blocks of information on a chain.

The information is constantly reconciled into the database, which is stored in multiple locations and updated instantly. The adoption of blockchain technology can help the manufacturing industry by making the supply chain more secure, with the processes more transparent.

Additive manufacturing (3D printing): This technology has improved tremendously in the last decade and has progressed from primarily being used for prototyping to actual production. Advances in the use of metal additive manufacturing have opened a lot of possibilities for production.

Robots: Once only possible for large enterprises with equally large budgets, robotics are now more affordable and available to organisations of every size. Autonomous robots can quickly and safely support manufacturers and also reduce costs.

Many organisations are still in denial about how Industry 4.0 can assist their business, struggling to know how to best adopt whilst it is still evolving. Companies therefore need to upskill their current workforce to take on the new work responsibilities. Recently EU nationals have filled the void of young people coming into the profession but now this has been drying up.

To fill this void government has been assisting with encouraging students to look into this rapidly changing sector, fund Engineering Technology Centres throughout the country and Catapult Centres, assisting companies with apprenticeship schemes, and have initiated the Made Smarter which can assist with fully funded specialist advise.

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Industry Insight

A more united kingdom Brokers will be key to a ‘levelling-up’ of the lending agenda

Phil Reynolds Managing Director Newable Lending

S

mall and medium-sized businesses represent the heart of the UK economy; generating £1.9 trillion in annual output and employing more than 27 million people.

The provision of finance to them is vital to economic growth and tackling weak productivity.

SMEs have long experienced difficulty in accessing finance. UK Finance, the trade association for the UK banking and financial services sector has just released data, reported by The Times, which shows just how challenging the situation is.

Taken as a whole, the national picture is very alarming. Credit balances from big banks to SMEs across Britain shrank between 2014 and 2019. In the last five years there has been a 6.9% fall in the stock of loan and overdraft usage at small and medium-sized companies across the UK. Whilst big banks might claim this represents a decline in demand; others will suggest that this is evidence of big banks retreating from the SME market.

When the data is reviewed at a regional level, the position becomes most disturbing. During this period, loans and overdraft balances in London fell by only 2.3%. In contrast, there was a drop of 14.2% in Wales, 13.6% in the East of England and 10.9% in Yorkshire and the Humber.

The most shocking figures came in the North West. Here, the outstanding stock of small business loan and overdraft usage from 36 | NACFB

big banks fell by almost 16% between the end of 2014 and September last year, from £9.8 billion to £8.2 billion.

These significant differences across our regions underlines the scale of the challenge facing Boris Johnson, who has promised to “level-up” opportunity and economic performance across the country. Many parts of the country have been badly hit by branch closures or changes in bank policy that has seen decision-making taken away from the local bank manager and centralised to some remote office.

Without access to sources of finance, and the flexibility that this brings to managers of businesses, SMEs are having to hoard cash.

Bank deposits from small and mid-sized companies are growing at a rate of 5% a year. In the last five years, during this credit squeeze, small and medium-sized businesses added £66 billion to their cash stockpiles. In fact, small companies now have £329 billion in cash reserves, according to the Centre for Economics and Business

“

In the last five years there has been a 6.9% fall in the stock of loan and overdraft usage at small and medium-sized companies across the UK

Research and Shawbrook Bank, equivalent to 14% of annual economic output. Economists argue that this is an unproductive use of resources.

These figures do not mean that finance is not available to SMEs. Rather, SMEs need to know where to look to find it. This is where the broker community comes in. Brokers have the network and the expertise to help their clients identify and access alternative sources of finance. This means they have a vital role to play, particularly in areas where traditional lenders seem to be moving out of the market.

Newable Business Finance, for example, is one lender keen to work with SMEs. Since we launched in 2017, we have received over £300 million in applications for loans and have become one of the UK’s largest lenders utilising the Enterprise Finance Guarantee (EFG).

“Levelling-up” is certainly going to be one of the phrases of this, and perhaps the next, few years. It is clear that access to finance is one component of that process and it is equally clear that brokers will have an increasingly important role to play, particularly those working in the regions.

NACFB | 37

Industry Insight

The roaring twenties?

After ten years of turmoil, the government can lead a small business revival ​ artin McTague M Policy & Advocacy Chairman Federation of Small Businesses

F

our general elections, two referenda and a financial crash. It’s safe to say the last decade was not the most comfortable for UK small business owners.

