Brokers report commercial finance enquiries uptick and predict bigger growth in 2023 – analysis

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  • 20/12/2022
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Brokers report commercial finance enquiries uptick and predict bigger growth in 2023 – analysis
Commercial finance enquiries have been increasing over the past few months, with further growth expected for next year although lender appetite is a concern.

According to brokers in the commercial finance space, while enquiries had dropped off following the aftermath of the mini Budget as rates went up significantly, this has now started to settle with many keen to secure funding.

Narinder Gill, associate at Coreco Commercial Finance, said that commercial landlords were “proactively contacting us well in advance of expiry with their existing lending terms”.

“With recent rate increases, landlords are conscious of increased lending costs coupled with many of their leases not having had any uplift in recent rent reviews. Post pandemic, the high street and hospitality sector in particular have also seen significant increases to their operating costs for which landlords have had to take on board when negotiating rental values,” he added.

Alastair Hoyne, chief executive at Finanze, said that the majority of its transactions are in the commercial finance space, but in the last quarter there had been a “significant uptick in business”.

“Everyone held their breath in October due to the wild swings in lender rates and many pulling out of the market. As things began to settle in November, clients hurried to refinance their portfolios ahead of further rate rises,” he noted.

He added that it saw more starting to build cash reserves to enter the auction market as the expectation is that foreclosures will increase.

“For those with cash to spend, or free equity in their properties, 2023 and beyond will be an exciting time. An opportunity to pick up discounted property from those who unfortunately over geared previously. I expect bridging whether to sell or refinance to increase dramatically this year, which will naturally also mean an increase in buy-to-let financing,” Hoye added.

Thomas Bolan, head of business finance at Finanze, agreed that there had been an increase in commercial finance related enquiries, which was interesting as there was a decline in footfall on high streets and more people working from home.

He continued: “The majority of our commercial enquiries have been from sophisticated investors, looking to arrange credit facilities in order to buy distressed assets over the coming months. As we expect to see a lot of everyday people losing out over the next year, many of our clients are preparing themselves to take advantage of the situation.

“I do expect that these enquiries will grow next year. As investors see the opportunities available to them during an economic downturn, and they have the knowledge to use this in their favour, a credit facility at their disposal can be very useful.”

Lender appetite ‘considerably reduced’

Broker readiness to take on new deals as they appear, is not reportedly being matched by lenders, however.

James Blacklaws, director at JB Commercial Finance, said that while commercial finance enquiries had returned to 2019 levels, “lender appetite is considerably reduced”.

Gill agreed and said that many landlords and owner operators were finding their current lenders were “not showing appetite to lend at same levels their current facilities were initially agreed upon”.

He added: “There are instances where we have seen significant shortfalls in borrowing due to increased debt service requirements.”

Some suggested that this was due to rate increases and affordability stress testing limiting the amount lenders can offer, in turn reducing exit options and impacting bridging lenders. Others suggested that lending appetite in relation to loan to value had fallen as valuers were becoming cautious of property values falling.

Ian Hepworth, director at Funding Solutions UK, said that more businesses were looking for funding, adding that the unsecured loan market had “dried up”.

He explained: “Businesses are now having to use business assets to secure funding. These assets can be property, plant and machinery, their debtor book or stock. The demand for funding is driven by a lack of support from banks as credit policies tighten and also by cash flow requirements.

“Businesses need more working capital as customers are slower to pay, suppliers are tightening up on credit terms and stock levels are increased to cope with supply chain disruptions.”

 

Enquiries to grow but speak to broker sooner rather than later

However, despite lower lender appetite, brokers expect commercial finance enquiries to rise in 2023.

Toby Breeden, new business director at Crystal Specialist Finance, said that many brokers had diversified their business models with its December survey showing 17 per cent of brokers had started writing commercial finance business this year.

Around 40 per cent said they intend to diversify into commercial finance next year, according to Breeden.

He continued: “As business rents are increasing due to the pressures landlords are under, then more businesses are looking at commercial finance to buy their own premises – as it is increasingly more cost effective to do so.

“Moreover, more businesses are waking up to the other ways that commercial finance can be used to support them – such as asset finance or invoice finance. For example, to purchase plant, machinery or to maintain a positive cashflow.”

Blacklaws said that he expected an increase in commercial finance enquiries next year as many business owners “want to have a ‘war chest’ in the bank due to the economic uncertainty” and enterprising business owners “borrow funds to grow as they see hesitation and uncertainty as growth opportunities”.

He continued: “I would always advise a business owner to borrow money for the right reasons (i.e. your business is profitable and has a bright future rather than propping up a lossmaking venture) and always ensure they can afford any repayments on a monthly basis.

“You would be surprised how many business owners don’t consider this.”

Gill concurred that commercial finance enquiries would grow further next year and urged landlord and owner operators concerned about increased borrowing costs to “speak with a broker well in advance of their lending term expiry date”.

”Speak with an experienced commercial finance broker as early as possible. I would urge any borrowers to have their accounts and tax documents up to date and in hand allowing for a broker to quickly identify the most suitable lenders.

Hepworth said: “My advice is to shop around. Use your business assets wisely to secure the right type of funding. Focus on the structure of funding as well as the cost. If lenders are demanding additional security or personal guarantees it is also worth shopping around to see what is out there.”

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