Do lenders understand Brokering?

This morning a well respected lender sent out a question to which the answer was to be scaled from 1 to 10 on the basis of yes or no

The question was “how likely would you recommend xxxx to one of your clients?”

Fair enough?

No. I do not “recommend” any lenders on the basis of their brand or reputation.

With invoice finance there are a whole range of factors involved which have to be drilled down and also weighted in terms of importance. Facility size, willingness to finance certain debtors, acceptance of contracts, cost, export appetite etc etc. Its a long list

And to determine who is best placed is a process. An interesting process and a rewarding one and one that demands close engagement with the client. And thats not just current requirements, but the future too

We all know that the “brokering market” is infested with those who do little more than pass on a phone number to a lender on the basis of what suits the broker first but that is not brokering and frankly its disrespectful to the client

The question raised was not in any way offensive but it rather misses the point. Lenders can like it or not, but “recommendation” will only happen once all options across the full market have been explored

The current invoice finance market

Its been a while since I wrote a piece summarising the current asset finance market and it goes without saying that these are particularly turbulent times which are clearly affecting and about the affect business borrowing. Without getting in to political discourse, it is extraordinary that simpleton libertarians who are supposedly in favour of “growth” have greatly contributed to the worst economic conditions for businesses (let alone individuals) since the late seventies.

Thankfully the grown ups have seemingly now taken over but the situation is still difficult and this is surely going to have an effect on asset financing

Interest rates are going to be a factor but it’s also worth remembering that invoice finance in particular is charged more on the basis of the service fee giving access to lower rates than standard lending. There will be an impact of course but maybe not as critical as many expect.

There is talk within the market that some lenders are pulling top the draw bridge and there is perhaps a little evidence of this in my recent experience. I have been working with an excellent construction client with one particular lender where we had progressed substantially. MBIs take time and attitudes shifted with a couple of the lenders reps becoming particularly difficult.. Unfortunately being an MBI it was too late to switch horses and the deal was thankfully completed. The attitude was noted of course and overall this was perhaps the exception rather the rule although I also have word that a major bank has withdrawn from equipment finance altogether

If anything lenders are quiet. Many of course will claim that they have”never been busier” but most are reasonably honest. The reasons for that are pretty clear and ive always thought that the market for invoice finance is largely split into three segments. Firstly those require invoice financing for straightforward cash flow needs which have become more difficult. Then there are MBIs (management buy ins) where the debtor book is leveraged towards a business purchase and thirdly there are start ups.

Many lenders believe that the market for the post CBILs lending is on the cusp of growing fast with the dwindling availability of government lending, but in my small slither of the market, im not seeing this. MBIs are still active having largely been driven by those who seek to change lifestyles after the pandemic but the big hole in the market is ‘start up’s and that is hardly surprising.

It will be interesting and maybe alarming to see the business “start up” statistics covering the current period and I suspect they will not make for comfortable reading. Sentiment is surely rock bottom and regardless of ones views of Brexit (i was relatively neutral), the will to develop markets with our closet neighbours is surely diminished

Personally ive had by far my best year but thats by chance and maybe having developed my network over 13 odd years, rather than market conditions. I strongly suspect the next twelve months will be a rather downbeat period

Can you judge a business by their auditors?

There has been a lot of focus on the large auditing firms and their behaviour over recent years. And much of it is been pretty reprehensible but what of the use of smaller firms?

This was highlighted by the Greensil/Gupta scandal where certain “auditing” firms were barely visible publicly and had offices tucked away in corners of fading industrial estates. Unsurprisingly things quickly unravelled

A firm im looking at now turns over £100m but uses an auditor who has a rather decrepit shopfront in a downbeat part of east London and only appears to have one visible partner. They don’t even have a website

The business has had some ups and downs but is propped up by a strong balance sheet with a very high valuation of stock. Nothing wrong with that and also nothing wrong with the fact that the auditors fee doubled from a straight £25k to £50k in one year despite the business barely changing

Nothing wrong at all….

Many years back a friend of mine was running a business that was in little trouble and was due ton have accounts qualified. He asked what did they need to do to ensure they weren’t qualified. The answer was “double our fee”

Rent controls. Do they work?

This is a little away from my usual specialisation but I do occasionally receive leads for property, which I manage with an excellent broker

It has been in the news that a “rent freeze” is being imposed by the Scottish government and this will possibly lead to pressures within the rest fo the uk. Having said that, the very libertarian new administration is unlikely to comply although politics are very unpredictable at the present time. Many will be in favour of course and it has to be said that landlords are never going to top anyones popularity list but the more fundamental question is, does this work?