The turmoil has been reflected in FSB’s Small Business Index – a quarterly confidence measure we launched in the wake of the downturn to comprehensively capture sentiment among our members.

Of late, things have gone from bad to worse. In the run-up to the winter general election, the headline reading fell to -21.6 – the lowest figure since the last recession in 2011. Fewer than a quarter of small firms expect their performance to improve in the immediate future.

Profitability and export intentions are at a five-year low, more firms are struggling to manage labour costs and the number planning to increase headcounts has nosedived.

In certain sectors such as retail, the malaise is particularly acute: two thirds of small firms operating in this industry do not expect prospects to improve in the coming quarter. Elections and referenda mean uncertainty – the enemy of investment, innovation and expansion.

38 | NACFB

For the past ten years, there have been very few windows where small firms have been able to plan ahead for a meaningful amount of time.

Having also been held back by stalling infrastructure projects – not least Heathrow expansion, HS2 and Crossrail – stagnating productivity, and big banks pulling the plug on small businesses in the wake of the financial crash (amid a host of misselling scandals), there will be many small firms wishing good riddance to the noughties.

And yet, we’ve pulled through. And pulled through in spades. There are now 5.8 million small businesses in the UK – a 33% increase on ten years ago.

We’re determined, focussed and, most of all, resilient. Just think how much more we could achieve in a more stable environment.

The good news is that – whisper it – one does now appear to be on the horizon. December’s election returned the first majority government since 2015.

That means parliament – and by extension business policymaking – should now be more predictable. Take the Withdrawal Bill that took us out of the European Union on 31st January. Endless wrangling over this legislation, and the inability to get it signed-off by the House of Commons, effectively brought the last administration to an end. This new government managed to get it ok’d within weeks.

But this predictability is only a good thing for the business community if we predict that ministers will be pro-enterprise.

Thankfully, we secured a whole swathe of commitments to small

firms in the Conservative Party Manifesto, having put forward a host of necessary interventions through our Back to Business general election campaign.

Critical among these is the government’s commitment to end a late payment crisis that leads to the closure of 50,000 firms a year at a cost of at least £2.5 billion to the economy.

We had secured a package of reforms under the last government, encompassing better public procurement processes, greater powers for the Small Business Commissioner and a requirement for clear accountability at board level within big corporations for supply chain practice, which was, frustratingly, put on pause by the election.

The new administration has promised to complete the unfinished job of rolling out these measures. Given that more than £23 billion is currently owed to small firms in late payments, up from £18 billion in 2018, it’s vital that it does so swiftly.

Elsewhere, taking what we’ve heard from members over the past few years about the rising costs of hiring staff, we also succeeded in committing the government to increasing the £3,000 discount that small firms can claim on national insurance bills through the Employment Allowance.

We’re already seeing signs that the labour market is cooling. This commitment should be delivered prior to publication of the next Budget to prevent the jobs market going into deep freeze.

Other highlights include the government directly adopting our recommendation to extend the Retail Discount (a third-off business rates bills for shops with rateable values below £51,000) to other sectors, whilst also committing to a fundamental review of the outdated rates system. Legislative progress on this front has already been made, with the new administration doubling down on its promise to act in the Queen’s Speech.

The noughties were anything but nice for the small business community. But we dug in, pressed on and continued to go from strength to strength. With the right support from this government, we can be the driving force behind a new roaring twenties.

“

The noughties were anything but nice for the small business community. But we dug in, pressed on and continued to go from strength to strength

NACFB | 39

Industry Insight

Unlocking value The future of refurbishment in the private rented sector Adrian Moloney Sales Director OneSavings Bank

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hile the private rented sector has grown in recent years, the current political and economic climate has seen the sector grow by just 0.2% a year to 5.4 million properties currently in the sector. There are still many ways that landlords can increase yields and add value to current properties within their portfolio. InterBay Commercial’s recent report; ʻUnlocking the value of refurbishmentʼ found that landlords are spending £13 billion a year on average undertaking refurbishments which is not only adding value to their properties but also supporting the professionalisation of the sector.

Why refurbish?

Refurbishment has been a key driver in the improvement of the quality of properties in the private rented sector, with 44% of homes in 2008 deemed as ‘non-decent’ by the ONS for their lack of modern facilities, heating and insulation, disrepair or posing a hazard under the Housing Health and Safety System. By 2017 this figure had fallen to 24.5% despite the sector having grown by 45% during this period.

