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Virgin blame brexit
There has been a lot of talk in the industry about the expected arrival of Virgin Money into the small business finance sector. Today’s news confirming that they have abandoned these plans may come as a bit of a surprise but what is less surprising is the laying of the blame on Brexit. It is no secret that Richard Branson was highly critical of the vote.
Many would argue that their decision has gone against the post brexit grain. Whilst it would be foolhardy to implicitly believe every word of PR from lenders, there has been a general feedback that the market is sound or even continuing to grow rapdily.
But it is a crowded market. More peer to peer lenders have come on stream and existing lenders in this sector are looking to develop more products.
A new entrant needs something different and only this week a lender was asking me to give some thought towards possible innovative products. An interesting and flattering request of course.
I believe that the more likely explanation is that Virgin simply got cold feet regardless of the conditions simply because it is surely still too early to take stock of the post vote climate.
The fallout from Ashley and Green
Whilst we should not be surprised that The Guardian has leaped on the issue of Sports Direct’s treatment of employees (disgusting it has to be said) and the venal activities at BHS, the true fallout is illustrated by the frankly shoddy article linked above
Cameron was right, Britain is broken. But it’s businessmen who are to blame
The headline says it all. Immediately we are seeing those with anti business credentials and beliefs jumping on the bandwagon and immediately tarring all businesses with the same brush
Of course those that actually have experience of the commercial world know full well that there are dozens of fine employers for every Sports Direct and countless professionally run businesses for every BHS and naturally enough the author does not have the mental flexibility or straightforward knowledge to propose a better system than capitalism. Or he simply doesn’t dare for the risk of ridicule
But the Ashley’s and Green’s of this world should have a greater responsibility. The first concern is of course their horribly maltreated employees and pensioners but also they have greatly let down the business community as a whole and frankly the system which has delivered so many positives
Philip Green again
When you find your business ethics compared unfavourably to those of Robert Maxwell’s then you know for certain that you are in a pretty bad place, especially when the comparison is certainly not unfair
I am still trying to get my head round Philip Green’s mental state. The lack of self awareness is quite extraordinary but for someone who has seemingly craved attention and endorsement from the establishment through to tacky celebrities to put himself in a position of rightly being despised by any breathing person with a moral compass for the sake of a sum of money which he will never need and could never spend is baffling
Compare and contrast the attitude shown towards the billions of assets owned by Bill Gates and Mark Zuckenburg (neither of whom come across as so pathetically needy) and you are comparing men with a little spoilt boy.
Would you trust this lender?
I have been attempting to secure a meeting with a new start up business that I am aware is looking for invoice finance so you will have to excuse a degree of self interest in the following but its an example of misplaced trust I believe to be worthwhile highlighting
This particular business has just two clients. At the present time either one of these clients could account for anything up to 80 or 90% of the debtors ledger. This can prove to be a hurdle for many lenders some of whom will restrict the percentage lent against to around 30% of the total debtors.
I could illustrate this with an example but lets just say that such an imposition would more than halve the funds available. This would be very significant for a business such as recruitment that has to pay wages on a timely basis
Through a couple of intermediaries I advised this client that they absolutely have to have assurances that the lender will fund to the required limits. Many lenders will do so but you have to know who
The assurance my remote client received was that this “funded but reviewed in three months when they have brought in more clients”
The insanity is that the borrower is now obliged to seek “more clients” during the quietest time of year for new business and even then is seemingly unaware of the parameters involved
Why on earth should they accept this assurance? The lender will have them tied into a long contract and they will be severely restricted on borrowing elsewhere.I would also add the the lender is not one that is going to lose sleep over a small clients ultimate failure
The borrower has put completely unnecessary pressure on themselves and could even have signed away the future viability of the business.
Brokers such as myself have an important role. This is where we contribute and I could have lined up at least five lenders who would have funded to the limits required from the very first day with no review or demands.
Invoice and asset financing. Latest trends
In these days of uncertainty surrounding Brexit as well as a whole range of economic issues, I am frequently asked about the impact on my business as a broker. Reasonably enough we are viewed as being in the front line of business finance but there are two caveats.
Firstly as an independent, my sample is simply no going to be big enough to reflect the whole market and secondly we are at herding quickly towards the quietest time of year.
The other side of the coin is that I am constantly talking to SME owners and lenders so a picture of some value can be formed so here are a few observations.
- Brexit has impacted a little on decision making but lenders have tended to highlight occasional examples rather than a genuine trend.
- Commercial property market has taken a hit but this was predicted in many quarters well before the referendum. I would also suggest that the lenders very obvious lack of enthusiasm for this market over the past year was a strong indicator.
- Peer to peer lenders continue to raise substantial capital in the marketplace. in addition, there are many plans amongst some of the established p2p players to develop further products to tackle the existing market.
