Reports out of the launch of the NACFB on-line directory for businesses – to help business owners’ understand where best to source finance from.

This is good news as it will open the eyes of commercial borrowers to the fact that there are more lenders out there than just the names they see on the High Street. The number of new and innovative lenders now springing up is really about the only difference between the lending climate now and that of the early/mid 1990′s.

However it doesn’t really fully address the problem, not least because:

• A lender’s published lending criteria may not turn out to be their ‘actual’ criteria – not least as things can change so quickly as they react to (what they see as) changes in the market. Plus there is a lot of ‘subjectivity’ involved in appraising a commercial finance proposition.
• It is still about ‘talent spotting’ individuals in an organisation that will work hard on your behalf and ‘fight your corner’ if necessary, with underwriters. It is those individual’s personal qualities that make the difference – not their organisation’s lending criteria. I doubt those will be listed.
• Approaching just one lender with a business case is a very time consuming job – to widen the search and start talking to several lenders is not the way that a business owner should be spending their valuable time. It would also probably drive them mad with frustration!
• The real challenge is how best to present your business proposition – clearly, concisely but with the right level of detail, taking account of what the lenders are looking for and in a way that impresses them enough to want them to invest their time in your case.

Through ‘Stirliing Partners Finance’ who are NACFB members, I do applaud the idea - and hope that it will help some. It should also help generate an appreciation of the work that brokers can do.

One to watch for those borrowers – particularly property investors – who have term loans with the usual covenants built in (i.e interest cover and ‘loan to value’ cover) plus an ‘Interest Rate Management’ contract (commonly known as a SWAP) running alongside.

Just seen a case this week where the annual covenant tests are due and the bank have added in to the equation the costs of severing the SWAP deal – with presumably the legitimate argument that in theory if the loan was called to a halt, for whatever reason, these costs would be incurred.

These break costs can not only be signficant (particularly at times of low interest rates) but can also be unpredictable and difficult to understand – not something you really want in a covenant test – when a breach of the covenant can have serious implications for the business. In the ‘worst case’ scenario it could lead to the loan being called in, or at another level (and most likely) it would trigger an attempt by the bank to re-price the deal. Such moves in costs are a threat to property investors as their income tends to be linked to periodic rent reviews so an increase in borrowing costs cannot easily be passed on.

Worth checking and knowing when your bank are going to be ‘testing your covenants’ anyway – if you also have a SWAP deal this is one to be wary of.

Good to see some coverage recently on the issue of businesses taking out interest rate protection policies. It didn’t quite cover all the issues however and as you may expect it painted the banks in a bit of a poor light. The issue about these interest rate contracts (aka SWAPS) is that businesses should not feel forced into them and then, if they decide the principle of the thing is right, that they make sure they get the right deal. Most SWAP contracts are ‘portable’ but also you don’t have to take out a contract with the bank that is issuing with the loan. Clearly as these contracts are profitable to the banks they would want you to use them – but if there is a better deal to be had from, say, NatWest to cover a Lloyds bank loan then that is perfectly possible.

George Osborne & the Bank of England have a dilemma in that whenever they release funds into the system (intending that it will eventually benefit SME’s, as the engine of the economy) there is a gravitational type pull that sees it eventually in the hands of corporates or banks, strengthening their reserves.

Here’s the idea:

Prior to ‘Humpty falling off the Wall’, both RBS and HBoS (subsequently known as HLoSS and now Lloyds) built impressive teams of business development managers to lend to businesses. They were often their very best people and they also headhunted the best from the other banks for this purpose. With the tightening of lending and with pressure on business customers most of these people were ‘redeployed’ to manage portfolios of ‘problem clients’ – a role for which they were not all ideally suited and, as ‘deal do-ers’ they didn’t really enjoy.

Now that many of these problem situations have been resolved (in one way or another!) many of these capable people are looking at redundancy.

So we have a small army of capable professionals who are skilled at appraising a business and a lending proposition (which the BofE don’t have), working for banks that the tax payers own, about to lose their jobs. To use the old expression ‘they are all dressed up with nowhere to go’.

The ‘Credit Easing’ funds could be put into separate ’ringfenced’ pots and placed with RBS and Lloyds – separate from their balance sheets with these people to lend responsibly but without retribution or criticism if the money is lost. These are people who know what makes a bankable proposition and can act responsibly.

If necessary (to avoid a flood of applicants which would detract from the bank’s core business) the application process could be routed only through carefully chosen intermediaries – good brokers also know what is a sensible deal and the exercise could be closely controlled to create a very tight distribution channel for such funding.

What’s the risk? Well the money could be lost as a result of some riskier deals getting done (but the cash will have been ‘spent’ somewhere in the economy) and some bankers may have been kept in their jobs longer than the cost cutting would have allowed (but they will have been productive and not be unemployed). 

The banks could take the credit for this (“we effectively allowed someone else to use our skilled people for the good of the country”) and it would avoid setting up a whole new infrastructure or Government scheme. It would also be very quick to implement.

The banks participating could even be allowed to become the first choice bankers for opening the accounts or even later to ‘cherry pick’ the winners out of this.

Let’s just do it