Pyramid of Lies. A must read

How often do we see a book on asset finance hit the shelves and receive rave reviews? Barely at all but the Greensill episode was certainly a take worth telling and it is certainly told well in the unputdownable Pyramid of Lies

Naturally books of this nature are part of my required reading because they impact on my sector but im always fascinated by the human nature that is exposed. Most especially when greed raises its ugly head and trumps all sane judgement

This is exceptionally well written and has the excellent balance of being fascinating to both industry insiders and those with little knowledge of the sector

Very very highly recommended

Are networking events dying?

Few sole traders get established without going through the mill of extensive networking. Attending events of all shapes and sizes is time consuming but face to face interaction is really the only truly effective way to build relationships. It is a chore at times and you have to find the events that most appeal. Personally I found the breakfast clubs (and one grouping in particular) very much not to my taste. Someone shouting at you at 7am is not my idea of fun

I co hosted a very successful quarterly event for many years which was based on the doing the opposite of what I personally found dislikable about other events. No membership was a key element as was no dreadful tiresome “one minute slots” which when you are listening to the 37th in line selling dinosaur posters or personalised shopping, has you crawling for the exit.

Since Covid we haven’t run the event and im not sure we will do so again. Partly thats because my network has matured and leads are thankfully materialising on a regular basis but also there are doubts about the overall appetite both from us hosts and our audience

I have also noticed that there are far fewer invitations to events appearing in my inbox and a number of groupings have certainly disappeared in recent years. Some have attempted to replicate networking online in zoom calls etc but few find this to be genuinely effective

How does this effect the market?

For those of us that are relatively established, it’s not much of a problem but for new entrants it must be very difficult. I find it hard to believe that I could have started out in the present environment. Twelve years ago there were a huge number of networking events and this is the key. You need to spread yourself pretty thinly to get established.

I also believe that informal events are the way forward. Rather stuffy “wear a tie” meetings where a few old men (often there to just feed their drink problem) bounce around a sterile hotel lobby are surely outdated as are the aforementioned slightly ridiculous clubs that demand leads are manufactured to justify their outlandish fees. Zoom calls are certainly not the future either

And it’s important that the sector regenerates. Its all very well for those of us who have their network established but we will not be around for ever and should also be challenged with competition

Invoice Finance. How not to treat a client

Invoice financing is a very competitive market with at least 50 active participants. This generates decent customer service because once you get a bad name, you lose business. I am touch with just about every lender and its essential that they look after my current and potential clients. And invariably they do

Last week I had a particularly annoying episode. A client of mine was with a ‘single invoice’ discounter who are very efficient and personable. I like them a lot but it was a little expensive. I agreed to search the market for a cheaper option and thought I had found a solution. In fact it progressed very nicely and an offer was accepted and legals sent out

In the meantime they contacted the current lender and told them to take down the debenture

Its worth also noting here that this solution would mean reduced commission for me but that is of no concern.

The next day this lender decided to withdraw the offer. Thats their right but infuriating when the existing debenture had been removed. What made it worse was that the reasons given were easily countered and when tackled, they admitted they weren’t the real reasons at all. In fact nothing had changed since the arrangement was first discussed. It was simply a change of mind. This is simply unprofessional and very frustrating for all parties

Ok we all know things can go astray and we all make mistakes but some contriteness would have been welcomed. There was nothing and promised calls were not returned.

My client quickly re-signed with the previous lender who were as efficient as ever

The key here was that this is a new lender in the market and where it is so competitive, they are going to be ill served by a reputation for a high handed attitude allied to incompetence

Certainly they will not be engaged by myself in a hurry and whilst I do not bad mouth lenders, word does tend to get round

In my opinion that is something for them to seriously think about …..

Bounceback defaults. The stats. Bank by bank

Increasingly it appears that the Bounceback loan scheme was far more exposed to fraud and default than originally assumed. No one knows what the eventual bill to taxpayers will be but £5billion out of £47 billion lent has been indicated. Thats an extraordinary figure and demonstrates the failure of the banks and the government to properly target this lending too those that genuinely needed it. It was shockingly naive

The stats for the levels of default across the banks make for striking reading with Starling Bank providing the worst numbers. An issue which has received a fair degree of publicity and whilst there are perhaps mitigating circumstances in their case, you sense that the figures could actually get substantial worse. And that applies across the board

Can we borrow and should we?

The answer is yes. At least according to Simon French and this excellent piece in todays Times

The general theme is that borrowing to cover this crisis is affordable and the extent of the borrowing in relation to GDP will still leave us on a par with France and the USA with of whom are considerably less impacted by the energy crisis

The alternative for consumers is unacceptable in my opinion but arguably its even worse for many businesses and most especially those that are heavy users of energy. There will of course be the swivel eyed ideologues who claim that the market forces should simply be set free and businesses that crash will simply have to accept their fate but there’s a two word quick response to that view

Too many in services tend to forget that businesses are products of enormous emotional commitment by the owners and they are not simply commodities. My attention to this seen a a couple of rather unpleasant threads on LinkedIn where “professionals” are sneering at business owners.

