Commercial Broker (NACFB Magazine) September 2021

Issue 93 SEPTEMBER 2021

Broker COMMERCIAL

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

28 RE-EVALUATION AND REPAIR

30 MEASURE TWICE, CUT ONCE

The link between credit ratings and funding opportunities

Navigating the UK's shortage of construction materials

Brick by brick Empowering SME housebuilders

38 SHINING A BRIGHTER LIGHT Dispelling misconceptions of supposed down valuations

44 A GROWING NETWORK OF ADVISERS Bringing brokers and the British Business Bank together

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Contents

In this September issue NACFB News

Special Features

4 6 8

10 12-14

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

22-23

Avamore Capital: Breaking the mould 24-26 NACFB: Building stronger foundations 28 Lightbulb Credit:

Re-evaluation and repair 30-31 Assetz Capital: Measure

twice, cut once 32 Devon and Cornwall

Securities Limited: To

bridge or not to bridge?

34 One Savings Bank: The

right seasoning

Industry Insight 36 38-39

Cynergy Bank: Heading back out Arnold & Baldwin Chartered Surveyors: Shining a light 40 Neil Pringle Productions:

Moving on up 42 Purbeck Personal Guarantee Insurance: A safety net

16 Patron Profile 16-17

C&M Wealth: Moving with the market

Compliance Update 18

NACFB: Use it or lose it

Opinion & Commentary 44-45

Reach Commercial Finance: Working in unison 46 Black & White Bridging:

Embedding TCF cultures 48 Praetura Asset Finance:

Changes at the top 50 White Oak: The funding spectrum 52 Listicle: Five ways to improve a

property’s EPC rating 54 Five minutes with: Ed Rimmer,

Chief Executive Officer, Time Finance

Ask the Expert 20

Phelan Independent: Keeping the pipeline open

30

50 Further Information KIERAN JONES Editor & Feature Writer

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

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

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

Magazine@nacfb.org.uk MACKMAN Design & Production T 01787 388038

mackman.co.uk

NACFB | 3

Welcome

Norman’s Note

R

emember silly season? Traditionally, it was a period lasting a few summer months typified by the emergence of frivolous news stories across Britain’s broadsheets, tabloids and television. With parliament in recess and many reporters on holiday, the news agenda would be flooded with idle fluff and nonsense. How I longed this year for details of Rotherham’s largest marrow or the sighting of a two-headed toad in Aberdyfi.

Alas, there was no respite this summer, as we continued to lurch from crisis to crisis. Perhaps we are living through the era or the crisis, or perhaps this is just the way things will be from here on in.

The pandemic, Brexit, and the ongoing climate crisis aren’t just abstract concepts, they’re now firmly rooted in our reality – but our community can influence matters in a very real manner.

Norman Chambers Managing Director | NACFB

Another perennial crisis we face is that of a chronic housing shortage.

In this issue, I unpack the piling concerns for SME housebuilders – from land grabs to a shortage of materials, and why here, yet again, our community can be the driver for positive change.

Finally, and in a comeback rivalling Romelu Lukaku’s to Chelsea, the NACFB Commercial Finance Expo returns to Birmingham’s NEC this month. After several false starts we can unite under the same roof together. If you’re reading this before Thursday 30th September, there is still time to register your attendance because pre-registration will be mandatory this year. If you’re reading this at the NACFB Expo itself, please do head on over to the two stages where we can promise you insight, learning, and lively debate.

We are not defined by our response to each crisis, but we can find within each seeds of opportunity. Funding momentum is building, and we must grasp every opportunity, as together we navigate the path towards Moving Britain Forward.

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NACFB News

Association updates for September 2021

#CFE2021 – NACFB unveils conference agenda Journalists Naga Munchetty and Philip Collins complete Expo line-up The beating heart of this year’s NACFB Commercial Finance Expo can be found in the show’s conference theatres. On Thursday 30th September at Birmingham’s NEC, the stages will play host to the Association’s leadership team, special guest speakers, and a selection of panellists chosen for their unique insight, pedigree, and vision for our industry’s future.

Joining the debate For the first time ever, the main conference theatre will welcome a dedicated host for all sessions. The Association is proud to unveil esteemed presenter and acclaimed financial journalist Naga Munchetty as the day’s host.

Naga presents BBC One’s World News and BBC Breakfast, waking up the nation with the day’s biggest news stories. She is also a BBC Radio 5 Live host and co-presented BBC's Working Lunch alongside Declan Curry.

Naga will welcome a keynote speech from fellow journalist and former speech writer for Tony Blair, Philip Collins. In an address titled ‘Where do we go from here?’ Philip will weigh-up the personalities, compromises, and agenda of today’s leading political players, 6 | NACFB

considering the future for the main parties, their leaders, and the direction of policy travel.

Naga will chair five panel sessions on a range of topics impacting the modern finance professional. The day will begin with how the sector can shape policy and regulation – focussing on relief, recovery, and reform. A session will then examine how SME housebuilders can be empowered, whilst another debate will tackle how intermediaries can service small businesses of the future. After lunch, delegates are invited to join the conversation on whether the drive to digitise processes is a threat or an opportunity, before the day rounds off with an analysis of decarbonised finance.

Introducing ‘The Exchange’ New for 2021, the NACFB is proud to welcome The Exchange stage.

The Exchange does exactly what it says on the tin and seeks to offer an exchange of insights, views, and experiences. Rather than pitting broker against lender, The Exchange invites representatives from two Patron lenders and provides a platform for them to speak openly about their industry experiences.

Each session will take the form of a tête-à-tête, with representatives conversing in an informal setting, casting aside professional rivalries, and instead seeking areas of commonality and collaboration.

Brokers are invited to observe the sector-based dialogue and contribute questions at the end of each session.

For the complete agenda, and to register your free attendance, visit: commercialfinanceexpo.co.uk

Real world lending.

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Give us a call to find out more about our industry-leading products and how we can assist your SME clients.

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Real world lending 0800 470 0430 www.assetzcapital.co.uk/introduce/rls Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority in respect of its peer-to-peer lending platform only. ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes.

Assetz Capital also offers Recovery Loan Scheme (“RLS”) loans to corporate borrowers through Assetz Capital Lending Limited. Assetz Capital Lending Limited is a company registered in England and Wales with company number 12632494. Assetz Capital Lending Limited is not authorised or regulated by the Financial Conduct Authority. Assetz Capital Lending Limited is registered with the Office of the Information Commissioner (Reg No: ZA759694) for data protection purposes.

Note from our Sponsor

The powers of deduction Accelerating asset finance

Alan MacRae Broker Director, Commercial Banking Intermediaries Lloyds Bank

A

s the economy reopens and businesses look for finance options which can help support their recovery and growth plans, we’re seeing the demand for asset finance increase.

Pent-up demand is one factor, but we’re also seeing a desire to use asset finance to make the most of the Capital Allowance measures announced as part of the 2021 Budget.

A fantastic incentive These measures offer a fantastic incentive for businesses to invest in their futures. The Super Deduction means companies can claim 130% capital allowances on any qualifying plant and machinery investments until 31st March 2023, while the Annual Investment Allowance has been adjusted to provide 100% relief for plant and machinery investments up to £1 million until 31st December 2021.

Using asset finance to fund investments means businesses can also spread their repayments. Against an uncertain economic backdrop, not having to outlay significant sums but still being able to make the investments you need to grow is a huge bonus. Plus, with asset finance, in the vast majority of cases, the asset itself provides the security for the borrowing, and, if the asset is revenue generating, it hopefully pays for itself over the borrowing term.

8 | NACFB

Making the most of the Super Deduction The main challenge for businesses looking to make the most of the Super Deduction and accelerate their capital expenditure is availability of assets. A lot has gone on over the last 18 months which has impacted supply chains. The economic landscape has changed, and continues to evolve, but our commitment to supporting our brokers and their clients’ buying plans remains central to our strategy.

We want to work together as we all look to navigate our way through this new economic landscape.

Making it easier to work with us We’ve made a number of changes to our asset finance offering to make things easier for brokers and their clients. We’ve accelerated our digital capability and now over 50% of proposals are submitted to us online.

This frees up our capacity internally, allowing us to process applications quicker and dedicate a greater level of support to more complex cases.

We’ve also launched our new Commercial Banking Intermediaries team which brings together asset finance, invoice finance, card acquiring, and term lending. Having one clear proposition means we’re able to create joined up solutions and efficiencies which allow us to dedicate more time to improving the overall broker experience. We’re ready to help you and your clients navigate and make the most of the next few months.

Find out more at lloydsbank.com/business/commercial-finance/ asset-finance.asp Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under Registration Number 119278.

Industry News

Industry News 1 1. Pandemic support schemes boost challenger lending Analysis by BDO shows that lending by challenger banks hit a record level after COVID-19 support schemes were rolled out, with lending by banks outside Barclays, HSBC, Lloyds, and NatWest up 11% to £143 billion last year. The report reveals a 26% increase in lending to businesses after the government launched the CBIL and BBL schemes. The research also found that lending by challenger banks has doubled over five years, from £71 billion in 2015 to £143 billion in 2020.