- A second high street bank is rumoured to be considering selling or scaling down its invoice finance book. This is a story I will return to.
- Sectors that found funding difficult, such as professional services and media, will be increasingly finding availability from new lenders who properly grasp their businesses.
Two worth reading
Two differing but complimentary books by two high profile economists which whilst overlapping in many ways, often come to similar conclusions.
Stiglitz is probably the more recognisable figure and certainly his views are founded on pure politics. He is more concerned about the effects of “inequality” whilst Kay disseminates a system which he believes is simply not serving wider economy.
So what are the conclusions they draw and more importantly what suggestions are made?
Kay is certainly very scathing about the functions, ethics and objectives of the present banking industry. Fundamental to this is the belief that banking is simply disinterested in supporting genuine wealth creation and is more concerned with mutual trading in the finance bubble. When you consider that just 3% of the banking industries balance sheet is lending to wider industry, then you can appreciate why, although there is my question of whether looser credit is automatically justified. However he does strongly make the very valid point that talent is being used largely to simply trade in lucrative but essentially pointless activities. Furthermore he rightly highlights bankings failure to truly understand the businesses they are supposedly supporting and rightly highlights this as an unwelcome trend. One that is ironically exacerbated by the rise of the peer to peer lenders
Stiglitz also makes a similar point questioning quite what satisfaction bankers get from roles that contribute zero to the wider economy let alone society.
Kay sticks rigidly to the banking industry and writes beautifully often using dry scathing humour as well as some excellent analogies. Stiglitz is also exceptionally readable and accessible but tends towards polemics. The Great Divide is actually a collection of articles with introductions and this can lead to a fair degree of repetition. A slimmer volume would have been preferable and more manageable.
Solutions are offered but there is the remaining and somewhat alarming prospect that the lessons of 2008 simply haven’t been absorbed. Both books are often riveting reads for anyone interested in the business of finance.
Difficult times for p2p lenders?
The recent collapse of Funding Knight will have caused a few tremors within the peer to peer lending market and whilst the “savers” funds have been rescued by GTI there will naturally be questions raised in the minds of potential investors regarding the security of such finance.
I was certainly aware of Funding Knight’s presence in the market but cannot really comment on their diligence when lending. However they will not be the last casualty and I’m I’m conscious that a couple of smaller single invoice lenders are currently struggling with poor business models.
These developments were inevitable. There was always going to be a rush of new entrants in this growing market and to put it gently, many will be ill prepared. However some will seize upon the failure of Funding Knight as proof that the sector is shaky.
Established lenders and their cohorts frequently dislike competition and innovation. A natural enough reaction but not one that will garner much goodwill from those who’s memories stretch back to 2008.
I frequently meet and offer some advice to a number of P2p lenders. Whether they listen is a different matter but it is noticeable that they have rightly sought feedback from brokers.
My feeling is that their judgements are still too frequently based on raw data rather than understanding businesses but I suspect this will develop in time. Especially when they encounter the strong balance sheet being decimated by a rather useless owner.I also believe that the market will mature with dominant parties in both the straightforward loan and also the invoice financing sectors.
For brokers and small to medium businesses, the opening up of the market for lending is great news
EU and Insolvency
Leaving the EU is clearly going to mean that the UK will no longer have to follow EU initiatives or directives. Recently the EU has turned its attention to insolvency for which the rules across the union vary enormously, as any credit manager will know.
In fact the UK probably has the most cavalier insolvency regulations which although recently tightened up, still tend rather too strongly away from encouraging the fight to survive and restructure. Those that concur with that view might be interested in the following statement
Around 200,000 companies go bankrupt in the EU every year. The Commission wants to help businesses overcome financial difficulties in case of bankruptcy, while at the same time maximising the value received by creditors, shareholders, employees, investors, tax authorities, and other parties concerned. An appropriate insolvency framework is an essential element of a good business environment and is therefore also important for jobs and growth. Building on existing well-functioning national regimes, the Commission aims to focus on rules supporting businesses in temporary distress to encourage them to restructure their debt early on and to give them a second chance, if their business is viable. The consultation will identify the measures which could be taken to increase the efficiency and effectiveness of insolvency frameworks.
Europe’s weakest bank?
Many do believe that another banking crisis is just around the corner and whilst it is very unlikely to be on the scale of 2008 there are definite signs of weakness across the continent with Italy being particularly in focus at the present time.
Therefore you may believe that the title of europe’s most at risk would be granted to an Italian bank and if not Italy, then most certainly Spain, Greece or Portugal.
Not true. In all probability the present “worst ” bank in europe is Deutsche Bank
That will be a surprise to many but this is not exactly news given that the weakness was strongly highlighted in the economists John Kay’s excellent book Other Peoples Money (which I will review here soon)
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