New Lease of Life after the banking crisis

23/10/2009

It sticks in the throat to say it, but the global banking crisis has been one of the most refreshing experiences of my professional life. Not enjoyable, but refreshing; my brokerage has been turned upside down, and the rotting bones of my business have dropped out forever.

As a relative newcomer to the commercial finance industry, I was swept up in a wave of easy lending. During my first few months as a broker in 2005 I was drilled rigorously in the minutiae of property finance, on how to interview clients and how to pitch to lenders. There were setbacks as I fluffed my early client meetings, and got flustered when analysing deals with underwriters.

I was sometimes berated for spending too long with clients and not staying focused; I should be spending my time finding commercial mortgages as this was where the pickings were richest, I was told.

It was hard to disagree with my colleagues when the likes of Commercial First - may they rest in peace - were at the time offering commissions of 1.5 % of the (usually large) loan, and more for continued business.

It quickly became clear that most small businesses do not own property, and that commercial mortgages were simply not required. I faced a steep and slow learning curve as I realised how little I knew about the numerous forms of finance available to commercial enterprises. I had regular and heated discussions with colleagues who told me that business finance was too complicated, and that we should stick to commercial mortgages.

In one memorable meeting I tried to explain to a broker how factoring and invoice discounting allowed businesses to improve their cashflow. He looked at me with glazed eyes: “No, I can’t get my head around this,” he said, shaking his head. “It’s not really for me – there’s plenty of business in commercial property.”

As I expanded my contact base in those early days, I made a point of investigating different forms of finance. I came to realise that almost every business needs money, that each had problems that required a different lending solution.

Asset finance was an area that had long been a mystery to me. Was the lender quoting a rate per thousand, a flat rate, or maybe it was an APR… ? After working with a number of asset finance lenders I began to understand the impenetrable terminology, and I realised how asset finance could be used to structure deals that others had struggled with.

Some of the most active and resilient brokers I have met possess skills across the lending spectrum. They can analyse a business, interpret accounts, write a tight business plan, and their non-stop networking has landed them deals across numerous disciplines. These brokers know how far their knowledge will take them, and they are happy to hand over to a more specialised pair of hands where necessary.

 

The multi-disciplined approach to commercial finance enables brokers to cross-sell finance products to clients. One company I was asked to see wanted to buy premises for a nursery. The proposition was unworkable, but I was able to set up a professional practice loan for the business. 

A film company I was introduced to urgently needed investment to keep going until their long-awaited profits started to show. When we examined the company structure, ironically enough it was a commercial remortgage the provided the answer. 

Time and time again I meet brokers who operate in one particular area of finance. “I don’t understand property, so I stick to invoice financing,” they tell me. Another broker admitted: “Asset finance is really all I do, and I can’t imagine doing anything else.” 

The credit crunch effectively shut down my business, and forced me to come up with a whole new way of working. Using our contacts in the business angel sector, we found that we were able to place loans with private lenders who were anxious to find better returns than the banks were offering. 

And First Funding was born – a web-based business that connects private lenders with business borrowers.

There is real thrill in starting a new business, as you battle to find the model that works. We have quickly learned that private lenders want hard security. After funding two supercar clubs and an architect practice, we realised that asset finance deals were was the ones to focus on. I now find myself coaching eager private lenders in the very same questions about asset finance that had flummoxed me just a few years ago.

First Funding has a long way to go before we achieve our online ambitions for a large-scale automated asset finance operation, but the company has sown the seeds of a new asset class. Borrow from people, not banks.

 

William Flatau runs First Funding, a website that connects private lenders with business borrowers.

William Flatau

 

t: 0845 644 4829

www.firstfunding.org

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