The main UK banks have been the bedrock of business and commercial finance for as long as most of us can remember (notwithstanding PR issues experienced by a few of them).
To a high degree that remains the case today: they still provide the lion’s share of such finance across the UK SME market and, indeed, we introduce a good deal of business to them when it is appropriate.
Over the past few years, however, business owners and property investors have increasingly looked beyond the obvious solutions, often with the assistance of experienced commercial brokers, who are able to identify the most appropriate funding from the growing number of providers in the market.
This number includes the so-called challenger banks, such as Aldermore, Interbay, Shawbrook and others, although perhaps they now consider themselves mainstream (understandably, given their impact on UK business).
However, the market extends even further into what many are calling the ‘alternative funders’. This includes peer-to-peer lenders; privately funded short- and long-term lenders; some ‘new’ funders that have risen from the ashes of lenders whose doors closed in 2007/08; and various providers that set up to make good use of the cash they are attracting from depositors seeking better returns than those available through mainstream channels.
We have also seen the rise of numerous unsecured debt providers, giving Britain’s businesses access to much needed working capital through a variety of innovative funding methods.
So what does this huge choice mean to businesses and their advisers? Quite simply, it puts more power than ever in their hands for seeking out the best possible solution to their business finance needs.
Perhaps the best lender for a client is indeed a high-street bank but what if their own bank is not offering the best deal? Perhaps a better deal is available but the client does not want to transfer their main banking. Perhaps it is not just about price but about structure, loan term or capital repayment requirements.
Most businesses and their advisers do not have the time or expertise to hunt through all these potential lenders to source the finance deal that suits them – which is where finding and developing a relationship with a good commercial broker is key.
In 95 per cent of cases, experienced commercial loan brokers know in principle almost immediately what is possible and what the best likely loan terms will be. They place similar cases, day in and day out, so they understand what is available in the market even if it has to be negotiated. Remember: commercial finance is by no means all product-driven.
Conversely, if a client already has the most suitable and best possible terms (or close to it) from their own bank, a professional broker will advise that client or their adviser not to waste valuable time hunting for something better.
However, if, by careful investigation of the client’s detailed requirements, an alternative solution can be offered that better meets their needs, so much the better. The key is to provide that alternative solution quickly. If commercial brokers are not adding value, there is little point in them being involved, and saving a client time is the best way (after saving them money) of adding such value.
A decade ago, we looked across the Atlantic with envy: around 80 per cent of US business finance was arranged by professional brokers as opposed to 20 per cent in the UK.
I admit to not knowing what the figures are now for either country, but one thing I am certain of is that more businesses and advisers are investigating and ultimately realising the benefits of using a commercial broker – at the very least confirming that the deal they have found is the best they can get or increasingly finding that alternatives do exist in the ‘beyond’.