Credit is the life blood of commerce. Credit withdrawal is typically the first thing that happens when confidence withers but also the last thing the system needs.
Unfortunately the Bank of England’s monetary policy committee have little room to ease rates significantly when runaway commodity prices are fuelling inflation- and as we have seen recently in the mortgage market; their reductions in any event may not have any immediate impact on the cost of borrowing. What's a consumer to do when the plug is pulled then? In America pawnbrokers are stepping in to provide lifelines for those in desperate need of short term cash. A little primitive, but functional none the less.
In the more genteel world of Business Finance, pawning takes a different form but the premise is not very different. Asset Based lending via the Balance sheet with Invoice finance, sale and leaseback of assets, stock finance etc. comes into play. In other words borrowing cash backed by existing assets to cover the overheads as collections slow to a trickle start to become the norm, but a the same time these players start to work with a certain caution.
We have all heard in the personal mortgage market of lenders withdrawing completely or amending products. We are seeing a similar pattern in the corporate world with a number of institutions who’s lending and profitability models are not quire right for this new environment exiting, including major names like the Bank of Ireland. Many more are tightening their credit criteria and in some circumstances becoming only willing to deal with well rated existing clients, effectively closing to new business.
We are also seeing the impact to some extent in the values being extended against 2nd hand assets and then the percentage that will be lent on these and increased deposits required for new assets or additional security being sought such as a charge over property.
As an example, a client recently had some assets valued at £400,000 which he wanted to sale and leaseback (i.e. he already owned the assets and wanted to borrow against them to inject money into his business), he did approach 3 different lenders who undertook their own desk top valuation and the best figure they came up with was £285,000 from that the most they would then lend was 60% so £171k or only 43% of what his valuer felt they were worth.
The lenders would only consider more if the Directors provided a charge over the matrimonial home.
The business then approached Vantis Asset Finance and we used one of our panel of lenders who agreed to agree to accept the higher original valuation and to lend at 85% of that figure- £340k raised doubling what was being offered previously.
A year ago we believe he would have been able to raise the sum we obtained from any of the lenders he approached, all of whom he had dealt with before.
So what can a business do when it needs to raise finance? One option is to use an experienced professional broker. A broker comes into the equation more now than ever as the businessman can no longer just call up his existing lender and expect to be serviced.
A good broker (like ourselves) should have access to the tier 1, 2, 3 and 4 lenders and access to those specialising in certain areas, they will know who is lending and how. Through the volumes we introduce to our panel of lenders, and through the knowledge of which deal suit which lenders, we are often able to negotiate for the business the best deal in the market and the one that best suits their circumstances.
For more information, or to see how we can help, please contact Paul Sargent on 020 7467 4281 or Mark O’Neil on 01732 378 680.