2. Open Banking could cut loan processing times by 85% A study by Yolt Technology Services (YTS) suggests lenders could see the average time they spend processing loans reduce by more than 85% with the adoption of Open Banking. The research shows that the use of account information services would make manual processes requiring applicants to provide information such as complex, unstructured income, and expenditure data unnecessary.

3 10 | NACFB

3. Lloyds: UK firms at most confident for first time in four years

6. Quarter of all food and hospitality suffer low stock levels

British business confidence reached its highest level in more than four years in August, according to a poll by Lloyds Bank. Lloyds’ monthly business barometer rose by six percentage points to +36%, the highest since April 2017.

Optimism in the economy also rose by six percentage points following a dip in July. More than a third of the 1,200 companies surveyed predicted they would offer staff pay rises of at least 2% over the next 12 months and 17% anticipated wage growth of at least 3%.

Figures from the Office for National Statistics show 27% of food and hospitality firms have been hit by low stock levels in recent weeks. Low stock levels were also reported by 23% of manufacturers and 25% of firms in the wholesale and retail trade, repair of motor vehicles, and motorcycles industry. The latest ONS fortnightly business poll revealed that firms across the UK have been struggling to get hold of materials, goods, and services.

4. ASTL data paints positive second-quarter lending picture New figures from the Association of Short-Term Lenders show an almost universally positive set of results for bridging lending in the second quarter, with completions increasing, applications remaining strong, and defaults falling.

Bridging completions increased 23.2% from the first quarter to £1.1 billion.

Applications fell slightly, by 1.7% to £7.36 billion. “The Q2 2021 lending figures are pleasing for a number of reasons”, said ASTL chief executive Vic Jannels.

5. FCA warns P2P lenders over lack of plans for orderly closure The Financial Conduct Authority has written to the boards of peer-to-peer lenders warning that none of the platforms it reviewed had “adequately identified the triggers that might realistically allow for a solvent wind-down to be invoked”. The companies were warned that if they did not improve their contingency plans for orderly closure, they could be banned from writing new loans.

7 7. Half of small businesses fear income will fall in the next year Just under half of UK small businesses (49%) expect their income will reduce in the next 12 months, according to data from WorkLife by OpenMoney’s latest Small Business Monitor. The figure is up from 45% in the spring. Additionally, just 26% of small firms now believe that their sales will increase over the next year, down from 31% in March. On average, small businesses expect to be back to pre-pandemic levels of income within ten months of restrictions lifting.

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Membership News

Membership News £14m capital raise sees Recognise Bank pass milestone

Bank North secures licence and becomes a regional bank

New SME bank, Recognise Bank, has announced a successful £14 million capital raise, including fresh investment from one of its existing shareholders. It means Recognise Bank has met the capital requirements set by the PRA, clearing the way for the removal of deposit-taking restrictions.

Bank North – previously B-North – has been granted its banking licence (Authorised with Restrictions or AwR) by the PRA.

Once the PRA removes these restrictions, the NACFB Patron will become fully authorised and plans to launch FSCS-protected savings products to both personal and business customers. The Bank also plans to further increase its business lending to the SME sector.

Recognise Bank was set up in 2018 and received its Authorisation with Restriction (AwR) in November 2020.

Recognise offers a range of unregulated funding options for SMEs, including commercial mortgages, bridging finance, and working capital loans, in addition to specialist professional practice loans for firms such as architects and solicitors, as well as the medical and healthcare sectors.

The bank has already received £750 million in borrowing enquiries since it opened its doors in November 2020 and aims to lend £1.3 billion to more than 5,000 SME borrowers over the next five years.

Jason Oakley, CEO of Recognise, said: “This is a major milestone in our journey to create Recognise Bank and change the complexion of SME banking in the UK.” 12 | NACFB

The NACFB Patron will start delivering business finance next month, opening the doors of its first lending Pod in Manchester, before a managed roll-out across the UK. Bank North has also closed a successful ‘Series A’ funding round, raising new capital from investors including Skipton Building Society, LHV Group, and LHV Asset Management.

The round will support Bank North in further developing its technology as well as delivering operating capital to kick off its lending activities.

Bank North was founded by a group of banking executives from Santander, Metro Bank, First Direct, and others. The team now counts alumni of Barclays, HSBC, Bank of America, and the Yorkshire Building society amongst its staff.

Jonathan Thompson, founder and CEO of Bank North, said: “This is a landmark for the team at Bank North who have been working tirelessly to build the most customer-focused bank possible. Our model is ground-breaking and there has never been a more compelling backdrop to launch a new regional bank for the UK, as the country looks to build back better and recover from the ravages of the COVID-19 pandemic.”

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Membership News

Membership News Value of the private rented sector grows to £1.4trn

White Oak relocates to Chester amid hiring spree

The value of the Private Rented Sector (PRS) in England, Wales, and Scotland grew by 5.8% to £1.4 trillion in the last year according to a new report, ‘The Changing Face of Buy-to-Let’ from Shawbrook Bank.

White Oak has moved to a 15,000+ sq ft. office in Chester city centre to accommodate its continued growth both in the region and across the UK.

Since the first national lockdown, house prices have rebounded at pace. March 2021 saw house price growth of 9.9% year on year, as the Stamp Duty holiday boosted confidence and demand.

The ten-year lease reaffirms White Oak’s commitment to the North West as their home with a hiring drive taking place across the coming months.

Buy-to-let properties have also seen marked price increases. To December 2020, the average value across the UK rose by 5.6% to approximately £258,900.

White Oak have offices in London, Glasgow and Southampton and remains one of the largest employers in Chester, with access to a valuable talent pool in the areas of Chester, Manchester, and Liverpool.

White Oak plans to hire an additional 40 professionals in 2021.

The past eighteen months have been a period of substantial consequence for the PRS, which has already been impacted in recent years by taxation and regulatory changes. Some landlords chose to leave the market and the PRS contracted in size over the last year.

The NACFB Patron is supportive of local businesses in the region, announcing earlier this year that it had committed £40 million to businesses in the North West, part of £400 million in Governmentbacked CBILS loans.

However, John Eastgate, managing director for property finance at Shawbrook Bank, remains positive saying, “Landlords are looking to expand their portfolios due to a combination of rising house prices, attractive yields, and growing demand from tenants. Borrowing to help fund this expansion is an attractive option, with landlords presented with great choice and historically low mortgage costs.”

James Felton, chief operating officer of White Oak Europe, said: “The new office move to HQ, Chester is a major statement of intent for White Oak’s continued growth and evolution. The relocation to Chester reaffirms our commitment to the North West as our home where we can continue to support our customers in the region and across the UK.”

14 | NACFB

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Patron Profile

Positive momentum The value of moving with the market ​Ming Chen Finance Director C&M Wealth International

C

&M Wealth Group began in 2011 from humble beginnings.

Since then, the company has developed and over the coming years we intend to grow further but all the while maintaining our high standard of principles. We continually adapt our lending options to assist the ever-changing bridging and development market.

The company was set up by Ming Chen and Changfei Li. Their experience and passion have always been in all things finance.

These range from the commercial industry, property investment, bridging, and accounts. They wanted to use their expertise to assist borrowers in achieving their portfolio goals.

Chang is the managing director and co-founder of C&M Wealth Group. Additionally, Chang has several years’ experience in the bridging and development industry. Ming is a fellow chartered certified accountant (FCCA) and is the second co-founder. He has audited and advised on large portfolios for financial institutions and multinational companies. Ming has valuable experience in the bridging market and has excellent knowledge of statutory audits, risk control and financial analysis.

16 | NACFB

With a focus on making deals work for all parties, the aim of the organisation is to offer bespoke products and lending solutions.

Our mantra is to always be moving forward with positivity and never sit still with negativity.

C&M’s strength lies in its flexibility and excellent customer service.

We can lend up to 70% loan-to-value (LTV) with loans ranging from as little as £26,000 up to £2,000,000. Pricing starts from 0.80%. We can assist in areas such as standard bridging, light/heavy refurbishments loans, commercial/semi commercial finance, auction finance, buyto-lets, second charges and development finance.

The ever-growing team of experienced underwriters, case managers, BDMs and accountants continue to offer a unique service,

“

Our mantra is to always be moving forward with positivity and never sit still with negativity

“

Although the current property market is still trying to get itself back to normal after the last 18 months, we believe that property values will slowly decline

emphasising our passion for growth and the lending sector.

From the outset, our boutique service includes a full assessment of an enquiry by both the underwriters and the case managers.

Algorithms and processes are not the primary focus of a deal; instead, we retain the human touch with extensive manual underwriting. Each case is considered on its own merits and position and we work with several valuation panels and solicitors to ensure an excellent service from start to finish.

