Market update

I thought it would be a appropriate time to update some market observations. Naturally enough i do not easily divulge the identities of lenders but the observant would probably be able to draw their own conclusions

1. The major banks. Aside from one enthusiastic (overly?) player, there is a creeping feeling that the big banks are slightly drfiting away from invoice financing. One has changed its critieria for accepting brokers and yet another barely bothers to connect.

2. Peer to Peer. The woes at Ratesetter, collapse of Due Course and odd behaviour towards brokers by another player continue to demonstrate a market in a continual state of flux. Some are rushing to draw negative conclusions but I would disgaree. PTP is here to stay and is a vital addition to the market

3. The influence of PTP has woken up some traditional invoice finacers and now there is more felxibility than ever before. This is especially applies to export and services.
4. At lease one major independent lender needs to quickly re-evaluate its underwriting procedures. They are inadequate, dated and high handed. Until they understand client and broker anger, they will continue to lose market share. They will also struggle to attarct quality Sales staff

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Cobra Beer part 3

CourtroomThere is a further very useful summary of this high profile case here  .

This is an extract

the Court ruled that 4% was the maximum that should have been applied.The Court accepted that the clause gave Leumi ABL Limited the power to set in advance a percentage fee which would apply to all later recoveries but that there had to be some qualification otherwise it could be exercised oppressively or abusively. The Court held that Leumi ALB Limited was entitled to estimated costs but had a duty when applying the collection fee to make a rational estimate of its internal costs, taken into account the size of the ledger, its exposures and time needed to collect the amounts due and that in this instance it had not done so. On the facts presented to it,

As stated before, this has implications for the ABL lending market. “Collect out” fees are no longer guaranteed which gives the lenders less compensation in the event of a client’s failure. Naturally the consequence of that is that the lender should be more inclined to support the client through difficult times. Far be it for me to suggest that certain insolvencies have been engineered to enable a huge imposition of fees (in fairness this has never appeared to be the actual background to the Cobra case)

However there are probably more significant ramifications on a wider scale and this summary did interest me

This case indicates that the courts appear increasingly willing to scrutinise discretionary powers in commercial contracts



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The failure of “loans to businesses”

agamerica-ag-lending-farm-loan-applicationYou may recall that George Osbourne initiated a scheme whereby small business loan applicants turned down by the major banks had to be refered by them directly to peer to peer lenders. At the time I thought this was a pretty shoddy scheme created to garner headlines rather than actually assist businesses

That is not because I have any objections to peer to peer lenders but simply because it ludicrous to suggest thats the only alternatve. HSBC may clearly turn down something that Metro would do. Furthermore a PTP will certainly be more expensive than another bank.

PTP is however a decent option in many cases and although I am bound to say this, a professional broker should be able to advise whether this is the case or not

So how has this scheme performed? The answer is… appallingly.

Fewer than 3 per cent of the 8,100 businesses referred drew loans under the scheme championed by George Osborne, the former chancellor.

Furthermore the banks do not appear to be following this with enthusiasm and I believe rightly so

About 100,000 small companies are turned down for finance by banks each year, suggesting only a small proportion are being put through the scheme, which was unveiled by Mr Osborne in 2014 and launched last November

The fact is that if a bank cannot offer the loan then they should take the what goes round comes around view and offer impartial advice rather than being obliged to push the applicant in one direction. They also probably do not wish to feel repsonsible if the PTP option rebounds badly.

The scheme is a poorly thought through idea which ahs failed. it should be abandoned immediately

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Aldi. The good guys

3ALDI_Store_Exterior__RightAldi Aldi are cutting terms to 100 small suppliers to 14 days. This is reported in the Irish Times and its not clear whether this applies outside Ireland but either way, this is a move that seperates them from so many of their bullying competitors.

Aldi and Lidl have long had a good reputaion for looking after suppliers and this has made their contracts easy to finance. Lenders have a great deal of respect for them.

Whether this signals a change in market attitudes is unlikely and sadly its impossible to envisage certain chains treating their suppliers with anything but continuing contempt

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Ratesetter woes continue

Ratesetter-678x381Ratesetter have left the Peer to Peer finance association and it looks like a case of jump before pushed. This revolves around their use of own capital to prop up some significant and surprisingly high risk lending. The whole ethos of peer to peer is that there should be transparency for the investors (more accurately “the lenders”).

Some may ask why this is so important if their potential losses are being underwritten. The answer to that is that investors need to know that the credit approval processes of the platform lending their cash are adequate. In this case this would certainly not apepar to have been so.

All this is a pity because, unlike their major rival, they are good people to deal with

The peer-to-peer lending industry is awaiting the outcome of a review by the regulator, which is expected to force platforms to provide greater transparency for investors over the performance of loans and the way in which credit decisions are made.

The FCA have become involved and it is likely that this will have an impact on the industry. Probably a good thing because claims by at least one of their competitors  about the supposed virtually zero level of bad debts incurred are very difficult to believe

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Air Berlin crash


The failure of a airline is hardly news. For decades this has been rightly seen as one of the most high risk sectors for credit but this particular story is due to run and run given some fairly strong words from Micheal Ryan of Ryanair

Ryanair said: “This manufactured insolvency is clearly being set up to allow Lufthansa to take over a debt-free Air Berlin which will be in breach of all known German and EU competition rules.
“Now even the German government is supporting this Lufthansa-led monopoly with 150m euros of state aid so that Lufthansa can acquire Air Berlin and drive domestic air fares in Germany even higher than they already are.”


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More on Cobra Beer


Following on from Leumi’s disasterous lost case claiming ‘collection fees’ follwoing the collapse of Cobra Beer, it is worth remembering that this was not exactly a great advertisment for pre pack administrations . A lot of creditors were left high and dry but the other side of that coin was whether their collapse could have been predicted? Times are busy at the moment but when i get a moment I will be looking at their last filed accounts. Yes it will be a case of wise after the event but my experience has shown me that a high proportion of company failures are very predictable

One aspect of Leumi’s case was that they were seeking to chase down a personal guarantee. Now it would certainly appear that the owner had considerable assets and many would say fair enough but they should also look at it from the legal systems pioint of view

Emotion shouldnt come into legal rulings of course but the prospect of a bank attempting to seize the house of a struggling businessman (although that was not the situation here) is not a pretty one. Most banks understand this and refrain from imposing unless the case borders on fraudulent. There are a couple  exceptions including one major bank and a smallish factoring company  and its a factor I take into consideration on behalf on my clients but generally common sense prevails


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