And our research shows that landlords continue to outline their commitment to future refurbishments.

Three out of four landlords expect to refurbish properties in the future, of which a quarter plan to undertake a heavy refurbishment, meaning they are making significant changes that require planning permission or building consent. Those that have seen the benefit of refurbishment are more likely to do more; 88% of those who have 40 | NACFB

added value to their property expect they’ll undertake another refurbishment in the near future.

39% of landlords who undertook a light refurbishment, costing £7,000 or below, witnessed the value of their property increase as a consequence. Increasing the value of their property was the main motivation for 84% of landlords who had undertaken a refurbishment; however, tenants also look to benefit from this outlay. As landlords invest further in order to unlock the financial potential of the properties they own, tenants will benefit from better standards of accommodation across the sector.

What to consider when financing your refurbishment With landlords set to spend an estimated £13 billion a year on refurbishing their rental properties, it’s important that they consider how they will fund their refurbishment before work begins.

“

Refurbishment has been a key driver in the improvement of the quality of properties in the private rented sector, with 44% of homes in 2008 deemed as ‘non-decent’

When asked how they funded their last refurbishment, 31% of landlords who conducted light refurbishment did so through the sale of a property. A potential lack of knowledge about the funding options meant that 47% used a personal loan to fund their refurbishment. An additional 42% said that they had used a credit card or overdraft to cover the costs. Using methods such as these could see landlords subjected to high levels of interest and short timescales in which to pay back their bill in full which may not be the most cost-effective finance option.

Landlords should seek advice from a broker who is best placed to help them get the best finance option in place for their refurbishment or portfolio expansion, have a thorough understanding of a landlord’s personal circumstances and be able to offer tailor-made solutions.

What brokers need to know Brokers play an important part in ensuring that landlords are kept up-to-date with the most suitable finance options available for their needs which help them to achieve their business goals.

For brokers who are approached by landlords looking to add to their portfolio or who are in the process of selling an existing property, bridging loans may be a good option, offering short-term finance options that can be paid off when capital has been released from the sale of a property.

InterBay Commercial is a trading brand within the OneSavings Bank plc group

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NACFB | 41

Industry Insight

Will your clients be going green in 2020?

How committed are we to making sustainable investments within the UK SME market?

Ed Rimmer Chief Operating Officer 1pm Group

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s we enter further into a new decade, many businesses will be reflecting upon the past year and making plans for the one ahead. With the ongoing saga of Brexit now clearer – although there is still much to sort out – we think the time is right to look to the future and make bigger resolutions for the new decade. Of course, the traditional ‘grow the business’; ‘introduce new products’; ‘look for new customers’ will be on the agenda, but should we also be increasing our commitment to ‘going green’ and should we be doing more to protect our environment? As funders, we see many of our clients increasing their focus in this area and we have a responsibility to respond by supporting their ambitions.

On a global scale ‘going green’ has become a high priority for all businesses within both new and traditional sectors. Over recent years, governments and social initiatives have influenced the way businesses plan to operate and, in 2020, the momentum for investing in sustainable projects will only increase. The latest research shows that almost two-thirds of SMEs want to develop more environmentally sustainable ways of working with 20% of them feeling pressured to make such changes by their clients.

So how can we as funders, help encourage investment in sustainable projects within the UK SME market? Representing 99% of the UK’s business population, SMEs are vital in the generation of jobs and wealth in our economy and without an effective source of finance to support these investments, these businesses could be held back 42 | NACFB

which could prove detrimental in their ability to compete in an ever changing world. The 1pm Group believe, now more than ever, that collectively advisors and funders have a key role to play in supporting these changes moving forward.

Recently, we have supported our clients with their investments in many green initiatives. From investing in the introduction of electric vans and vehicles to their fleets; funding the engineering and construction of climate-resilient infrastructures; as well as funding the introduction of more energy-efficient plant and machinery are just a handful of investments we see businesses looking to make this year.

Whatever the solution be, whether it is a single or a packaged finance facility, when advisors and funders work together to deliver an effective source of finance to clients, it instils the trust and confidence businesses need to drive forward with these key investments.

Understanding our clients’ need for change allows us to support them so that they can capitalise on new opportunities and guarantee the future of British businesses.

“

The latest research shows that almost two-thirds of SMEs want to develop more environmentally sustainable ways of working

Know-how? No problem We pride ourselves on our financial expertise at Accredo. Years of experience has taught us to look past the numbers and view the complete picture of the clients we’re providing solutions for. And the most suitable terms and finance options for each individual case.