Although the current property market is still trying to get itself back to normal after the last 18 months, we believe that property values will slowly decline. The gradual withdrawal of government support (most notably the stamp duty holiday and pause to repossessions) will unfortunately result in many property owners and landlords having to sell their assets at a reduced price to avoid repossessions and receivers. We envisage that after an initial slump, the market will in time stabilise and we anticipate an uplift from 2023 onwards.

2021 has been a challenging year all-round for the specialist lending sector and as we approach 2022, we are looking forward to embracing the changes and continually adapting to the ever shifting marketplace. We aim to further strengthen our existing staffing levels and grow both our brand and loan book. In terms of evolution in the market, the predicted recession will no doubt shift the market but will be an ideal opportunity for those with good liquidity and low LTVs. Brokers will have options in the form of new clients and people looking at alternative lenders who can deliver faster service than more traditional routes.

We believe success comes down to transparency and loyalty. A good, experienced broker will help achieve a positive result for all parties if a case is packaged well, presented clearly and due diligence is followed. But this is not always easy, especially now when the broker market is experiencing a mixture of successes and difficulties amplified by the pandemic. Education and learning will help brokers (and their clients) to navigate a successful path through these precarious times and we will support their journey as they expand their knowledge and help grow their clients’ portfolios. Long-term, we are optimistic for the future for brokers, lenders and borrowers.

NACFB | 17

Compliance

Use it or lose it FCA consumer credit permissions at risk ​​Dean Williams Compliance Officer NACFB

W

hen it comes to credit broking permissions, it’s no secret that the Financial Conduct Authority (FCA) is keen to introduce a ‘use it or lose it’ approach.

Monitoring firms is a time-consuming and costly process, so anything that streamlines processes and reduces overheads is sure to be welcomed by the regulator.

But saving time and money is not the FCA’s primary agenda. It has a greater ambition – to mitigate the risks of harm to consumers and ensure that the consumer credit market is working well. With this in mind, in July it issued a survey to all authorised credit broking firms seeking to build a clearer understanding of the ways in which these firms use their permissions. The questions asked related to volumes of regulated transactions in a 12-month period, projections of regulated transactions for the next 12 months, alongside the nature of a firm’s activities.

Reporting brokers’ consumer credit activity assists the FCA in its supervisory role. It enables them to build an overall picture of the consumer credit market. It also helps them to monitor the relationship between both customer and transaction numbers as well as income.

However, in our experience, income is often misreported by brokers because they do not fully understand how consumer credit income is defined. But getting it right is important for two main reasons: it determines a firm’s annual regulatory fees and levies, and, soon, it could affect whether a firm retains or loses its consumer credit permissions.

18 | NACFB

Without permissions, brokers may not be able to access some lenders on behalf of their clients. Not only would this be damaging to the broker and potential borrowers, but it would also reduce the sector's ability to best serve SMEs at a time when funding is crucial to fully recover from the impact of the pandemic.

Most brokers know that, when they undertake regulated consumer credit broking activities and receive a fee for the service, they must report these activities to the FCA. However, many are unaware that, when they refer customers to another broker to undertake regulated credit broking activities, these activities must also be reported to the FCA regardless of whether the referring broker receives a fee or commission on the transaction. In these instances, not only is reporting obligatory, but it also demonstrates that the referring broker is actively utilising its regulatory permissions which reduces the chance of them being withdrawn on the basis that they are not required.

To assist, on our website we have published guidance for brokers on how to complete FCA consumer credit forms CCR002 (full permissions) and CCR007 (limited permissions). It identifies brokers’ obligations and considers what information to submit. We hope it is useful but encourage Members to contact the compliance team if they require any further help.

“

Without permissions brokers may not be able to access some lenders on behalf of their clients

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Ask the Expert

Keeping the pipeline open

Q Joe Phelan Co-founder, Director, & Solicitor Phelan Independent

P

helan Independent is a network of experienced, independent solicitors who provide legal advice to business owners, directors, landlords and property investors across the country. One of the newest NACFB Associate Patrons, we talked to co-founder Joe Phelan, a solicitor specialising in commercial law, about the most pressing legal matters affecting both SMEs and the property market today.

The residential property market has experienced high volumes of sales in the run-up to the end of the stamp duty holiday, have you seen something similar in the commercial property market?

&

back. This was particularly the case during lockdown. Local authorities didn’t have the staff available or the processes in place to provide the search results quickly, which caused obvious frustration for clients.

with pre-existing business continuity strategies struggled to cope with the scale of establishing the processes and implementing the technology needed to accommodate a remote workforce.

Another common, albeit under-appreciated cause of delay is the requirement for individuals to obtain independent legal advice when it is required on transactions.

It’s typical for parties to only become aware of the requirement towards the end of the transaction and then finding a solicitor willing and able to provide the advice quickly and at a reasonable price can be difficult.

However, digital transformation has been a silver lining of lockdown for the commercial property sector. Widespread use of video conferencing and use of electronic signatures, which have finally been accepted by the Land Registry, have certainly helped to speed up transactions and will no doubt become the norm in property transactions moving forward.

Have you seen an increase in the use of personal guarantees by lenders providing commercial finance and what role does the solicitor play in arranging them?

Now that coronavirus restrictions are lifting, where do you see the focus of legal advice heading for SMEs and landlords?

A

While it hasn’t been quite as high pressured for the commercial market, there’s been a notable uplift in volume over the last 18 months, which considering the uncertainty and disruption of COVID, has been really encouraging to see.

Yes, and when they are required, the lender will insist that the person entering into the guarantee is given independent legal advice by a solicitor who is not involved in the purchase or refinance and receives a certificate to confirm it. Without the certificate, the lender will not release the funds and the transaction cannot complete.

What's the most common conveyance delay when dealing with commercial property?

How did business differ during lockdown for solicitors acting on behalf of SMEs and landlords?

The main delay on transactions is generally the time it takes for search results to come

Few businesses were prepared for the impact of lockdown. Even those

20 | NACFB

Working practices have changed dramatically since the pandemic began and as we begin to define our ‘new normal’, businesses will naturally find that their property requirements have changed. Some businesses will find they no longer require premises of the size they currently have; others may decide that their premises no longer need to be in certain locations.

Legal advice relating to arrangements for existing premises and moving to new premises will definitely be a key area of focus for SMEs and landlords considering their property requirements over the coming months.

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Sitting still is not an option Breaking the mould in the development space Sophia Lee Internal Relationship Manager Avamore Capital

T

he Planning Portal states: “…most planning applications are decided within eight weeks, unless they are unusually large or complex, in which case the time limit is extended to 13 weeks.” However, a report written by Urbanist Architecture in November 2020 highlighted that during the COVID crisis, councils acknowledged the decision-making process was taking longer than usual. There were several factors which contributed to this; an adjustment to home working slowed things down and, more recently, the scramble to complete transactions prior to the stamp duty deadline has put pressure on local councils more generally.

After a slow year, many developers are likely to be looking to maximise profitability as far as possible. One option could be to go for enhanced planning but, this hinges on securing the additional option within a reasonable timeframe. An increasing number of developers may therefore be forced to weigh up their choice to sit on a site with planning or, push ahead with the knowledge that they could have got more from their project.

It therefore falls on the rest of the development market to find a way to propel developers forwards. We know that challenging times can drive innovation, and we are starting to see these signs. As development lenders, we rarely see ‘perfect’ cases and the nature of what we do means that each needs to be viewed with its own lens. Practically speaking, it’s not possible to constantly deliver new products to the market but what we have found is that having an openness to take a view on the right deal sets the path for new ideas.

22 | NACFB

As more nuances emerge in transactions, it also becomes increasingly important for lenders to equip brokers with the appropriate tools to service the market. At Avamore, we always look for opportunities to do more and that can be seen through the emergence of our most recent Planning Flexibility Feature, an additional facility for enhanced or modified planning (which has not yet been approved) on top of works already permitted.

Advancements like this provide an opportunity for brokers to place deals stuck on desks while they wait for planning, a problem which is becoming increasingly prevalent.

When it comes to the development market, it is always a joint effort to work around situations as they present themselves. The property industry is highly sensitive to macro-economic and social swings and that means there is a lot that we cannot control. As lenders, all we can do is identify reoccurring themes and find ways to ‘break the mould’ to remain supportive. If we all stay as we are, we will contribute to the roadblocks and, in remaining stagnant, it means that ultimately, we will all fall behind our expectations.

“

We rarely see ‘perfect’ cases and the nature of what we do means that each needs to be viewed with its own lens

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Special Feature

Building stronger foundations Home wasn’t built in a day Norman Chambers Managing Director NACFB

​O

nly 12% of new homes today are delivered by SME housebuilders according to the Federation of Master Builders. Forty years ago, the figure was 40% but a barrage of obstacles has led to decades of decline – and the pandemic has only added insult to injury.

Figures from the National House Building Council (NHBC) show that 123,151 new homes were registered in 2020, 23% down on 2019. The figures relate to new homes registered with the NHBC for its ten-year warranty, which covers circa 70-80% of all new homes built in the UK and are a leading indicator of house-building activity. If we take the average and do a rough calculation, it means that only 20,000 or so homes were built by SME housebuilders last year.

