SMEs find a different approach to funding beyond the High Street

“Throughout the credit crunch we never stopped lending.” Explains Harley Kagan, Managing Director of specialist lender United Trust Bank. “In fact since 2007, when the financial crisis began, we’ve increased our lending and we now have more money on loan to SMEs, developers, professionals and individual property investors than any other time in the Bank’s history.”

United Trust Bank is based in New Zealand House in London’s bustling West End. The view from the 11th floor boardroom is impressive, stretching all the way from Canary Wharf in the East to the redeveloped Battersea power station in the West taking in the Shard, the South Bank, the Houses of Parliament and Buckingham Palace along the way.

The last ten years have seen strong growth at United Trust Bank and it has become a highly regarded specialist lender offering a wide range of short to medium term funding solutions for businesses, developers, professionals and individuals. With four dedicated divisions for development finance, short- term ‘bridging’ finance, professional lending and asset finance the team has a depth of knowledge and experience which has helped hundreds of businesses secure funding for growth.

Although most of the more widely known banks restricted their credit during the financial crisis, United Trust Bank’s directors recognised that despite the recession there was still a significant demand for funding from SMEs, new home builders and property developers and they saw the ‘High Street’ banks’ pull back as an opportunity for United Trust Bank to step-up.

Martin Nixon, United Trust Bank’s Head of Asset Finance, picks up the story:

“For the last few years even well established, profitable companies with good credit histories have found it hard to persuade their bankers to support them when they’ve opportunities to invest in their businesses. Many SMEs wanted to expand during the recession but finding funding through their own bank was often troublesome. Even now, when we’re back to a growing economy, many SMEs are still coming to specialist lenders like United Trust Bank rather than their own banks because we can provide speed, flexibility, exceptional customer focus and, generally speaking, a greater desire to do deals.”

Working closely with brokers, United Trust Bank’s Asset Finance division has been able to provide funding for businesses by arranging leases on new vehicles and equipment and also by unlocking the value of assets they already own. It’s not unusual for a business to have several valuable assets which are unencumbered by loans or have very little owing on them so the Bank can consider those assets as security when a business wants to raise liquidity. The money released can even be employed for a purpose unrelated to the asset refinanced, such as in the case of a £235,000 loan made to a waste management company which wanted to install a biomass heating system. “Installing the new system for their 5.5 acre industrial site was going to bring significant economic benefits to the company in terms of feed in tariffs and in recharging heating costs to the tenants occupying some of the office space on their site.” Martin explains. “We had been introduced to the customer by a broker partner and we valued a number of excavators, dumpers and loading shovels, some of which had no other loans attached and others which had reasonable equity.”

Martin continued by explaining what the Bank looks for in an asset finance proposal:

“With asset finance we only deal with brokers. If a company approaches us directly for funding we’ll point them towards a professional broker who can help them to establish exactly what their needs are and will help them to place their loan with the most appropriate lender. Of course we hope that in most cases that will be us, but we trust that the brokers will above all be acting in the best interests of the client.

“When assessing a proposal we try to achieve a balance between the asset, the customer, the financial information and, if required, the potential for additional security such as a suitable guarantor. We can also be flexible and creative when it comes to structuring a workable deal. If a proposal doesn’t immediately ‘stack-up’ we’ll look at ways we can adjust the individual elements of the deal in order to reach a compromise which is acceptable for the bank and for the customer.

“With the loan for the biomass heating system, the valuations of the plant were quickly agreed and the transaction went ahead swiftly. We released funds both directly to our customer and to settle loans with other funders on some of the other machinery and the company went ahead and installed the system. It has been taking advantage of the cost savings ever since.”

Professional lending

United Trust Bank recently added Professional Loans to its portfolio of short term financing options. Although it was an area new to the Bank, the directors brought on board an expert with decades of experience to design and launch the new product. Meet Kevin Flowerday:

“Prudent cash flow management is critical to any organisation but there are often instances where a successful business requires additional working capital to satisfy large outlays and maintain growth,” he says.

“United Trust Bank’s Professional Loans are available to a range of professional businesses. Solicitors, accountants, architects, barristers, doctors, dentists, opticians and pharmacists are just some of the professions we’ll lend to. Whether it’s a two partner accountancy practice or a thirty partner legal firm, there are frequently VAT, tax and other significant expenses that can fall due when cash reserves are low. Add costly insurances and regulatory fees and even the most diligent of businesses can require some short term financial assistance. We can provide quick and decisive funding solutions to professional firms when they need them most.”

