For UK asset finance brokers, the global
economic slowdown is having a significant effect on their daily
business. Business for some brokers is drying up as lenders refuse
to take new business from them, broker commissions are dropping,
turnaround times are getting longer… The list of difficulties they
face go on and on.
The scale of their problems were last month
neatly summed up by Adam Tyler, chief executive of the National
Association of Commercial Finance Brokers: “Most are hanging on to
their existence and living on their fat. Many younger brokers,
especially those with mortgages and families to feed are quitting
the industry and looking for steadier jobs.”
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The hit to the asset finance brokerage market
comes hard on the heels of a downturn in the motor finance broker
sector, which saw non-prime lenders such as Park Finance, Welcome
Finance, Blue Motor Finance and British Credit Trust either exiting
the market, or curtailing their services and commission levels.
Last month it emerged that Barclays, Universal
Leasing, CIT, Lombard, Davenham Group, Bibby Leasing,
Grenkeleasing, and Heritable Asset Finance had either stopped
financing deals from brokers, or reduced the amounts they are
willing to take from them.
Vendor finance schemes are tightening and
making life harder for vendors who are already struggling to sell
more products, while larger ticket business is also under pressure.
Bank of Scotland, for example, has restricted lending to a maximum
of £50,000 and has also tightened up on underwriting.
Increasingly funders are reducing the
commissions they pay their brokers. According to Graham Hill, chief
executive of Automotive Finance, they are now one-third of what
they were before the economic slowdown. “A broker could take up to
60 percent of charges when placing business with Hitachi Credit –
but this has now been reduced to 40 percent,” he said.
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By GlobalDataAs lessors face up to their own problems, they
are pulling no punches when it comes to informing their brokers
about future business.
Many broker arrangements have been summarily
terminated with the minimum of warning. Simon Barrett, the managing
director of Barrett-Lee, a well established East Anglian broker,
received an email from Lombard announcing that it was generally
reviewing its broker connections, and a later one to the effect
that from 30 November no further deals would be accepted from
Barrett-Lee.
Meanwhile, where funders are still accepting
some business from brokers, deal turnaround times are
increasing.
Decisions,” Hill said, “are taking much longer
and when the decision is eventually made it often seems illogical.”
Simon Barrett agreed: “There is a crucial lack of certainty about
underwriting requirements which seem to change from day to day. It
is not possible to create a business plan at the present time.”
A sector particularly affected by the turmoil
are SMEs. The current volume of asset-finance proposals is likely
to slow as businesses defer spending and expansion as bank caution
radiates through the economy.
One broker says: “Banks are definitely more
cautious. Transactions that would easily have attracted funding
only six months ago are being turned down. We regularly find
ourselves having to coach and cajole lenders into taking positive
attitudes to good lending opportunities.”
Unsurprisingly, increasingly frustrated
brokers are accusing lenders of poor practices, and pointing to
these as the cause for the current shortage of work.
One broker claimed banks’ decision-making
processes are “riddled with fundamental flaws” that often lead to
poor quality or incorrect decisions being made.
“It isn’t true, in the majority of cases, that
banks remove the umbrella when it starts to rain,” he said.
“The problem can often be traced back to the
original lending decision where the bank, and or the borrower, did
not fully understand what they were agreeing to do. It is possible
to negotiate with bank funders and get a sensible outcome so long
as the borrower, or the broker acting for them, knows what they are
doing.”
Brokers also accuse lenders of, in the words
of one broker, “continuously moving the goalposts”.
“Some brokers complain that after preparing a
case and presenting it to their usual lender, they often receive a
response to the effect that the lender no longer deals in such
assets – or indeed that sector. Better communication between
lenders and brokers would help greatly,” said Hill.
Life has also not been made easier for brokers
as lenders have increased the rates they demand from end-user
customers.
Whereas for blue-chip customers a flat rate of
5 percent was until recently readily available, the rate now is
more likely to be around 7 percent – and rising. With the
increasing wariness of new start-ups, a 10 percent per annum rate
is more likely to be applied.
