Summary
•Brokers provide access to a range of lenders.
• Recession has cut the number of lenders, but brokers still claim a high success rate in placing finance deals.
• Using a broker frees up bank lending and overdraft facilities for other purposes.
• Lenders are requiring more detailed business information, and more directors’ guarantees.
Mike Jeffree: There’s been a lot of media coverage of the squeeze on business credit and finance in the recession. Do you think it’s been as tough as this made out?
Jody Senior: From our perspective, the funds are still available for customers, as long as the pricing reflects the risk and the proposal is presented to the right lender. Sure, underwriting has toughened up, but an established broker will have a good panel of lenders, and with the right information and know-how, will find the correct home for a deal. If the asset is tangible and secure, pricing is correct and we have access to the correct financial information from the customer, then it isn’t harder to arrange finance.
Robin Timms: There’s a perception among potential customers that finance is less available, so some probably don’t even think it’s worth enquiring. That seems to be particularly true of smaller businesses looking for £15,000-20,000. But, while there are fewer asset finance lenders out there, we have always been able to place deals – and there’s evidence that some lenders who pulled out of the market are coming back in 2010.
MJ: So are timber companies more likely to be able to raise finance and credit via a broker?
JS: Yes. Brokers have access to more lenders which gives more choice. Every lender has different criteria and the type of business they prefer to underwrite. Banks will only have one option.
RT: Undoubtedly, partly because we have contacts with more lenders, partly because we make it our business to understand the asset, in this case machinery, being financed. If a company goes direct to the lender to finance an edgebander, the financier will say “what’s an edgebander?” and they probably won’t recognise the name of the manufacturer either. We do the ground work and explain everything to the lender, giving them confidence in what they’re financing.
MJ: How do you put together the right finance deal for the specific client?
JS: We basically put a case together to present to a lender. This includes precise information on the asset – for instance AV Birch provided me with brochures on its machinery, including specification and prices. This gives the lender full information on what they are financing and allows them to value the assets. We pull together information on the customer’s experience in the industry and financial data – from accounts, bank statements, and management information – then look into what finance packages would suit them best.
RT: We first explain the options to the client and match them with the right finance deal. We’ll then ask them for full financial details. Some companies are still reluctant to disclose everything and say “the bank never used to ask for this detail”, but times have changed. Lenders want comprehensive figures and the latest information. There’s also a growing trend to ask for directors’ guarantees.
MJ: Would you offer one finance package, or a selection?
JS: That depends on the deal, the customer and asset. Sometimes there’s only one option, but generally we offer a choice, depending on whether they want the finance on hire purchase, finance lease, variable rate or with a balloon payment at the end.
RT: Usually we’ll provide several options. Seven out of 10 companies go for hire purchase, next would be lease hire and then, increasingly less common, operating lease hire.
MJ: What other services could a company expect coming through a broker?
JS: A broker would provide a one-stop shop and be able to place the majority of a customer’s finance requirements – for vehicles, machinery, office equipment, refinancing to raise capital. This frees up their time to deal with core business.
Banks would take extra security on the business and tie it in with other products they have, like overdrafts. A broker takes security over the asset [being financed] and using one also frees up bank facilities ‘just in case’.
RT: Firstly we give more than the “yes or no” that a bank will give to an application for asset finance. If one of our lenders won’t take the deal, we’ll place it with another. How many banks say “we can’t help you, but we know a lender who can”? And clients won’t face some of the issues involved in dealing with banks. For instance, when a company we know applied to its bank for asset finance, it reappraised its business, refused to provide finance and reduced its overdraft facility.
MJ: How has the economic climate affected the type of finance package you arrange?
JS: It has meant that lenders in some cases restrict lending amounts and ask for higher deposits. They’re generally looking for more security.
RT: The average payback period was three to five years and it’s now mainly five, but that trend started before the downturn. One thing the recession has done, however, is added generally to the attraction of financing a machine purchase rather than paying in full, in cash. Few companies today are likely to pay over £50,000 cash towards a purchase because cash flow is currently so unpredictable and critical.
MJ: What has been your hit rate in raising finance for timber companies?
JS: I haven’t had any refusals. I’ve found the right terms for each customer.
RT: We’ve had a 100% success rate through the recession.
MJ: How would a company check out a broker’s bona fides?
JS: Look at its website and search if it’s a limited company. Then look on the Office of Fair Trading website (www.oft.gov.uk) to check it has a Consumer Credit Licence (CCL) and check the Data Protection Register (www.ico.gov.uk/ESDWebPages/search.asp).
RT: I’d say it’s not a good sign if you’re cold-called by a broker you’ve never heard of. I’d recommend looking at their track record and, where possible, going for a company that has a good relationship with the supplier of the product you’re buying.
MJ: Is the timber industry as tuned into using brokers as other sectors?
JS: No. I began dealing with engineered timber technology specialist AV Birch via a customer buying its machinery. Birch didn’t know such a range of finance options was available. We formed a relationship and have had a lot of satisfied joint customers since.
RT: I don’t think many businesses were, but the downturn has changed that. It has prompted people to look at options other than dealing direct with banks and I don’t think we’ll now see a reversion to previous practice.
MJ: Is there an added cost in using a broker?
JS: No. An established broker can compete with the banks as they have the volumes of business to secure better terms with lenders. We have no real overheads, whereas banks do and, in turn, pass them on to customers.
RT: We’re paid a commission by the lender and it’s all very transparent so customers can compare terms and rates with other deals and other lenders.
MJ: Can you tell us about finance packages you’ve arranged for timber companies?
JS: The first I dealt with in the industry was the Truss and Joist Company, a start-up in Burntwood. Director Ralph Russell came to me to finance everything he needed: from the AV Birch truss and joist presses, to compressors, a saw and forklift. With a lot of work, I got everything financed and the company launched in July.
Another example is Hornsea-based Yorkshire Timber Engineering. It’s well established, so I was able to put together a variable rate package on a new AV Birch press. This kept monthly payments low and gave the option to settle early with less of a penalty. A month later, I financed a refurbished second-hand press for the company on the same terms.
RT: We recently took over a financing deal that had been dead in the water. A company had been awarded a grant to cover 50% of the cost of a new finger-jointer, but couldn’t fund the balance. So we arranged an HP deal where the full value of the machine was covered up front. The 50% grant was then awarded afterwards and became the deposit. That’s the sort of flexibility and customised service brokers can offer.