Personal Guarantees. The great divide

It is sometimes said that the gap in understanding between those in the lending industry and those running actual businesses is as wide as the Grand Canyon. This probably is never better illustrated with the thorny subject of Personal Guarantees. A subject that I find myself coming back to over and over and it is a divide that broker should seek to bridge whilst remembering who your actual client is

What is not understood by too many within the lending industry is that the emotional impact of signing a PG is often pretty emphatic. It is all very well the lender stating that a PG is unlikely to be ever enforced unless there is a very good reason but the fact remains, it is there. I wonder how many employees of lenders would sleep easily if they had signed a PG against their employers targets?

Having said that, I do understand the requirement when the risk is somewhat enhanced. This is fairly justifiable when a business has a new owner which in itself raises new questions or in certain volatile sectors

PGs can be limited to certain amounts and frankly when the amount is low (|I will not quote the benchmark but I am aware of it) then they will almost certainly never be enforced. Also PGs can be time limited although that is not easy to agree but lenders are generally becoming less insistent and in the face of competition (driven by myself of course), flexibility can often suddenly materialise. A couple of lenders have a policy of no requirement which is welcome and serves as a strong selling point and maven point to a future trend. On the other hand there was one factoring business (now absorbed into another lender) that I was thankfully warned off because of their habit of spitefully going after the smallest PGs regardless of the cost effectiveness of the exercise.

Another rather old school justification for PGs is that in the event in the business getting into trouble it will encourage the directors to collect the outstanding debts. As an ex credit manager I can verify that this is frankly nonsense

To my mind PGs will remain a negotiable element within the various options I will seek for a client. That is the way it should be but lenders do need to understand the significance of signing that piece of paper or the Grand Canyon will remain

Delivery firms failing but wasn’t it predictable?

With my inevitable credit managers hat on, I found that when observing the independent instant grocery delivery firms that have proliferated over recent times, my first thought was how can they ever make money?

This is addressed in this excellent piece in yesterdays Observer. The key issue was margins.

These firms are charging £2 to £3 per delivery, which usually takes 30 minutes to and from the warehouse. But the riders are earning £12 an hour – so that time equals about £6. The difference between the wholesale cost of the products and the sale price does not make up for that shortfall. Most grocery products only have 1-5% margins, if they are not loss leaders, like milk.”

Another factor is simply demand

“The pandemic created a warped vision of the way people were going to buy their groceries in the decades to come,” he said. “But when people could go out safely, the need for on-demand grocery receded. This is what the rapid delivery firms and their venture capital backers got completely wrong.”

So what you have is the toxic mix of de-escalating demand, poor margins on the actual products and the extraordinary situation whereby the fee model does not appear to cover 50% of the drivers wages. It’s not as if any of these issues can easily be addressed. If at all

No one is wishing failure on these firms and hopefully they will re-adjust. I suspect their market will be concentrated on very affluent areas in the capital and perhaps larger centres rather than towns like Reading where they have cut back but what of the investors?

Venture Capitalists have pumped huge sums into these concerns and you have to wonder if they even attempted to think things through. Too often we believe that highly paid people handling huge sums of money have judgement skills that elude the rest of us but catastrophic examples such as We Work prove completely the opposite. Of course VCs are in the business of taking risks and there will be many failures but in areas such as Biotech and IT, those risks are often justified by the possibility of hitting the jackpot. There is an element of the unknown and undefinable at play which is not the case with Getir etc. There are few mysteries surrounding food shopping habits

What perhaps frustrates more is the fact that VCs are too often seemingly drawn to fashionable high profile brands with little long term substance rather than unglamorous but genuinely secure sectors wishing to expand.

As many of my clients will testify.

Is the RLS scheme dying?

The list of accredited lenders for the latest incarnation of the RLS scheme is pitifully small and I sense that a number of these might just be putting their name to this out of sense of duty, which was very much the case with the near stillborn EFG lending scheme. Notable absentees are Barclays and Santander but also, as highlighted on this blog before, virtually all the fintechs.

Given that the CBILS and RLS schemes may well have rescued at least one high profile Fintech from collapse, it might have been expected that there would have been some commitment to a commitment.

I do know of more lenders likely to be added to the accredited list but the whole process is clearly slow and very un-dynamic. Im hearing that the British Business Bank’s guidelines and regulations have simply become just a little too much to bear

Businesses will suffer here and at a time when additional cash is going to become a genuine necessity. It’s not an exaggeration to state that the coming months look frightening and yet we have an administration thats seemingly adrift and interested in little more than soundbites to please their membership of affluent retirees. Sadly the architect of much of the resources for business which although flawed in certain areas, did have a degree of intent, is not likely to be involved in top level politics for much longer.