Surely they deserve a bigger seat at the table? After all, they have the ability and appetite to develop sites deemed too small for the larger operators. Sites which could reduce encroachment onto greenfield land and go some way to fulfilling the government’s failing target of delivering 300,000 new homes each year.

Recessions and lockdowns aside, why aren’t SME developers building more homes and what can be done to empower them to re-grow their market share?

The best laid plans The planning system is seen by many as the biggest stumbling block.

To most, it is a clunky, over-complicated nightmare, difficult to navigate

and about as slow as barge on an overgrown canal. It is unsurprising then that according to a recent report commissioned jointly by the Land Promoters and Developers Federation (LPDF) and the Home Builders Federation (HBF), the planning system is not currently delivering sufficient permissions annually to meet the government’s new housing target. It says that to achieve the goal up to 115,000 more permissions each year will be required in the next two to three years.

If an increase in permissions is what is needed, many SME housebuilders might support the government’s new Planning Bill which aims to speed up the current system by stopping local opponents blocking development in designated ‘growth zones’.

A faster process would certainly ease some of the pressures facing SME housebuilders, but others believe it is the wrong focus. The BBC reports that one charity declared it a “free-for-all for development”. Writing in a personal capacity, Dame Fiona Reynolds, master of Emmanuel College, former director-general of the National Trust, vice president of CPRE, the Countryside Charity, and trustee of Green Alliance, said: “Speed is of no benefit if it leads to the wrong, short-term decisions, and if we build in the wrong places, locking ourselves into energy intensive, unsustainable patterns of living. And upending established processes and creating a climate of controversy around planning may in itself end up slowing things down. Now, by contrast, is the time to harness the potential of the planning system, and people’s trust in it, to align disconnected government policies and help us all live good, sustainable lives.”

It is a noble aim, but with so many conflicting views and different strands to pull together to be successful, it is easier to say than to achieve. And it doesn’t help SME housebuilders in the near-term.

This land is our land When it comes to building more homes, the LGA believes that it is not the planning system which is at fault, saying that there are around 1.1 million unimplemented planning consents. It accuses developers of land banking. Both the LPDF and the HBF dismiss this, claiming significant double-counting due to some sites awaiting funding for infrastructure and others awaiting replacement permissions to reflect technical changes, re-designs, as well as alterations in housing mix or

design detail. On 10th June, the issue of land banking was debated parliament. No real new insight was revealed, although the subject of tax penalties for developers who wilfully sit on land was raised as was housebuilders’ financial contribution to infrastructure and the usual posturing guff about building back better.

Availability of land suitable for SME housebuilders to develop is another issue. Only time will tell if the Planning Bill helps, but by the time you read this, Homes England should have launched its new Delivery Partner Dynamic Purchasing System (DPS) aimed at making it easier for developers including SMEs interested in smaller plots, to bid for state-owned land. Again, only time will tell.

A depleted workforce According to the Office for National Statistics (ONS), there were a record 38,000 vacancies across the UK construction industry between May and July this year. Many believe that the labour shortage is due Brexit when many EU workers left the country. No doubt the pandemic has compounded the situation. A recruitment consultant said that builders were paying higher rates for skilled labour to keep projects on track. He cited carpenters’ pay having risen to £32 per hour up from £22 per hour in 2020. Increasing the number of apprenticeships may help in future but a near-term solution looks bleak.

“

If an increase in permissions is what is needed, many SME housebuilders might support the government’s new Planning Bill which aims to speed up the current system

NACFB | 25

“

Now, by contrast, is the time to harness the potential of the planning system, and people’s trust in it, to align disconnected government policies and help us all live good, sustainable lives

A material difference In addition to labour shortages, Brexit and the pandemic have created a scarcity of materials and the situation was exacerbated earlier this year when a tanker blocked the Suez Canal – a primary route by which materials are moved around the globe. Most noticeably affected are timber, bricks, steel, roofing, coatings, cement, and concrete. Pretty much everything SME housebuilders need to get building, resulting in existing developments lying idle and those not started remaining untouched. Whilst the canal is now back in business, the dearth and delays caused by Brexit and the pandemic will take much longer to resolve.

Access to finance As you might expect, the shortages in labour and materials have led to a sharp increase in prices leaving many SME developers with insufficient funds to complete projects without refinancing. The situation has led to greater scrutiny of applications by lenders who are keen to ensure that the cost implications of delays and price increases are factored into proposals.

Generally speaking, however, access to finance is much, much better than in the wake of the financial crisis. There are many more funders with a good appetite to lend and brokers will play an increasingly important role in getting deals over the line. But finance for SMEs looking to build homes is still doled out on a project-by-project basis.

Whilst this is good for risk management, for both lender and borrower, it does make it difficult for smaller developers to grow their operations.

No doubt savvy lenders are thinking up new and innovative solutions.

26 | NACFB

The recent introduction of sales guarantees could help to ease the situation as they remove the exit risk. Mark Hawthorn CEO of NACFB Association Patron LDS, recently said that: “…sales guarantees can empower developers to bring forward three to four times more housing than they would under traditional routes.”

A policy push In last November’s Spending Review, the government announced a National Home Building Fund of £7.1 billion to be invested over four years. Designed to shake up the housing market, it aims to back smaller developers, unlocking brownfield land and supporting innovative construction techniques. The fund will support up to 660,000 jobs and unlock up to 860,000 homes. It includes £2.2 billion of loans for SMEs and innovative housebuilders to support new housing in areas where it is needed most. It’s too early to tell whether this initiative will bear fruit or be consigned to the realm of heard-it-all before rhetoric.

Building upon the foundations Clearly, the challenges presenting SME housebuilders are legion and all the solutions appear to contain the word ‘more’.

A more suitable and streamlined planning system, more small sites to develop, more labour, more materials, more finance, and more government support. It is no small wall to scale, especially when not everyone can lay their hands on the right climbing equipment. And without support ropes, SME housebuilders could be left out on a limb, scaling the wall brick by hard-to-come by brick.

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Special Feature

Re-evaluation and repair The link between credit ratings and funding opportunities ​James Piper Managing Director Lightbulb Credit

B

usiness credit ratings have been around for a long time and are seen as being directly connected to the financial capability of a company, but despite this many companies don’t maintain an awareness of them and don’t fully understand the impact they can have on day-to-day operations and growth until it causes them a problem.

For businesses, these ratings have a direct impact on working capital, trade terms, tendering and borrowing. If a rating is low, it can immediately restrict access to funding, and in cases where funding is obtainable it can also have a negative impact on the rates and terms offered.

Why ratings are so important There are six main credit rating agencies in the UK and all LLPs and limited companies are rated using their respective algorithms.

The scoring methodology for each agency is different, but all utilise data from Companies House, alongside payment data collected to evaluate how suppliers are paid against agreed credit terms. This data is then used to determine a company score and generate a recommended credit limit.

The COVID-19 pandemic has further escalated the situation, with tighter criteria being applied to lending and more credit checks being done than ever before, making it more challenging for businesses to get the support they need and for brokers to get difficult deals across the line.

How credit repair can positively influence funding Business credit repair is a new concept in the UK and many business 28 | NACFB

owners don’t realise that they can challenge a poor rating, or that it’s possible to get scores re-evaluated and improved quickly using real time data.

Improving a company credit score can help businesses get the financial support they need to grow in only a matter of days, and for brokers it can make a significant difference in completing those difficult or more complex funding deals.

As well as having a positive impact on their funding applications, the credit repair process also provides business owners with valuable insight into how their company is viewed by others externally, which in turn can highlight other strengths and weaknesses in their operation.

By building credit repair into the funding process, brokers can not only maximise their opportunities, but also add real value to their clients in the form of insight and in many cases, a more positive funding outcome.

With an improved credit rating businesses can explore their full potential, maximise their financial capabilities and get on the road to business growth, something that in the current economic climate is more important than ever.

“

Business credit repair is a new concept in the UK and many business owners don’t realise that they can challenge a poor rating, or that it’s possible to get scores re-evaluated

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Special Feature

Measure twice, cut once Navigating the shortage of construction materials for developers ​Rebecca Hall Relationship Director Assetz Capital

I

t’s no secret that there’s been an unprecedented construction material shortage this year, and few would have forecast the near-perfect storm that has swept through the sector. The government’s building ambitions appear to be in jeopardy thanks to these shortages which have largely been fuelled by Brexit and the COVID-19 pandemic.

A shortage in construction materials can, in part, be traced back to increased building and home improvement activity in 2020, particularly during the first lockdown. Adjusting to the pandemic led to a slowdown in the production of materials from some factories in the EU, and supply chains have remained stretched ever since.

Many developers have needed to use creative ways to get around the extra paperwork at customs, such as sourcing more local materials.

However, the facts remain that many housebuilders are reliant on imported materials.

On top of our domestic backlogs, there is also a global shortage of raw materials due to a combination of demand outstripping labour supply, and some trades putting up their rates due to being overwhelmed with work. This continues to constrain production of certain products, such as insulation, paints, and adhesives, as well as packaging for products, which are critical for our developers, all of whom are experiencing these issues.

