Broker-arranged loans for small business hit £45bn in 2022

According to the National Association of Commercial Finance Brokers (NACFB) survey, which collects responses from 2,000 commercial brokers and 160 lenders, around 48 per cent of respondents said the total value they introduced was higher than in 2021.

The survey also found that only 17 per cent said value was lower and 35 per cent said it was broadly the same.

The average loan size was pegged at £563,000, which is 23 per cent up on the previous year’s figure.

The report added that most member firms maintain a “multi-disciplinary practice”, with over a third of firms’ primary business coming from commercial mortgages.

Over a quarter of firms’ primary business was leasing and asset finance then buy-to-let mortgages.

Around 20 per cent said that commercial mortgages were their secondary area of business activity, followed by property and development finance at 17 per cent and short-term and bridging finance at 16 per cent.

The largest tertiary area of business was short-term and bridging finance at 28 per cent, then commercial mortgages at 19 per cent and property development finance at 15 per cent.

The report continued that 62 per cent maintained the same offering as the year before, but a third of member firms diversified their offering in 2022.

Commercial finance brokers offer ‘clear and demonstrable value’

NACFB added that 29 per cent of successfully funded members had been turned away for funding elsewhere.

The organisation explained: “This significant data point includes successfully funded businesses that may have been turned away for debt financing either directly from their bank or through other types of finance, including equity funding.

“These are businesses that may not otherwise have received growth capital and is perhaps the starkest evidence to date of how much value engaging with an NACFB member can bring by unlocking access to finance.”

It continued that over a quarter of intermediary-led transactions resulted in a client selecting a different solution to the one they had initially enquired about, which the trade body said showed the “clear and demonstrable value” a commercial finance broker can offer.

Broker client base typically 150 clients

Around 70 per cent of NACFB members said they maintained an active client base of no more than 150 clients, which the trade body said showed a “real focus on client care and the nurturing of longer-term relations over a higher turnover of new clients”.

Most brokers, 60 per cent, said that they welcomed no more than 50 new clients to their active base in 2022.

More than half said that their biggest lead source was from returning customers, followed by 13 per cent from professional service introducers and 13 per cent point to referrals from other clients.

Most lenders growing broker-facing teams

NACFB has around 160 lenders on its patron panel, which is the highest in its 30-year history.

The majority of these at 65 per cent are specialist lenders, with 18 per cent identifying as challenger banks and nine per cent as peer-to-peer lenders.

Most of the lenders said that the size of their broker-facing team had grown in 2022, with 31 per cent saying that it had stayed broadly the same. Only four per cent of lenders said that they had reduced their feedback.

NACFB said anecdotally brokers satisfaction with lender service had fallen in 2022, therefore the drop in service along with increase in headcount could mean lenders were “redeploying resource away from frontline and intermediary-facing activities”.

Lenders increasingly diversifying their offering

Around 49 per cent of lenders said they diversified their offering in 2022, while 42 per cent said they had kept it the same. Only nine per cent said they had refined or narrowed their proposition.

Approximately 30 per cent of lenders said short-term and bridging finance was their primary area, followed by commercial mortgages at 16 per cent and property development finance at 15 per cent.

From a funding perspective, more than half of lenders said that their funding came from institutional investors, 23 per cent pointed to deposit-backed lending and 13 per cent highlighted family offices or high net worth funders.

Family offices and high-net-worth funders were the most popular secondary and tertiary funding source at 41 per cent and 33 per cent respectively, followed by government-backed schemes at 12 per cent and 23 per cent apiece.

Nearly three quarter of lenders’ total lending to UK SMEs was through the commercial intermediary channel.

The trade body said that there was “no historically comparative data”, the high proportion of commercial lending going through brokers “clearly demonstrates the value of the channel and the reliance upon it by many lenders”.

It added that 42 per cent of intermediary-led commercial finance applications were successfully drawn down in 2022.

However, the report said that 40 per cent of lenders do not have a formal referral system for direct enquiries that had been declined.

The NACFB said this was a “significant number” of businesses that were not receiving any signposting after rejection, ad was an area that the body was seeking to address.

Brokers and lenders views on application declines differ

The survey also asked broker and lender members to select their top reasons for application declines.

According to brokers, the top three reasons for application decline was valuation mismatch and reduced sectoral appetite at 14 per cent apiece, followed by poor credit history at 13 per cent and lack of strong cashflow at 12 per cent.

Lenders said that the main reason for an application decline was that it was outside of lending criteria at 33 per cent, 14 per cent pointed to valuation mismatch and 12 per cent said it was due to poor credit history.

Nearly a third of brokers said that lenders were reluctant to lend on accommodation and food services, which was followed by construction and wholesale and retail and motor vehicle repair industries.

On the other hand, a quarter of lenders said they would be reluctant to lend on agriculture, forestry and fishing, 19 per cent said other and nine per cent pointed to productions, which includes mining, quarrying and utilities.

Rising interest rates biggest challenge for lenders and brokers

Looking at threats and challenges, around 39 per cent of brokers said the main one was rising interest rates, followed by 21 per cent at increased lender risk appetite and six per cent said FCA’s “use it or lose it” approach to authorisation.

Lenders also singled out rising interest rates as the biggest threat at 42 per cent, followed by lack of borrower appetite and 10 per cent pointed to funding line disruption.

Lenders 42 per cent said rising interest rates were a concern, 22 per cent noted lack of borrowing appetite and 10 per cent said funding line disruption.

NACFB’s chair Paul Goodman said: “The results demonstrate clearly the value of intermediary-led lending to UK plc and endorse what the NACFB community has long known; that small businesses looking to access finance are often better served by enlisting the support of a commercial broker.

“With many lenders withdrawing their high-street presence, commercial finance brokers have firmly stepped into the role of the modern-day bank manager; but with the added benefit of providing a wider array of funding solutions to their clients.”