We offer commercial loans and leases from £25,000 to £1,000,000, often lending when others won’t, with terms from 3 months to 10 years. Our experienced teams also understand that you’re providing a service and therefore we’re dedicated to providing our introducers with a fast, friendly and informative experience every time.

Ease and expertise from Accredo Send your proposals to props@accredoltd.co.uk or call us on 01444 255915 for more details.

Broker Voice

Leading by example All finance professionals have a duty to maintain high standards

Steve Russell Sales Director Bluestone Leasing

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t will surprise many outside our industry to learn that lease brokerages are doing an incredible job for British businesses, especially SMEs. Firmly in the blind spot of the wingmirrors of the national media, the great work that professional brokers do tends to get drowned out by lazy headlines around mainstream banks closing their doors to small businesses and how it is impossible to access finance.

What makes a great broker stand out? That’s simple – exceptional customer service. Requiring determination, dedication and a searing commitment to quality throughout, life as a broker is not without its challenges.

Awareness The statistics are quite stark. With a declining trend in businesses using external finance from 2012 onwards, and record lows of new applications, more than seven in ten SMEs report that they would rather forego growth than consider external finance.

Recent levels of political and economic uncertainty obviously need factoring in, along with more subjective elements, such as risk tolerance and growth ambition, but at face value it might suggest SMEs are turning their backs on external finance.

The reality has more to do with awareness. When finance needs do arise, over a third of SMEs simply contact their main bank and a massive 49% consider just one option. Although awareness of alternatives is improving, especially around peer-to-peer products, still only 5% of SMEs approach an alternative funder directly.

Instead, brokers work hard to either position themselves in the headlights of the client indirectly (working with channel partners, the broader supply chain and professional introducers) or increasingly seek direct traction through internet presence, SEO, social media and good old-fashioned referrals.

Itʼs a shame then that successive governments have essentially ignored the efforts of lease brokers when they should have been busy raising the profile of the sector, and the value of the broker within it.

Perception So besmirched has the name become, and so evocative of sharp practices, we actually don’t even use the word ‘broker’ anymore in our business, preferring ‘intermediary’ instead in fear of being pigeonholed before we start.

Like many industries, a small minority make life difficult for the rest and the lack of integrity exhibited by certain brokers, in some well

publicised cases, reflects badly on us all. We all want those businesses routed out and made examples of and, notwithstanding the importance of an effective regulator (more on that later), believe responsibility for policing good practice sits squarely with the funders. Unfortunately, funders are too quick to knee-jerk in response to the malpractice of the few by shaping their view on brokerages (and credit policy along with it) as a whole, tarring professional brokers sadly with the same grubby brush. Itʼs lazy, unhelpful and needs to change.

Regulation Whilst much has been said on this matter, which we won’t repeat here, as we approach six years since the FCA took over, we can at least talk on a basis of some evidence. Many of us, despite the disproportionate burden in costs and reporting on those for whom regulated business was, and remains, a tiny minority of our activity, welcomed more robust regulation. We hoped it would promote good practice, squeeze out the unethical and unscrupulous and provide protection to customers.

Whilst the cost, disruption and organisational impact on brokers most certainly has been delivered, many of us still struggle to see the promised improvements in behaviour. We still come across other brokers flouting the regulations and flagrantly ignoring their obligations. We harbour deep concerns over the legal and technical structure of some of the ‘superbrokers’ who have sprung up, offering their appointed representatives an easy solution to compliance but with big questions over who is actually liable should things go wrong.

Like many of our professional peers, we live in hope rather than expectation that things will improve and the FCA spotlight will finally illuminate these recesses of their remit.

Fintech Part challenge, part opportunity. Without doubt all brokers can benefit from adopting more technology to improve their efficiency, speed up processing and improve the client experience but suggestions that true end-to-end automation has landed are premature at best.

Open Banking and PSD2 will help but most current platforms are no more than glorified data capture portals and still reliant on significant input of information.

In this race to embrace technology, let’s not forget that defining characteristic of a great broker – the service we deliver. Is asking our clients to do all the work themselves really the answer? I’m not convinced.

“

In this race to embrace technology, let’s not forget that defining characteristic of a great broker – the service we deliver NACFB | 45

Opinion

The devil in the detail Big Data is changing everything – but automation has its limits Philip Davies Sales Director Renaissance Asset Finance

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s consumers, we create huge amounts of information that tech companies use to create digital profiles to predict our behaviour. While debate continues around the ethics, predictive modelling can be a force for good.