30 | NACFB

Labour rates have also skyrocketed in some areas in recent months due to a combination of demand outstripping labour supply, and some trades putting up their rates due to being overwhelmed with work. For example, my colleagues based in the South-East tell me high numbers of Eastern European workers have moved back to their respective countries because of Brexit, which has impacted that area in particular. Incredibly, the number of UK construction vacancies has now risen to 35,000 which is the highest figure since records began 20 years ago.

A shortage of lorry drivers has been reported by the Construction Leadership Council, which has a direct impact on building sites receiving their deliveries. The availability of hauliers is a particular issue and it’s clear that this is becoming a critical nationwide problem causing delays and impacting project programmes.

“

The cost of materials for repair and maintenance work rose 2% between March and April and increased by 11.2% between April 2020 and April 2021

“

The construction sector is always innovating, and the use of modern methods of construction and factory building programmes will go a long way toward improving quality and production efficiency

So, how will the material shortages affect UK housebuilders and developers? Ongoing shortages will be a blow to those working on construction projects who are building with steel or timber frame, both of which are in short supply and could potentially face surging costs in the coming months. Developers who refurbish properties could also be affected by price increases. The cost of materials for repair and maintenance work rose 2% between March and April and increased by 11.2% between April 2020 and April 2021, according to a report in May. Building merchants are also under increasing pressure, leaving DIY projects in doubt, with paints, sealants, and some electrical components all in short supply.

There are several key items for builders that are in high demand that cannot meet their volume of orders, such as steel, cement, timber, roof tiles, plasterboard, plastics, bricks, and plumbing items. Due to increased demand, lengthening lead times and low stock levels, we are seeing ongoing price rises – particularly with timber, steel, cement, and paint.

What’s the best way to navigate shortages as we look to the second half of the year? Like any construction project, planning is key.

Plan in advance so you aren’t caught out by shortages or price rises. This point is particularly important over summer as more people purchase DIY and landscaping products, which may place an additional burden on supplies. Work more closely with your supply chain too; communicate your requirements early with suppliers, distributors, and builders’ merchants.

The construction sector is always innovating, and the use of modern methods of construction and factory building programmes will go a long way toward improving quality and production efficiency, but manufacturers will still be at the mercy of market forces when it comes to the building materials shortage.

To summarise, product availability is proving to be a significant and prolonged issue for Britain’s housebuilders and developers, and we as a lender need to be aware that the cost of building projects may change in the months ahead because of the pressure. We also need to make sure that we are always looking to improve our lending criteria and offerings in order to help housebuilders cope with this.

NACFB | 31

Special Feature

To bridge or not to bridge?

That is the question Daniel Sproull Director Devon and Cornwall Securities Limited

B

rokers often divide lenders into bridging lenders and traditional non-bridging lenders. Many of these pages over the years have been devoted to explaining the benefits of bridging loans including, speed, flexibility, the knowledge and experience of the lender, and the perceived advantages for the borrower. If the borrower is not able to service the debt and has a clear exit strategy, then a bridge might be just the ticket.

Often a broker will look to a bridging loan because the applicant is unable to make a traditional banking case stand up. Perhaps they are in too much of a hurry to achieve that. Perhaps they don’t have the relevant accounts or perhaps they have had some business difficulties or adverse credit in the past. The natural choice then is a short-term bridging loan. Or is it?

Long before the plethora of bridging companies that now exist arrived on the scene, traditional non-status lending provided facilities to all sorts of people who might now end up with a bridging loan. Proper old-style, traditional non-status lending is open ended in nature, i.e. with no fixed repayment date. Loans are underwritten purely on the value of the property with a lender simply taking the risk that the right loan-to-value (LTV) will be sufficient for it to be able to recover what it is owed if it needs to do so. We are here of course talking about unregulated commercial loans secured on business property where the person who is the borrower takes the decision as to whether or not the loan is right for them and whether they are able to service the interest. A sensible lender would always require the borrower to have a decent broker dealing with the case and their own independent legal advice.

32 | NACFB

With an open-ended, non-status commercial mortgage, the borrower is not under any pressure to repay by a certain date and can take their time in rebuilding their credit score (if that is what they need to do) and arranging an exit. As long as the monthly interest is serviced, the borrower can keep the mortgage for as long as they want. As interest rates will be comparable to a bridging loan (or at least a bridging loan within its agreed term), naturally the borrower will not want to keep the loan for longer than they have to and will want to repay as early as they can.

When applying for a loan, many borrowers do perhaps wear rose-tinted spectacles in anticipating how easy it will be to exit a bridging loan and may kick themselves when the repayment date looms without that exit having been organised. They know (or should do) that they are then going to suffer significant increased charges and probably a higher monthly interest rate after they go into default. With a traditional non-status, open-ended mortgage, these worries are not present.

Devon and Cornwall Securities Limited has been providing facilities on traditional non-status, open-ended commercial mortgage basis since 1983, but despite this it is often regarded in the same bracket as bridging lenders by many brokers. We have recently announced a new product called ‘Bridge to Loan’ which combines the benefits of both bridging and long-term lending. The original loan is drawn down on a traditional bridge of up to 12 months, but the borrower can convert that loan into a long-term, open-ended loan if it turns out that repayment is not going to be feasible or desirable at the end of the term. The best of both worlds, you might say. Although this is a single product, the broker can earn commission twice.

The clear message of this article is intended to make sure that brokers appreciate there is an alternative to bridging when a borrower is not going to be able to satisfy the requirements of a traditional mortgage lender. Intermediaries have a responsibility to their client to ensure they are fully aware of all options.

Special Feature

A different flavour Has your client got the taste for semi-commercial?

Emily Machin Head of Specialist Finance InterBay Commercial

W

hat’s your favourite takeaway? Maybe it’s fish and chips on a Friday night, perhaps it’s a pizza or it could even be an Indian meal.

For me, it’s a Chinese, every time. And it seems as though the majority of the UK agrees. According to a poll conducted by YouGov, one in four people picked Chinese food as their go-to takeaway.

Whatever your favourite takeaway is, one thing’s for sure – our appetite for it has certainly boomed over the last 12 months or so.

Research carried out by KPMG earlier this year found that the average spend per person is now £641 a year – almost 50% more than the last time similar research was carried out.

While the increase has been driven in part by the pandemic, I believe it also has something to do with the entrepreneurial spirit being shown by people keen to capitalise on our demand for takeaway food.

Certainly, in the town close to where I live, several of the vacant stores have been converted to takeaway restaurants in the past year, many of them with one interesting addition – there’s now accommodation above them. Canny investors have recognised the potential for the properties as a mix of business and residential accommodation and have taken the plunge into the world of semi-commercial, or mixed-use, letting.

And accommodation above takeaway restaurants is just one example. It can also include flats above shops and offices, guest houses with accommodation for the owners, public houses with self-contained accommodation or buildings with both self-contained flats and offices. With the ‘traditional’ buy-to-let market being 34 | NACFB

subjected to a series of legislation and taxation changes in recent years, perhaps it’s no surprise that investors are exploring the opportunities offered by different property asset classes. And with their potential to earn higher rental yields compared to a standard buy-to-let, in my opinion semi-commercial properties could give experienced landlords a different way to maximise their investments.

Of course, there are always two sides to the same coin. The initial outlay and running costs can be expensive, and void periods can take longer to fill. Landlords may also have trouble in finding a lender experienced in dealing with semi-commercial cases, as specialist situations require specialist lending solutions.

Fortunately, here at InterBay Commercial, semi-commercial lending is our bread and butter, and we’ve got vast amounts of experience in providing bespoke solutions. However challenging a case may seem, we partner with brokers to help them achieve the best possible outcome.

For landlords with the appetite for new investment opportunities, semi-commercial letting could offer them the ideal way to diversify their portfolio. And with the right lender on their side to help them make the move into a new market, they could soon develop a taste for both the commercial and residential worlds.

“

Perhaps it’s no surprise that investors are exploring the opportunities offered by different property asset classes

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Industry Insight

Heading back out Reviving the UK’s hospitality sector Steve Crosswell Relationship Director Cynergy Bank

I

still find it hard to believe the pandemic started to seriously impact the UK 18 months ago. Time has certainly flown by, and we are now looking forward to the hospitality industry fully opening as restrictions are lifted.

Some of this was a leap of faith as our decisions were based on what the borrowers’ management team had done previously and that they could deliver their budgets in what were/are unprecedented trading conditions.

We’re fortunate that we have not only a very stable and successful portfolio of clients, but also great relationships with introducers and advisers. Quick decisions coupled with the ability to access funding in the sector enabled clients, both existing and new to the Bank, to be in the best position whilst awaiting the ‘new normal’. To summarise, this is what I have learnt:

I remember, quite vividly, the discussions I had last March with clients, advisers, introducers, professionals, and colleagues as to how long we thought it would last and the impact it might have – unsurprisingly none of us were right.

