Before the pandemic, I remember discussing a case with a lender where I was presented with the following scenario: if the base rate were to rise to 8%, the tenant would vacate the property and the high net worth client (HNW ) lose their job, the client would be unable to repay the loan.
Since this was an asset in a great location and in high demand, I suggested to the lender that while this was unmistakably true, if all of these things happened simultaneously, we would likely have much bigger concerns. .
While I still think we have yet to realize the true impact of the pandemic on business, the general consensus is that we seem to have emerged, at least partially, from what for most people has been the most severe. professional and personal testing.
Staying in constant communication has been vital
We have seen large-scale lenders refocus their resources almost entirely away from traditional business support, including commercial mortgages, and many other traditional lenders that are restricted or entrenched in the commercial space. This, however, opened up opportunities for transactional lenders able to provide debt options to clients that were not available through their existing relationship manager or bank.
This has been consistent throughout 2021, and IMHO such a transactional approach will represent a steady share of the market for the foreseeable future.
There remains a positive approach from many lenders to support commercial investment and the business sector
These funding avenues are generally able to provide faster turnaround times – measured in weeks rather than months, given the generally flatter nature of funders’ corporate structures – tailor-made and tailor-made solutions. measure, and perhaps an inherent lack of books from existing and existing customers to serve
Cost of funds
This comes at a price, however, mainly due to the cost of funds from these lenders, which is usually reflected in interest margins. While competitive and becoming more and more competitive, these options are not quite at the 2% level of the base rate, nor even lower than what we often get with more lenders. traditional and consumer type.
That said, 75% loan / value ratio (LTV) and rates at 3.4% compared to the base rate should not be neglected, especially when they are coupled with more dynamic processing and completion times, and they offer our customers a real alternative.
Customer conversations revert to those of structure and preferences rather than the unique options available
The resulting more granular credit matrix – incorporating and segregating every imaginable line of business, debt amount brackets impacting debt service coverage requirements, maximum term / LTV and also simply if a bank is ready in this industry / space – we think it’s here for a while. We are, however, awaiting a sustained impact assessment of the recent change in planning use classes.
This may allow for more streamlined switching between occupants and sectors, perhaps alleviating previous concerns about the ability to re-let vacant spaces, while still respecting the broader requirement of creating more generic commercial spaces that can be reused. to help assets stand the test of time.
This transactional approach will represent a sustained market share for the foreseeable future.
One thing clearly demonstrated over the past 18 months is that nothing stays the same for long, with lender criteria sometimes even updated daily. This makes it impossible to trust the latest published product guide – even lender websites in some cases – and certainly not the latest data output from the procurement system. Getting started in the hard way by staying in constant communication with lending partners has never been more important.
Nonetheless, we continue to achieve significant levels of trade finance through traditional banks and more traditional channels.
The recent opening of brokerage relationships with a well-known bank, a challenger bank ready to relaunch in the commercial space, increased leverage in all sectors returning to the market – these are positive examples of support in the area of business investment and commerce. Customer conversations revert to those of structure and preferences rather than the unique options available.
Most lenders are willing to listen, keep asking us questions, and be proactive in doing so.
Of course, there is still a lot to do; we are constantly working with lenders, discussing how they can improve their offering, extend / adjust their criteria or simply improve service levels and turnaround times.
The good thing here is that most are willing to listen, to keep asking ourselves these questions and to be proactive, which leads to improved debt options that might not have been achievable even in the days before. pandemic.
The more discerning among you will have noticed that the base rate has not increased to 8%, the leave plan may have kept the individual HNW employed and, while the tenant may have left or the business has had to close for a while, there remains a positive approach taken by several lenders to support commercial investment and the business sector.
Mark Jones is Omega Group Director