Big Data can help the underbanked get access to finance, for example.

Those with a thin credit file, but a rich digital data trail now have opportunities they didn’t before.

Automated decision-making isn’t one-size-fits-all though – particularly when it comes to asset finance.

Data processing, Artificial Intelligence and automation offer tantalising opportunities to increase efficiency, speed up decision-making and reduce inconsistency. Many of the frustrations that brokers experience could be solved by fully automating the decision-making process.

For example, we’ve seen scenarios where similar deal proposals deliver different decisions – the only variable between them is the dates they are submitted. Dealing with such inconsistency is time-consuming for brokers striving to match their customer’s requirements to the best funder. However, automating such processes could be just as frustrating and potentially dangerous.

Even the most sophisticated algorithm is very unlikely to be able to account for the myriad factors that we consider when making an underwriting decision.

46 | NACFB

In the P2P space, for example, we’ve seen some rather bizarre decisions made using automated risk models. What we know so far is that algorithms are simply not sophisticated enough. It is possible to standardise decision-making, but by doing this, you are introducing a degree of risk that could be damaging for lenders and borrowers in the longer term.

We try to take things on a case-by-case basis. Even the most refined decision-making calculation is likely to be rendered obsolete by the smallest variation, from shifts in the broader political landscape to a small complication in the asset supply route.

Flexibility of thought and judgement is required in underwriting.

Some of the data is very clear, for example, the market value of an asset, but so much of a lending decision requires emotional intelligence and up-to-date adaptable thinking.

We don’t make emotional decisions, but also haven’t been convinced that there are any automated predictive models that can reach a decision based on the entire picture – yet.

There is much talk about Artificial Intelligence but it simply isn’t quite up to the task and difficult to see how it can bring value to our core business in the medium-term.

To take an example, say we have a family-owned transport company and the owner wants to pass the company over to his son and refinance the unencumbered assets to pay a large dividend. How do we judge the viability of the future management of the business? Do we psychometrically test the son, carry out an IQ test or a DNA test and feed the results into a software application? Just to build a numerical risk profile for the son would be hugely expensive, time consuming and no guarantee that it would produce a more accurate result than building a meaningful relationship in person.

Most proposals that we encounter have a quirk that requires flexibility so that we can tailor solutions to individual needs and our positive broker and client relationships are central to ensuring that such solutions are delivered efficiently.

personal service is another human enterprise. This is about regular contact with brokers, understanding their concerns and needs, responding to our changing industry and adapting to the broader commercial world.

We can’t and don’t want to hide from the fact that automation has certain advantages over human decision-making.

Most importantly, there is the client. How does all this affect them?

Automation makes things easier in some respects, but you can’t replace traditional face-to-face contact. This isn’t a simple credit card application, it requires an understanding of business circumstances, a knowledge of the industry and a creative approach to problem solving. People also want to feel that their best interests are at the centre of what we offer.

If we are saying that decision-making should be led by people, those people have a responsibility to communicate and decide what our risk appetite is. These guiding principles based on human intelligence, whilst not always machine-perfect, should allow us to provide a greater degree of certainty for brokers in terms of decision consistency.

If brokers have a clear idea of what we’re about, it makes their job much easier and the client will enjoy a good outcome.

Beyond that, offering competitive rates and delivering a positive and

With enough computing power, you could probably reduce much of what we do to numbers and decisions, but we’re not there yet and until we are, let’s all enjoy the contribution that we can all make as humans working with humans.

We offer advances up to £2.5 Million on all kinds of Plant, Vehicles and Machinery Our Account Managers are available to assist you and your clients, nationwide, with their funding requirements, including HP, Lease and Refinance.

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Liberty Leasing Limited is authorised and regulated by the Financial Conduct Authority for the purposes of credit related regulated activities (including leasing)

Patron Member

NACFB | 47

Opinion

The South East is more than just London And we should no longer view it as a region that merely orbits the capital Paul Street Director Property Finance, South Cynergy Bank

W

hen commentators, journalists, and economists discuss the economic strength of the South East they are, too often, simply referring to London. What this doesn’t account for are those towns and smaller cities that surround London that help to drive economic growth in the South East region.