• Value your clients and advisers, communicate openly, honestly, and regularly with them.

From an operator’s perspective the most urgent issues to address were the main outgoings; rent, rates, payroll, suppliers, and loan repayments.

We’re a secured lender so few of our existing clients had rent obligations, but we felt it crucial to act quickly and provide much needed breathing space by deferring loan repayments and suspending covenants.

• Know their sector inside out so you can add value.

We witnessed some amazing examples of businesses pivoting incredibly quickly to survive – providing products online, implementing delivery and collection, opening hotels to key workers and essential business travellers – there were so many examples. It kept their teams active and engaged, remaining connected to their customers and playing important roles in the community by providing food packages to the vulnerable and key workers and supporting foodbanks. The industry really stood tall.

Hospitality businesses spent time during lockdown wisely. They reviewed their cost base, constantly communicated with their suppliers and other key stakeholders, and quietly prepared for re-opening.

Funding hospitality businesses has obviously been tougher than many other sectors, however. With so many unknowns, we had to rely more on traditional lending fundamentals: who are we backing?

Do we hold them in high regard based on their history? Do we believe they can deliver their business plan?

36 | NACFB

• Keep them informed and make sure they do likewise with you.

• Don’t be afraid to ask challenging questions of each other because ultimately the relationship will be stronger for it.

• Speed is of the essence. Quick decision making is key in an ever-changing environment.

“

From an operator’s perspective the most urgent issues to address were the main outgoings; rent, rates, payroll, suppliers, and loan repayments

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Industry Insight

Shining a light Dispelling the myths of down valuations Joe Arnold Managing Director Arnold & Baldwin Chartered Surveyors

this valuation is lower than the amount a buyer has agreed to pay, then this just shines a light on the property being over-inflated in the first place, or a remortgage applicant being over-zealous perhaps.

own valuations are the subject I am asked about most by brokers, but the reality is, it’s a bit of a red herring.

For example, I have been asked many times whether lenders are currently asking surveyors to down value properties, but it’s a myth and it’s worth dispelling.

Our message to brokers is that it’s always better to work from a position of knowledge to ensure the successful completion of more transactions, which is why we are happy to hold training sessions and workshops with brokers – to encourage more open dialogue and working partnerships, which will ultimately lead to better client outcomes. After all, your clients come to you for professional advice when it comes to financing their property investment, but where do they turn to understand an accurate current and achievable value for that investment?

D

It is true that when a surveyor values a property, we do so both within the framework of the RICS Red Book guidelines and the lender’s own guidance notes. However, these guidance notes simply detail that lender’s specific criteria regarding different types of property – they are not instructions as to how bullish, or not, the surveyor should be in their valuation. It might be a lender doesn’t want flats over kebab shops in their portfolio, or high-rise flats with no lifts for example.

It is also true that in periods of economic uncertainty, some lenders will rein in their risk appetite as a precautionary measure against the risk of falling property prices. However, they do this by managing their appetite for higher loan-to-value (LTV) lending – either by withdrawing products or pricing them so they are less competitive.

A lender’s risk appetite is not reflected in the valuation of a property.

The valuation is an independent assessment, and surveyors have no bias or incentive to value a property in no way other than how they see it. The lender prices risk into the interest rates.

The truth is that there is really no such thing as a down valuation. A surveyor provides the only formal valuation of the property and if 38 | NACFB

Arguably the biggest barrier to the success of any property investment is not selecting the wrong finance, but selecting the wrong property, and unrealistic expectations about the rental or capital value a property might be able to achieve can be the difference between a happy client and a disgruntled investor.

“

Our message to brokers is that it’s always better to work from a position of knowledge to ensure the successful completion of more transactions

With this in mind, establishing a working relationship with a chartered surveyor can give your clients greater confidence to proceed and help improve your conversions. For example, on a property refurbishment a surveyor will be able to not only establish an accurate value for the property in its existing condition, but also provide unbiased information on the expected capital or rental value once the renovations have been completed, and this can help your clients to consider their favoured exit, which could influence their finance options.

Similarly, on houses in multiple occupation (HMO), a surveyor can check against the local authority Article 4 direction to ensure that

the HMO does not contravene any local planning regulations and that the property can be let on a room-by-room basis. In addition to considering regulation, local authority requirements and the RICS Red Book guidelines, a surveyor may also be able to consult on the specific criteria of different lenders who will have their own guidance notes to consider, regarding the valuation of an HMO property.

So, don’t get worked up about down valuations, get access to information earlier on in the process. Establishing a working relationship with a surveyor can help you to develop better insights into property valuations, increase your conversions, and potentially also grow your business.

Industry Insight

Moving on up Drones are revolutionising the way we do business Neil Pringle Owner Neil Pringle Productions

D

rone images are everywhere. Looking down on something from on high is an effective way of providing context.

Many TV programmes, adverts, news bulletins and online videos contain footage taken by a drone. Just a few years ago, capturing aerial footage was hugely complex and expensive, now these amazing views are affordable for all sizes of business.

A large part of our business is creating marketing video content for SMEs. Some films are just 15-20 seconds, for attention-grabbing social media posts. Others are longer, for websites and presentations.

Adding aerial shots simply elevates content – makes it stand out in the sea of images which flood our senses daily.

Increasingly, drones are being used for purposes other than just a bird’s-eye view. In the property sector, surveyors have recognised the many benefits, particularly when the COVID-19 pandemic restricted human movement. They can be easier and safer to deploy than a person, particularly in hard-to-reach areas and when buildings are not structurally sound. Drones can survey and record data faster than a person and can negate the use of scaffolding or cherry pickers which are expensive to hire. Using drones can also prevent damage to vegetation.

Whilst the benefits are many, those wishing to use drones in the working environment do have to consider the Civil Aviation Authority regulations when operating such specialist machinery. It is certainly not a do-it-yourself activity and would likely invalidate any insurance policy were something to go wrong.

You don’t have to fly high to offer new perspectives. We made a series of films for a client, who creates bespoke garden buildings. One of 40 | NACFB

the most beautiful sequences, which now graces their website, was created by flying low up a small garden stream, lined with rocks and colourful flowers and ferns. Watching it, you feel like you’re a bee or a butterfly exploring – it offers a visceral, intimate experience, with a timber room being revealed at the end of the journey.

A similar experience could be used by construction companies, housebuilders, and estate agents to show off both residential and commercial properties.

Drones can also be used indoors. Imagine being taken on a tour of a factory or warehouse facility. The unique perspective could really help to sell the space to potential purchasers and renters. We’re currently working with a glazing company, documenting the fitout of a new factory. I flew the drone inside as some of the new machines were being installed. It was a great way to capture the scale of the project.

The future for drone technology looks secure and the regulations surroundings their use will develop over time. Eventually, it may even be possible to deploy them remotely which would provide further cost savings. But even now they are supporting business growth, providing the wow factor, grabbing customers’ attention, drawing them in and helping SMEs stand out from the crowd.

“

Surveyors have recognised the many benefits, particularly when the COVID-19 pandemic restricted human movement

Wesleyan Bank bolsters credit team after strong half-year performance

Rob Irving and Essie Quinnell join specialist commercial lender Wesleyan Bank has expanded its credit team with two experienced hires following its strong start to the year. Wesleyan’s broker division has provided circa £60 million of new funding in the first six months of 2021, up 85% on the same period last year, resulting in its highest ever loan book.

Yvonne Wiseman, Head of Indirect Sales at Wesleyan Bank, says, “Already in 2021 we have broken records in proposals and new volume written with sales, operations and back-office teams working extremely hard to deliver for our broker partners and their clients.”

Yvonne continues, “To ensure we are brilliant to do business with, we

needed to move quickly and hire experienced industry professionals who can hit the ground running by providing tailored and flexible solutions to support our rapid growth.”

Wesleyan Bank’s credit team has been bolstered following the recent appointments of Senior Underwriter Rob Irving and Credit Underwriter Essie Quinnell who bring a combined industry experience of 20 years.

Irving has spent the last four years at Haydock Finance and previously worked at NatWest, while Quinnell joins from Metro Bank.

managers in providing dedicated service to its panel of brokers.

Yvonne Wiseman adds, “We are focused on continually improving our service levels and really appreciate the support and feedback from our broker partners. Rob and Essie are excellent additions and will help us increase capacity in our credit function.

We are also investing in emerging talent and digital technologies to reduce manual processing and turnaround times for low-value deals to better serve our customers.”

The specialist commercial lender is also looking to hire sales support professionals to assist its broker account

We can’t wait to see you at the NACFB Commercial Finance Expo!

To book an appointment to see us at the event call us on: 0808 123 0111 (Mon-Fri 8:30am-5:30pm) Or email: bank.broker@wesleyan.co.uk

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

Calls may be recorded to help us provide, monitor and improve our services to you.