As the services market in the UK continues to develop, many firms are looking at how they will capitalise on the opportunities within their sector whilst maintaining their crucial working capital facilities that support fee growth.

Kevin explains how a legal firm needed a cash injection to help their growth plans stay on track:
“We were introduced to a top 200 legal firm which had weathered economic and regulatory changes over the past 2 years and was predicting strong fee growth. The partners were committed to developing these additional areas of income, and after two strong quarters they realised that an increase in billings without a reduction in their debtor days would soon mean that in the short term the firm would spend more cash than it was generating.

“We know what impact growth can have on any professional firm’s cash flow and after a brief review of their financial information we were able to provide them with an additional £300k of working capital to support them through their next VAT cycle and enable the partners to maintain their focus on their fee growth, knowing that they had an experienced and supportive lender behind them.”

Funding for development

Executive Director Noel Meredith heads up the division with a long history at United Trust Bank – the development finance team. “We’re exceptionally busy at the moment,” he says, “new proposals are coming in all the time and on most days at least one of us will be out on site meeting clients.”

When it comes to funding property developments you will struggle to find a group of people with more knowledge and experience than Noel and his team. Several have been in the industry long enough to have seen more than one house price crash.

“Our understanding of the construction sector has been gained over many years of lending through a variety of market conditions and that enables us to fully appreciate the needs of developers,” Noel continues. “There’s not much we haven’t seen and because we have a hands-on approach to working with our borrowers, we can add value to projects by offering help and guidance on more than just the financials.”

The last 6 years have been a challenge for small to medium sized developers with many lenders reducing their appetite for development finance and some lenders withdrawing from the sector altogether. Developers found that they had to look beyond their usual sources of finance and United Trust Bank welcomed the opportunity to show them what a specialist lender could do. Noel’s team doubled in size and they were soon financing a range of projects including a new, modular apartment block in central London, individual luxury homes in the commuter belt and a village style development in the West Country.

“There are always development opportunities, even when the property market appears to be in the doldrums,” says Noel. “An experienced developer who understands the sector they’re building for and who has a good knowledge of the locality, will put together profitable projects. One area we’ve found to be a rich vein for new opportunities is where existing commercial sites can be converted to residential homes under the changes to ‘Permitted Development’ regulations. For example, we’re providing £4m of funding to a developer turning a redundant 1970’s office block into smart new homes in the centre of Chelmsford. Nearly two thirds of the apartments were sold before the first unit was even completed. We’re always happy to consider proposals from developers who’ve done their homework.”

Building bridges for business

“Bridging finance has evolved into much more than just a short term loan to bridge the gap between purchasing a new home and selling your existing property”, explains Alan Margolis, Head of the Bridging Finance division. “These ‘classic bridges’ make up just some of the loans we complete these days.”

Bridging loans can provide bespoke solutions to people and businesses in varied circumstances. Although they are often employed by property professionals needing short term funding to buy and renovate residential properties, United Trust Bank also has the skills and capability to provide multi-million pound structured finance packages involving large, mixed property portfolios with complex ownerships including off-shore companies and trusts.

“From time to time we support SME business owners who need to raise capital quickly in order to seize a business opportunity, especially where time is of the essence,” explains Alan. “We can provide a short term loan secured against the borrower’s home or other property they, or the business, own. As long as there’s sufficient equity and the customer can demonstrate that the loan can be settled within the bridging term, usually 12 months though longer terms are possible, we can provide them with funds in a short timescale.”

Changing the lending landscape

For many SMEs the last few years have been challenging, both for trading and for sourcing and securing credit. However, although the recession put UK businesses under severe pressure, there has been at least one positive outcome, particularly now our economy appears to be growing again.

“The financial crisis was the catalyst for many smaller, specialist and new entrant lenders to promote themselves as a real alternative to the ‘High Street’ banks,” explains Harley Kagan. “Although alternative funders have been around for years, the conditions created by the credit crunch provided us, as expert specialist lenders, with an opportunity to develop our business by helping scores of SMEs to grow theirs. The emergence of independent professional brokers, who help borrowers navigate their way around the new landscape, has also been a major contribution to levelling the lending playing field. The combined result is a larger, better marketplace where SMEs have a greater choice of funders willing to support their growth ambitions than ever before.”