The capital is undoubtedly the strongest place in the UK economy. In 2018, the average output per Londoner was £54,700. The South East was more than £20,000 behind that figure but was also the only other location or region to be ahead of the overall average for England or the UK as a whole.

and purposes, a competitor to the capital – the only one in close proximity to London’s infrastructure and global skills market, but with cheaper property prices. It enjoys most of the benefits, but with less of the expense.

This is why Cynergy Bank continues to grow its South East team in order to keep supporting fantastic property entrepreneurs in the region – owners of businesses who are driving economic growth and providing investment and employment opportunities across the region.

Cynergy Bank has supported more than 800 UK property customers with £1 billion of debt in 2019. This has been achieved with our successful relationship banking model where clients have a regional team with regional knowledge that ensures customers have quick access to people who’ll understand their business, work with them to find solutions and make quick decisions to meet their ever-changing needs.

The region also represents a hotbed of entrepreneurial and business opportunity and lenders must keep this in mind as they find themselves naturally drawn to the bright lights, super-tall cranes, and big-name businesses that dominate London.

One of the trends expected to continue in 2020 is property investors and developers continuing to move outside of the traditional core of London, chasing better yields. Whilst this creates funding opportunities, it also creates challenges for customers where competition can drive-up asset and land values.

As a result, the South East is often treated as a mere adjunct to Britain’s true world city. This ignores that the region is, to all intents

Many towns and cities outside the capital continue to be revitalised

by Permitted Development, providing much needed residential

48 | NACFB

housing stock. Southampton, Brighton, and Canterbury are best known for their port, tourism, and cultural industries respectively, but they equally enjoy a buoyant property market.

In Southampton, there is a strong student investment market which has been supported by numerous schemes in the city centre last year, providing more than 500 rooms.

Brighton is enjoying a similar boom, traditionally known for tourism, but increasingly becoming popular with student investments. The seaside resort’s student accommodation strategy, first unveiled in 2009 and updated last year to take into account student number projections to 2030, is helping to fuel this growth.

To meet the varying requirements of property clients across the South East region, Cynergy Bank has launched a series of new products such as development finance, term investment facilities, fixed-rate lending and bridging finance, enabling the Bank to provide the full lifecycle of products for a professional property investor.

To continue to support the wider financial needs of clients, the Bank has a full range of financial products and capabilities across; property finance, business banking, private banking and savings.

The South East will remain a vibrant region, and with our relationship management approach Cynergy Bank will continue to fund existing and new clients through 2020 and beyond.

NACFB | 49

Opinion

Seize the day We live in the golden age of funding solutions Mark Standley National Commercial Director Assetz Capital

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he last decade was nothing short of eventful. We have witnessed four general elections and a seismic referendum result that will transform the UK economy indefinitely, all of which has resulted in a period of unprecedented uncertainty.

Despite many challenges, the country has continued to defy pessimism during this time showing a willingness to do business, and as we enter a new era there is much cause for optimism.

Whilst the drawn-out process of leaving the European Union, coupled with a minority government, has stymied the UK market, the December election result has had a positive effect on business confidence. Deloitte’s latest CFO survey, which measures sentiment amongst some of the UK’s largest corporates, found that optimism across the country has reached record highs and risk appetite has risen to the highest level in four years. This suggests that business owners will now focus their efforts on growth rather than survival, undoubtedly good news for the finance industry.

There has never been a better time to take on debt for investment and sound commercial purposes. Interest rates have remained at some of the lowest levels we’ve seen and may fall even further as the year progresses. The difficulty in recent times has been the lack of funding available from the high street banks, and where the appetite for business lending remains much reduced following the financial crisis in favour of perceived lower risk/lower capital cost consumer products. This has undoubtedly stifled innovation 50 | NACFB

amongst SMEs and has resulted in stagnant growth in many parts of the country.

The lack of traditional funding has, however, catalysed the proliferation of alternative lenders who are willing to help innovative and ambitious businesses in their time of need. Cutting through the red tape, alternative finance has become a much more tailored option for those who have been let down by the ‘one size fits all’ approach from the high street. The opportunities for business owners have never been more wide-ranging, with crowdfunding and marketplace lending emerging as viable forms of alternative finance in the last decade. For this very reason, the role of professional finance brokers has become critically important in helping business owners to quickly find the most appropriate funding partner.