Simon Barrett said overall rates are up by
about 50 basis points in recent months, while Vineesh Madaan,
Bluestone Leasing’s chief executive, which has around 7,500 lessees
on its books, believes that the “slight increase” in fraudulent
deals that are appearing on the scene are also alerting lenders to
greater caution.
One intermediary in the hospitality and
leisure sectors said: “When recently looking for loan finance for a
client in Southern England I was offered a £6 million facility by a
major bank at 1.65 percent over bank base.
“It then sought to change this to encompass
the whole of the company’s borrowing (which was around £20 million)
but was then only prepared to offer some 2 per cent over LIBOR. My
client declined the offer.” He added: “We are finding new borrowing
difficult, but not impossible. Rates are higher and equity must be
greater.”
The NACFB was established some 15 years ago
largely to combat advance fees among brokers. The current economic
climate has led some lenders to demand large amounts of cash, for
no guarantee of any kind of service, from clients who are
vulnerable because they are quite desperate for some kind of
financial assistance.
Things are not all bleak. Some large lenders,
including ING Lease and Siemens Financial Services, are still
accepting broker business. Also, according to Madaan, “demand is
still good in the marketplace”, although he added “vendor
relationships need constant appraisal. The majority of our
remaining funders are keeping us abreast of their policy changes –
and overall relationships remain good.”
Sales finance is also holding up. “I believe,”
said Tyler, “that it is no coincidence that in a contracted market,
brokers are having to diversify and invoice finance is one of the
few areas which is still relatively unaffected by the
downturn.”
Brokers are also not taking their current
problems on the chin. William Flateau, who owns First Finance, has
decided to give his colleagues at the NACFB a chance to air their
grievances. He has established a blog website
lendertracking.org in a campaign “to persuade
banks to lend again to businesses in the UK”.
He believes that pressure from UK brokers
acting together will help get the market moving. He outlined: “The
website has a forum for brokers to “tell their stories” –
anonymously if they wish – to find out what is really happening in
the commercial world. Just a week into launch with 500 visitors to
the site, there is a groundswell of support for the campaign.”
But not all brokers are sweating. Graham Wall,
director of Quartz Finance, commented: “The funders we work with
are fully supportive and excellent relationships are being
maintained. Spreads are increasing and some funders are charging a
liquidity premium. Leasing companies still have to do business.
Nevertheless, some funders have withdrawn from the market, some are
pricing themselves out and others are on hold until 2009.”
Allan Ross, managing director at First
Independent Finance, meanwhile said that “more mature funders are
adopting a back-to-basics approach”.
“That is needed, and we fully support it,” he
added. “The market needs care and caution if we are all to come out
of this difficult period in good health. Some may describe it as
‘increased bureaucracy and controls’ – but it is no different to
the fundamental and prudent underwriting procedures that
historically served the industry well.”
Ross even sees opportunities for the future.
“The effect of the recent market changes,” he said, “is that people
are seeking to move from paying for assets using their overdraft to
using asset finance because it makes more sense. Businesses have
been forced to re-evaluate their approach to medium-term debt. And
that represents opportunity for asset lenders and brokers who often
forge closer and longer lasting relationships with their
customers.”
None of this should detract form the fact the
UK asset finance broker market is under siege. Tyler believes that,
of his association’s 1,400 members, some 30 percent could be at
risk of going out of business during 2009. Admittedly, many of
these will be in the mortgage sector.
Apart from NACFB members, there are estimated
to be around 1,000 brokers operating independently of the
association around the country. Many of these operate on a strictly
local basis with restricted funding lines and often near the margin
of profitability. It is probable that many of these operations will
be significantly reduced over coming months – or go out of
business.
On the flipside, demand from customers is
still high, although, of course, this might not last forever as the
impact of the recession sharpens in the new year. Brokers, too, are
an important resource for lessors, and the likes of ING Lease,
which continue to source business from independents, may well come
out of the downturn stronger than its competitors, who closed off
broker funding lines.