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Industry Insight

A safety net Insurance can cut the risk of personal guarantees ​Todd Davison Managing Director Purbeck Personal Guarantee Insurance

C

ommercial brokers are well-versed on the risks versus the benefits of signing personal guarantees for business loans. As the Government’s pandemic support eases back and firms look to secure new finance, access to funding is increasingly expected to hinge on the business owner or director’s willingness to sign a personal guarantee. It is therefore crucial that clients not only know what this means for them personally but how they can mitigate the risks, with personal guarantee insurance becoming an increasingly common option.

In a survey Purbeck Personal Guarantee Insurance conducted earlier this year amongst a thousand SME owners and directors, close to a quarter of those surveyed (24%) became personal guarantors in 2020. Furthermore, 54% said they planned to seek out new finance in 2021 and 8% anticipated that they would become personal guarantors in 2021, putting their homes and life savings at risk, if their business fails.

While 45% said they had decided against a loan because it required a personal guarantee, 64% said they would be more likely to sign a personal guarantee if there was insurance in place to protect against the risk of providing it. Most notably, an overwhelming majority (88%) agreed that lenders and financial advisers have a duty to make business owners aware of personal guarantee insurance.

This relatively new type of insurance can be purchased for an existing guarantee, or as finance is taken out. Cover is available for up to 80% of the personal guarantee amount, and premiums can be flexed depending on the credit rating of the policyholders’ business.

42 | NACFB

Each case is individually considered and assessed, and commercial brokers can gain a real time view of applications, policies, and commission statements through our dedicated broker portal.

The big difference with this type of insurance is it does a lot more than simply pay out following a claim. Personal guarantee insurance from Purbeck includes access to free mentoring and support services if a business gets into financial distress, plus the huge benefit of expert guidance at the point the debt needs to be settled. This takes the burden off the shoulders of the business owner.

Since launch, Purbeck Personal Guarantee Insurance has protected over £120 million in personal guarantees, giving business owners and directors the confidence to secure finance knowing that if the business fails, the majority of the loan would be paid off without risk to their home and assets. Amongst start-ups alone, loans to the value of £35 million have been secured in the past three years protected by a personal guarantee from Purbeck.

Personal guarantees are becoming a fact of life in the SME community, but insurance is reducing the risk for a growing number of business owners and directors.

“

Lenders and financial advisers have a duty to make business owners aware of personal guarantee insurance

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

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

FOR INTERMEDIARY USE ONLY Aldermore Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register number: 204503). Registered Office: Apex Plaza, Forbury Road, Reading, RG1 1AX. Registered in England. Company No. 947662. Invoice Finance, Commercial Mortgages, Property Development, Buy-To-Let Mortgages and Asset Finance lending to limited companies are not regulated by the Financial Conduct Authority or Prudential Regulation Authority. Asset Finance lending where an exemption within the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 applies, is exempt from regulation by the Financial Conduct Authority or Prudential Regulation Authority.

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Broker Voice

Working in unison Underpinning a growing UK network of advisers ​​Gary Cain Director Reach Commercial Finance

A

t the beginning of the year, the NACFB established a Members’ Advisory Group (MAG). The aim of the MAG is threefold: to strengthen Members’ voices concerning how the Association is run; to provide strategic input to ensure that the NACFB evolves in line with its mission, vision, and values; and, to support the team and Members in meeting head-on the challenges which arise in both the commercial finance market and the wider economy.

The founding MAG members were chosen for their achievements within the industry; specifically, those who have been in receipt of a recent Commercial Broker Award. Personally, I was delighted to have been invited to get involved, and crucially the invitation to join the MAG remains open to all NACFB Members.

A recent topic for discussion at the MAG concerned the creation of NACFB regional ambassadors who will work closely with the British Business Bank, the Bank of England, and the Federation of Small Business to provide direct feedback on the commercial lending landscape.

The British Business Bank is the UK’s economic development bank, which is government-owned but independently managed. Its mission is to drive sustainable growth and prosperity by improving access to finance for smaller businesses. Like me, I am sure you will have noticed that the profile of the Bank has grown considerably since the start of the pandemic, particularly through its work with the government-backed COVID-19 emergency loan schemes.

The Bank works with more than 180 partners to deliver funding programmes that address gaps in small business finance markets either through debt or equity finance. The Bank also provides independent and impartial information to enable smaller businesses to seek the finance best suited to their needs.

44 | NACFB

With this in mind, and following the MAG’s discussion on regional ambassadors, a small group of us engaged with several senior managers in the UK network team who represent the Bank on the ground in the regions. This team is out there in the market routinely speaking to businesses and intermediaries, helping to signpost what finance options are available.

From these conversations, it became apparent that there is a need for more regular dialogue between brokers and the British Business Bank, particularly around sharing feedback on access to finance, smaller businesses awareness of intermediaries, and the support they can provide.

Consequently, the MAG is encouraging NACFB Members to contact their regional or devolved nation UK Network team member, to start a relationship and get the dialogue going. Not only will it help to serve the Bank’s purpose, but it can also be hugely beneficial to brokers. I’ll give you a personal example.

Recently, I was trying to source finance for a farming client. As many brokers will know, the agricultural industry is not awash with funding solutions but within an hour of contacting my regional UK Network team member, they were able to signpost me to their

“

It became apparent that there is a need for more regular dialogue between brokers and the British Business Bank, particularly around sharing feedback on access to finance

delivery partners. I subsequently engaged with two organisations, Enterprise Answers and The Growth Company, both of which take a different approach to funding. Enterprise Answers is a not-for-profit organisation which provides finance to businesses across the north of England and where all returns on investment go back in the fund to be reinvested in local businesses. The Growth Company is another not-for-profit whose aim is to drive forward business, economic, personal, and professional development within communities by boosting employment, skills, investment, and enterprise.

Not only were these organisations useful for the client, but they have also broadened my knowledge of the solutions which can become available to SMEs when we are prepared to seek out new connections and develop new relationships. No doubt, there are other alternative providers up and down the country – we just have to be prepared to investigate new avenues.

other useful information including details of regional funds, a finance hub, business and financial planning guides, and training courses.

“

The MAG is encouraging NACFB Members to contact their regional or devolved nation UK Network team member, to start a relationship and get the dialogue going

NACFB Members will by now have received details of the Bank’s UK Network team, which can also be accessed by visiting the British Business Bank’s website. The same website also has a wealth of

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Opinion

Transparency is the currency of trust Truly embedding the TCF ethos Damien Druce Commercial Director Black & White Bridging

B

ack in the summer, Norman Chambers wrote a very balanced article in this very magazine about the need for transparency when it comes to broker remuneration.

Customers deserve to have all the facts relating to their transaction, which includes how intermediaries get paid, and by being upfront brokers are more likely to have a positive client reaction if nothing is hidden.

However, shouldn’t transparency be the first thing we consider in every interaction where clients are involved? I remember when the implications of regulation started to really come home to many intermediaries and lenders. The phrase ‘Treating Customers Fairly’ or TCF is still very powerful in my book, and it marked a sea change for many of us in moving from a purely transactional state of mind of just providing funding to an attitude where the customer’s needs were firmly placed front and centre. Recommendations were driven from that perspective, rather than from what was just convenient or easy to achieve.

The ethos of TCF is now firmly embedded as one of the cornerstones of the regulated market and while many cannot imagine a time when customers were poorly treated, remember that formal regulation of firms would not have become necessary in a perfect world.

However, living in that highly regulated world, we have a lending 46 | NACFB

market offering funding but with two different and distinct paths.

There is no room here to describe the differences between regulated and non-regulated lending or to argue that every transaction should be regulated because each avenue serves a purpose. Some firms offer both. For the record, my own lender, Black & White Bridging only has a non-regulated product offering now.

My point is that transparency is not necessarily as evident or uniform in non-regulated lending as it is on the regulated side. Of course, we can wait until the FCA decides to legislate or we can do something about it now. It is my contention that transparency should underpin every unregulated loan – be that a bridge, or any type of commercial or development mortgage or other facility. Having said that, our industry has, in the main, self-regulated rather well and hence the regulator appears in no rush to subject us to the same regulated framework they attach to our peers in the regulated arena, at the moment.

However, we must guard against complacency. A potential starting point could be agreeing a standard for documentation from lender and intermediary to ensure it covers exactly what customers can expect, the terms and conditions, particularly possible penalty scenarios, and of course, a standardised methodology to describe fees and what they are for. Naturally, that would include procuration fee payments paid over to brokers.

Speaking for Black & White Bridging, where we have worked hard to align our belief in transparency with real action, we would be interested in supporting any initiative that would work towards a more transparent framework for all. With most broker firms and individuals registered as regulated, it surely cannot be too much of an ask that we expect all non-regulated lenders to bring their processes into line with regulated market?

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Opinion

Changes at the top The complex takeovers fuelling M&A activity ​​Ric Simmons Commercial Director Praetura Asset Finance

M

anagement buyouts (MBOs) can be an attractive option to both the management team looking to buy a business and the owner wishing to sell it. As a management team already knows the business well, MBOs are usually the smoothest type of succession and can offer a quicker, easier completion. Raising finance is a key part of the process.