Whilst the levels of alternative funding have risen perpetually, we expect that this newfound confidence amongst UK businesses will result in even higher demand for borrowing in 2020. Looking at our own results, for example, we have provided close to £1 billion in loans to housebuilders and SMEs over the course of our seven-year history. In the last year alone – arguably the most uncertain period – we are proud to have funded the construction of one in every 100 new homes built in the UK. For Northern Ireland the number is four in every 100 new homes. This begs the question, what can we expect in a time where risk appetite is strong and business confidence is at an all-time high?

Looking ahead, I would encourage any business owner or property developer to consider the options available to them. In a time when interest rates are low, and with such a broad range of new funding solutions available, there has never been a better time to borrow money with alternative lenders continuing to fill the gap and support the UK’s budding SMEs.

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Opinion

Lending support to the franchising boom Fuelling a franchisor’s capacity to grow Tony Geary National Head of Business Development Barclays UK

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riven by the UK’s entrepreneurial spirit, and with 90% of franchisees reporting profitability, itʼs easy to understand why franchising is experiencing significant growth.

Figures show franchising contributes £17.2 billion a year to the countryʼs economy, while also employing 710,000 people, and Barclays is lending its support to continue the sectorʼs success.

Barclays has been working with franchising clients for many years now, but in 2018 it launched a specialist franchising team. I lead a team which is sharing its industry knowledge, expertise and insights with both franchisors and franchisees, as well as providing the vital financial support they need.

Much to offer We have much to offer the franchising sector. We have been around for over 300 years as a bank, so we have a wealth of knowledge. We also provide local business managers – someone on the ground you

can meet face-to-face, which can be extremely important to some businesses when theyʼre starting out.

Franchisees are offered bespoke credit terms, bespoke pricing and a single point of contact from our franchising team. And our experience means we know what weʼre looking for in a franchisee – someone with the relevant skills or experience plus a detailed business plan, particularly around working capital requirements.

Fundamentally, franchising is a partnership, and at Barclays we have something to offer both sides of that partnership – a package thatʼs helped us to build successful relationships with franchisors and helps franchisees to achieve their entrepreneurial ambition.

Attractive proposition One of my first actions has been to appoint Liahll Bruce as franchise development manager to work with franchises across the UK. Liahll said: “Franchising has become an attractive proposition as people see the value of being self-employed but partnering with businesses that can support them with the strength of their brands, networks and market experience.

“Among franchisees weʼve seen a recent trend for diversifying portfolios,” he added.

NACFB | 53

Opinion

“

Franchising has become an attractive proposition as people see the value of being self-employed but partnering with businesses that can support them with the strength of their brands, networks and market experience

Traditionally, the franchisee investor model was to expand the number of franchises with the same brand, but now thereʼs increased appetite for cross-sector investment; for example, operating both fast-food and retail businesses.

This could be down to a desire to limit exposure to a downturn in any one sector, or awareness that a franchisee has good transferable management skills.

While the franchise model has historically been most commonly seen in the retail, hospitality and leisure sectors, Barclays is seeing growth in all types of franchising industries and Liahll is confident there are opportunities opening up for new players in this space.

One example is business services, where outsourced accountancy, consultancy or similar services are proving increasingly popular with SMEs. From product and trademark franchising through to joint venture franchisees and master franchises, there is a huge amount of choice when it comes to different franchise models and therefore having someone who understands their nuances can really help when tailoring a financial package.

Sustainable franchise models For would-be franchisors, Liahll explains, itʼs important to first invest some time in understanding whatʼs involved and develop a robust business plan: “Historically, some brands have focussed simply on collecting their franchise fee rather than on building a sustainable franchise model that works over the long-term.”

To address this, recruiting franchisees that are the right fit is obviously vital. And once a good match is made, continued training and support for a franchisee will also bolster their chances of success.

As a broker you’ll need to understand if your client already operates other franchises; their performance will of course be a good guide to 54 | NACFB

the financial support that could be available if they want to expand their current franchise operation or even diversify into another sector.

To support any lending decision, having a business plan in place which identifies key areas such as the structure of the business, analysis of the market, business operations, cash flow model, profit and loss, marketing and financing will always help.

You should also establish what the recruitment process involves, ensure that the franchisee has been put through their paces and understand what training and support is given to the franchisee. It would also be useful to understand the network performance of the franchise, this may be included within the business plan, but if not, ask the question as it can often provide some comfort to the bank to support the lending request.

Concluding, Liahll said: “Barclays is working hard to deliver what its brokers and clients need – something Iʼm passionate about – and to identify new franchising opportunities and ways to support the sector.”