Im certainly no ultra free market libertarian and government interventions in the markets can be justified in a number of circumstances but about this I am very doubtful

The most obvious negative is that it dissuades property development (which isn’t all new build) and thus restricts the supply further but there is another angle which leads to this scenario and I haven’t, as yet, seen this mentioned

Rents are going to be “freezed” for an initial six months. Fine, but what happens then? Landlords are not only going to have an eye on the current market but also the future and there will surely be an unnecessary widespread uplift in charging simply because the landlords will be insuring against a future further freeze. Once this cat is out of the bag, confidence that it will not be imposed again is not going to be easily restored

This will naturally lend itself to potential developers exiting the market (to the rest fo the uk?) and that will have the obvious knock on effect off lack of supply to meet demand which in turn pushes up rents

What can be forgotten is that developers will not only lose faith in. the market because of lost revenue but also the pure fact that they cannot control their income. thats not a place any entrepreneur wants to be The psychology of this would quite likely outweigh the material cost

A poor idea in my opinion and one that might not be actually driven by the best of motives by the very political SNP

RLS Scheme. Into a Black Hole?

To say that the new incarnation of the Government backed RLS scheme has been a slow burner would be a generous assessment. I have still yet to be contacted by any lender with their terms or any intention indicated to lend through the RLS. In truth, that also was the trend with the previous incarnation but we now know that the British Business Bank has now signed up 23 lenders.

Thats fine until you look at the detail. The big four banks are represented but overall its a case of who is missing from the list. And there are many absent. Many of the remaining lenders are very niche or frankly pretty well unknown to me. I also wonder if the major banks have signed up to keep placate possible critics rather than push the product? Strong echos of the defunct EFG scheme

Asset based lenders will not mourn the slow death of the RLS because it did eat into their market (pretty substantially under the CBILS incarnation) and there is no doubt that it was managed in a particularly confusing manner. To this day, many still cant pinpoint the actual defined criterias

The slow death of Supply Chain Finance?

For those that are wondering exactly what Supply Chain financ

For those not familiar with SCF, the above graphic might help but essentially it is finance offered by clients to their suppliers to enable immediate payment of the suppliers invoices. At a discount of course, with the finance facilitated by a lender. This was the basis of Greensils business, which I have previously written about and is very familiar to those in the industry

In the excellent Pyramid of Lies account of the origins and collapse of Greensil, it is suggested that SCF is likely to be “regulated out of existence”. That might be a little extreme but the consensus seems to also be that it is low on margins and high on maintenance.

Certainly Greensil were not the only SCF firm to fail. There have been a handful of other entrants in the market that have collapsed and it appears to be now just a niche offering by certain big banks, although im happy to be corrected. I also notice that Amazon’s once proposed offering has not materialised

In truth, this is not bad news for the more vibrant invoice finance market. SCF was in effect a competitor and I also believe that financing by a party that is Ian no way connected to a business’s client is surely preferable?

Tax cuts for the wealthy equal growth?A very dated view?

The news this morning that the tax cut relating to the 45% rate is being reversed is obviously and embarrassment for the government but surely not unexpected. This blog steers clear of nakedly political opinions but it’s fair to say that the original announcement was a ‘tin eared’ as any proposal I can remember.

But apart from whether granting footballers an extra £55k a year on each million they earn annually whilst cutting benefits for the poor and disabled is fair or not, does ‘trickle down’ economics actually work?

It originates from a almost religious adherence to the views of the renowned economist Hayek (above) but as with many economic theories, were they just ‘of their time’? Marx is a perfect example of an ideology which was swept away once manual labour was not the prime generator of wealth.

The Hayek theory is that granting the wealth more resources drives up investment in the economy. This might well have been applicable in a world where the wealthy were more often than not factory and mill owners but times have changed.

Most SME owners do not pay themselves huge salaries. Heads of larger conglomerates are career CEOs who are (or frankly should be) too engaged in their highly paid roles to invest in new or existing enterprises. The same applies to partners in professional firms, who wouldn’t perhaps be many peoples idea of entrepreneurs and when we come to footballers…

People can spend their wealth how they chose but surely its just as likely to disappear offshore into funds or property than be thrown at a start up? And why not? Property is an easy investment that you can actually use and a fund does not entail much in the way of distraction. Yes it can be argued that the fund might be generating investment but what proportion of investment funds are UK only?

In Hayeks world these spending/saving opportunities were far less prevalent. Perhaps the ideologues cleaving to his views should actually look at the real economy rather than the text book?