MBOs can require significant funding, and management teams rarely have enough capital themselves to cover the total amount.

Therefore, financing an MBO usually involves pooling together funding from several sources – both personal and external, and usually a mixture of debt (loans) and equity.

We are seeing a significant uplift in enquiries for funding assistance to help support the increasing numbers of mergers and acquisitions that are taking place, with asset refinance proving to be a valuable tool to help raise the necessary funds for both MBOs and management buy-ins (MBIs).

We recently assisted a long-term employee to complete a management buy-out of a forestry plant hire depot. The company he worked for was looking to scale down the business including selling existing regional depots. Releasing the equity from the depot’s vehicles, plant and machinery leveraged £230,000 through the refinance of 29 assets over a 60-month term – a substantial portion of the funds required. The buy-out has now gone through and the former general manager of one of the regional depots now owns that business.

Another deal facilitated by PAF was for a precision engineering company looking to raise funds to facilitate a management buy-in 48 | NACFB

to enable the company to diversify and grow. Initially the valuation of the equipment fell short of the desired funding levels, but an increased loan-to-value (LTV) was approved with accelerated payments for the first 12 months to overcome this obstacle. £441,000 was raised through the refinance of multiple engineering equipment assets, which was a significant percentage of the final total needed to complete the MBI. Whether it’s a management buy-out or buy-in, these deals are seldom straightforward. With numerous parties involved they can be complicated and time-consuming. But they don’t have to be complicated for you the broker or your client, if you are working with a funder with specialist knowledge and expertise in this area, something I’m proud to say for which the team at Praetura is renowned.

Often with MBOs and MBIs an additional funding tool utilised alongside asset refinance is invoice finance. A new lending division, Praetura Invoice Finance (PIF), is now able to assist in this area too.

Working to the Praetura Group’s principles of providing ‘more than money’, the team at PIF is keen to adapt PAF’s consultative approach to lending to the world of invoice finance.

“

Whether it’s a management buy-out or buy-in, these deals are seldom straightforward.

With numerous parties involved they can be complicated and time-consuming

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Opinion

The funding spectrum Finding a lender with the right assets ​​Matt Philips Head of Broker & Strategic Partnerships White Oak

W

ith an uptick in businesses using asset finance as we emerge from the pandemic, it is set to be a vital product in terms of helping SMEs invest in their businesses, managing cash flow, and driving economic recovery.

This is made even more important for those SMEs who are managing the repayment of government-backed loans. It is the role of funders to enable brokers to source the best solution for their client, and this is achieved by clear communication and collaboration.

Why the time is now Businesses, brokers, and lenders alike have all been through an extraordinary time over the past 18 months having experienced a lending environment like nothing we’ve ever seen before.

According to the OECD the UK economy is set to see growth of 7.2% in 2021, the fastest rate since 1941, and with this momentum comes opportunity to catapult growth. However, in a competitive environment it is key to invest in the right assets to push ahead. A constructive broker-funder relationship is key to identifying the right solutions and ultimately supporting economic growth.

The government has also signalled its intent in terms of enabling SMEs to invest in assets and their business to help turbo boost the UK economy. The super deduction announced by the Chancellor Rishi Sunak allows businesses to slash their taxes by up to 25p for every £1 invested. For example, a business in the manufacturing sector looking to invest £400,000 in new machinery to match an increase in 50 | NACFB

orders will normally be able to claim £520,000 capital allowances.

This means it’s a perfect time for brokers assessing the asset finance options available and looking to funders who have the broad sector expertise to fund a range of assets, making it easier to provide flexible solutions.

Getting it right When brokers are looking to funders to get the right finance for their client, they first look at the business, the sector they are in and the type of asset they want to fund. It is vital to find a lender with the expertise that enables them to finance specialist assets. The ability to be flexible is key for a funder when talking to a broker about their clients’ needs as it is a totally different solution when funding a combine harvester to say, an all-new 3D printer.

Ultimately, it’s about working with a funder that combines expertise, flexibility, and the capacity to go above and beyond to find the right solutions. At White Oak we pride ourselves on our cross-sector expertise and we love to work with brokers to find solutions that work for their clients.

“

A constructive broker-funder relationship is key to identifying the right solutions and ultimately supporting economic growth

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Listicle

ways to improve a property’s EPC rating Andy Button Head of Investment Finance Hodge

T

he higher the energy efficiency of a property, the more environmentally friendly it is. Alongside rental yield and capital growth, landlords put ‘environmentally friendly’ properties in their top three list of priorities when it comes to purchasing new homes. With this in mind, NACFB Patron Hodge has compiled a list of five key enhancements your landlord clients can carry out to make an environmentally friendly difference to their property, improve the EPC rating as well as cutting costs that are wasted on energy bills.

2. Insulate the walls and roof On average, it is estimated 25% of a home’s heat is lost through the roof. Loft insulation is effective for at least 40 years, so it’s well worth the investment but make sure it is the recommended 270mm in depth.

Filling empty cavity walls with wall insulation could also be a very cost-effective way to retain heat in the property and save on energy bills. Around one third of the heat loss from most homes is through the walls, so cavity insulation could save you up to £160 a year in heating bills.

4. Install an efficient boiler Having an efficient boiler can make a big difference to heating bills. Condensing boilers are the best eco-friendly option because they capture the wasted heat vapour and use it to heat up water returning from the central heating system.

It’s made more efficient by requiring less heat from the burner. Building regulations state that all boilers installed into new, domestic homes should be energy-efficient condensing boilers.

1. Upgrade the lighting to LED LED bulbs may cost more than traditional light bulbs, but they last much longer, are up to 80% more efficient, and emit more light, so spending a little bit more initially will save money in the long run.

Landlords could also consider smart lighting systems which switch lights off after periods of inactivity. This means HMO landlords would not need to worry about lights being left on for hours if tenants have gone out.

52 | NACFB

3. Invest in double glazing

5. Get a smart meter

Houses lose lots of heat through windows and doors. Energy-efficient double glazing can help reduce this. Other advantages of double glazing include noise reduction, increased security, a higher property value, less condensation, and less fading of objects close to windows and doors, as it reduces the amount of UV radiation that gets into the house. Most importantly though, double glazing reduces energy consumption overall, making it much better for the environment.

Smart meters record exactly how much gas and electricity is used by individual households and are a must for anyone looking to reduce their carbon footprint and decrease their energy bills. They can be programmed so that they only turn on at certain times of the day. Every home in Britain should be offered a smart meter from their energy supplier by June 2025 and are part of the nation’s effort to create a smart grid providing low-carbon, efficient and reliable energy to Britain's households.

Standing Shoulder to Shoulder with Tom “ They’re a genuine, salt of the earth bunch.

You can pick up the phone and chat through the client requirement with them and in this age of decision by algorithm that’s rare and very very welcomed by me.”

Tom Roberts Founder and Managing Director Moorgate Finance

BLACKARROWFINANCE.COM Let’s talk: 020 8572 7474

Five Minutes With

​ ive F Minutes with: Ed Rimmer Ed Rimmer Chief Executive Officer Time Finance In your view what are the key elements to a successful deal?

Being easy to deal with, ensuring the deal gets done quickly and efficiently is key but transparency, communication, and trust are the foundations that achieve this.

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

places, including lots of really nice looking country pubs that were all shut.

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

Understanding what funders want in terms of the type and size of deal and delivering prospective clients who will benefit from the solutions they offer. It sounds obvious but it’s really important to ensure all communications are open and transparent.

A funder needs to see the whole picture if they are to support a business. Don’t shy away from bringing challenging issues to the table. If a funder can deliver a solution first time round, it saves everyone a lot of time and effort.

Probably easier to say the changes that I hope not to see… Whilst I absolutely agree with flexible working if it suits the business, I challenge whether most people can be as productive from home. Thinking ‘productivity’ is about sitting at a desk churning out emails or Zoom meetings ignores the benefits a physical presence has on shaping cultural development, human interaction, influencing, guidance, leadership and most importantly, having some fun! If we’re not careful, we could have a generation of young people who miss out on some very important things that could determine their future.

What has been your lockdown essential?

Which person has inspired you the most?

Family walks and fresh air – we ticked off lots of recommended countryside walks and got to see so many new and different

My dad. He was a fireman for 30 years whilst running his own haulage business as a second job – something that was

54 | NACFB

commonplace back then. His ‘spare time’ was spent running a motorbike racing team.

He also had an entrepreneurial streak.

Where is your favourite place in the world?

The Lake District is up there with anywhere in the world. Overseas, I love Cape Town and Sydney – such a great variety of things to do and the sun shines more there than in The Lakes!

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

Oasis at Knebworth in August 1996. They were at the height of their fame with 100,000 people crammed into a field on a sunny Sunday… brilliant!

Who do you admire most and why?

Anyone that’s set up their own business and given it a go, especially when others tell them it won’t work. It’s easy to find reasons not to, but much more difficult to get on and do it.

InterBay it.

As we look forward to brighter times ahead, we continue to invest in the best people and technology to support our broker partners.

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