As factoring brokers Cashflow
and Hilton-Baird exchange business with lessors, Merchant and
Norton Folgate embark on structured turnaround deals. Brendan
Malkin and Fred Crawley report on these overlaps in asset-based
lending and the opportunities they pose to finance
companies.
Go deeper with GlobalData
Andrew Bullard hardly has a spare moment these
days. Ever since he took up his position as head of business at
Cashflow UK Limited, an invoice finance brokerage, he has spent
much of his time travelling around Britain, meeting customers and
catching up with business partners. On most weeks, he spends just
two days at his offices in Eastbourne.
There is good reason for all this activity. As
well as wanting to significantly increase the number of deals
Cashflow brokers, he also wants his company to return to the number
one spot it held in the factoring intermediary sector before it was
bought by Bibby in May 2008 (see Profile:
Cashflow UK Ltd).
One way he wants to achieve this is by sharing
more business with asset finance brokers.
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By GlobalDataThis works by what Bullard calls a process of
“reciprocity”: Cashflow forwards leasing deals to leasing brokers,
which in return pay Cashflow a commission for each deal assigned;
in exchange, lessor brokers give Cashflow their factoring and
invoice discounting deals.
Mark O’Neil, joint managing director of
Vantis’ Commercial and Asset Finance division (VCAF), thinks that
this is a good idea for the industry. VCAF introduces both invoice
finance (IF) and asset finance (AF) business, and is aware of how
different the two funding markets are.
Focusing on the
differences
For a start, much more is going on in invoice
finance – O’Neil says there are between 75 and 80 active funders in
the market, with at least three new ones (Team Factors, Innovation
Finance and Partnership Finance) emerging in the last six weeks
alone.
In addition, without wanting to make the asset
finance market look commoditised, variance between IF funders comes
down to a lot more than rates.
IF is an “evergreen” product – where payout is
continuous and the agreement has no fixed term – and according to
O’Neil, “the wrong client matched up to the wrong funder can cause
big problems later in the relationship”.
As such, deals are much more likely to satisfy
both parties in the long run if they are introduced by a broker
with a wide range of IF funder contacts.
Reciprocity schemes such as those operated by
Cashflow mean that AF brokers can be sure of clients’ IF
applications reaching appropriate funders, rather than all being
fed through one or two invoice financiers that the broker happens
to know.
Cashflow is not alone in being open to IF
proposals from lease brokers, either.
Hilton-Baird Financial Solutions (HB), a large
invoice finance broker, is taking an increased interest in asset
finance.
HB managing director Evette Orams says that
co-operation between AF and IF introducers is certain to increase
in years to come, and HB has already placed IF proposals sourced
from asset finance brokers.
Orams reinforces the importance of getting the
right funder for the right deal, and explains that HB’s standard
practice is to introduce a proposal to two or more funders, in
order to ensure the right fit.
Unlike most lease brokers, HB does not
‘package’ deals for underwriting – it simply introduces
opportunities to lenders, making multiple introductions more
feasible.
Interestingly, HB has also begun to pass on
some asset finance requests from IF customers to funders it knows
in the AF sector. Since these deals tend to be those for which HB
cannot find an appropriate asset-based lending (ABL) solution, they
tend to be fairly specialised, and thus placed with firms employing
committee rather than “scorecard” underwriting.
Also, and interestingly as a potential source
of commission to AF brokers, Orams says that HB can often find an
ID or factoring solution to a customer request for asset
finance.
This means that for brokers with equipment
proposals that are difficult to place in today’s limited funding
world, it might be worth speaking to an IF broker like HB to see if
an “asset-based” resolution can be found instead.
Finding a new niche
Other brokers back in asset finance,
meanwhile, have embarked upon a similar course of consolidating on
the overlaps in the leasing and factoring markets.
However, rather than offloading deals that are
not core to their business, these brokers instead are seeking to
bring together finance products. The reason for doing so is simple.
While the recession, on the one hand, has meant companies are
deferring their investment in capital expenditure, on the other it
has given rise to a proliferation in refinancing requirements.
Structured products that might include a mix
of asset finance and factoring can help fulfil these demands.
Some brokers have embarked on an aggressive
push to attract these types of deals, and in doing so have
effectively re-labelled themselves as turnaround specialists.
Norton Folgate, for example, has just launched
an ABL offering, aimed specifically at restructuring
situations.
Managed personally by managing director Robert
Keep, the new product set is designed to bridge the gap between
traditional asset finance and more complex corporate finance
transactions involving equity as well as debt.
Among the tools Keep intends to deploy for
this purpose are not just asset and invoice finance, but
receivables finance, inventory and stock finance, debenture-backed
term loans, commercial mortgages, chattel mortgages and access to a
special “corporate rescue” fund.
Jumping on board
Another example of this trend is City-based
Merchant House Finance (MHF). Its director John Lutterloch works in
partnership with Phil Betts, a well-known leasing broker, to
structure innovative deals that combine asset finance and
factoring, which it then places into the marketplace for financial
backing.
In recent weeks, Lutterloch took this business
model one step further by launching a €2.5m fund targeted at
supporting struggling businesses.
Companies that borrow money from this fund are
charged 12% interest, and do so in exchange for giving up some
equity in their businesses.
Investors in the fund earn 9.75% interest on
their money.
Merchant has also recently assisted
Surrey-based coach company Countryliner, which faced closure after
its banks threatened to pull the plug, by buying a 51% stake in the
company for £200,000 and providing it with a cash injection of
working capital worth £300,000.
Lutterloch says there is no shortage of
business to chase.
“It is a booming market with so many companies
restructuring,” he remarks, adding that he is also targeting
companies currently in the hands of insolvency practitioners.
Payroll finance and VAT finance, where
“lenders paying the VAT up-front and collect it in instalments”,
are also growing businesses, Lutterloch added.
MHF now plans to expand its operations to
cover Bournemouth, Bristol, Norwich, Penarth, Colchester, Swansea,
Nottingham, Poole and Dublin, as well as London.
This will be achieved through “acquisitions
and strategic partnerships”, Lutterloch says.
MHF recently hired Matt Goddard, previously of
GMAC and Landisbanki, and Colin Hazel, the former MD of RVI, the
lease insurer.
Now Financial Services, run by Ian Woodley, is
also doing something similar to what Betts and Lutterloch are up
to, it is understood.
Bullard made clear that there are other
brokers looking to enter the turnaround space.
“There are more Phil Betts-type people wanting
to get into the marketplace,” said Bullard.
Bank-owned leasing companies have also not
been blind to the benefits of bringing their asset finance and
factoring businesses closer together.
Barclays did this some years ago, when it
formed Barclays Asset & Sales Finance, and ING Lease Group
followed suit back in late 2007.
Last month, Crédit Agricole completed the
merger of its leasing and factoring operations. Many others are
doing the same.
Other brokers, too, are finding ways to
capitalise in the new leasing-factoring revolution.
The leasing-factoring alliance, however, is
still in its infancy, and there remains plenty of room for
growth.
Bullard says around 10% of his business comes
from sharing leasing deals with asset finance brokers, but he
expects this to grow to 30% in the medium term.
“We’ve recently forwarded two vehicle deals
and two hard asset deals to asset finance brokers, but there is
plenty more we could be doing,” he says.