“

From product and trademark franchising through to joint venture franchisees and master franchises, there is a huge amount of choice when it comes to different franchise models

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Listicle

5 E

very business needs to have a written business plan. Whether it’s to provide strategic direction or to help build a case for funding, a business plan is vital for the success of your client’s organisation.

A strong business plan can make the difference between rejection and drawdown.

In 2019, 1% of NACFB brokers said the main reason lenders turned away deals was because of an inadequate business plan.

Whilst 1% might not sound like a lot, that’s over 2,000 deals last year alone.

business plan essentials 2. The market analysis Funders are not subject matter experts on all business sectors. A key part of any business plan is the third-party analysis and context can lend real credibility to a client’s funding request. This should include honest competitor analysis, regional sector variances and even relevant reports or press cuttings.

Writing a business plan is easier said than done, but for intermediaries to maintain their position as trusted advisers, understanding what constitutes a successful business plan is an important part of a broker’s arsenal. We’ve compiled five key elements every business plan should contain.

4. The financial forecast Creating financial projections for an SME is both an art and a science. Some lenders will want to see cold hard numbers, but it can be difficult for businesses to assess financial performance three years down the road. Regardless, short and medium-term financial projections are a required part of any serious business plan.

It should include sales forecasts, expenses budgets, balance sheets, alongside P&L statements.

1. The company description Sometimes the people writing the business plan assume the recipient has a level of prior knowledge greater than they do.

We’ve all done it, sometimes we’re just a little too close to the business to gain clear perspective. A fifty-word elevator pitch is invaluable, and if your client can’t describe their business in fifty words then help them distil their message more clearly.

56 | NACFB

3. An organisational structure

5. The funding request

The organisation and management section of your business plan should summarise information about your client’s businessʼ structure and team. Itʼs especially important to include this section if they have a partnership or a multi-member limited liability company (LLC). However, if they are the only person involved, then they do not need to include this section.

This may sound too obvious, but a successful business plan should contain a clear request for funding that matches the formal request you make for your client. Here is where the broker can add huge amounts of value; in navigating the complexities of finance products and assessing which facility will provide the client with most growth potential.

Five Minutes With

​ ive F Minutes with: Kim McGinley Kim McGinley Director VIBE Finance

Describe your role in ten words or less?

Director and owner of VIBE Finance.

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

Having full transparency from the outset leads to a heading off of any potential issues.

Further a team effort between all parties involved and great communication throughout the entire process.

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

Anyone looking to bend the rules or not willing to provide the information we require upfront – we work in a certain way to enable us to provide the service that we do, not only to our clients but to our lender partners also.

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

Ha! I don’t have time in my life for another small business!

58 | NACFB

What is your favourite SME success story?

This is a tough one as I know so many people that have created successful businesses. I just love seeing businesses grow from home offices/working in the garage to where they are now. Even Google and Apple started from a garage once!

What recent professional accomplishment are you most proud of?

Winning the Rising Star of the Year 2019 award at the NACFB Gala Dinner. A pinnacle moment for me since I started VIBE and to get that recognition in front of my team and industry peers is a moment I will never forget.

How do you think commercial lenders can improve client experience?

By not being scared to build relationships with clients as well as brokers in the early stages. Some lenders shut themselves away

from any client contact at all, even when warranted. We’ve found some of our most successful cases have stemmed from a lender being bold enough to take a form of responsibility and assist us with forging relationships with clients.

What was the last great book you read?

Slight Edge by Jeff Olson.

What law would you pass if you were Prime Minister for the day?

Flexible working for all who require it – of course it needs to work for the business, but this is something I feel very passionate about.

What is the best live music experience you’ve ever had?

The Goo Goo Dolls – I grew up with their album Dizzy Up The Girl – hearing them live in 2018 was pretty special.

SPECIALIST LENDING SOLUTIONS BUY TO LET MORTGAGES

A new way for landlords to increase yield and capital growth Our Refurbishment Buy to Let product lets your customer take advantage of the flexibility of Bridging Finance with the surety of an exit onto a Buy to Let Mortgage once the property has been refurbished (providing there are no changes and the property meets the expected valuation following refurbishment). Take a look at our unique approach: One application, which we key for you One expert underwriter providing support for the entire case One valuer for both the bridge and Buy to Let Mortgage One conveyancer and discounted legal fees

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

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

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