Short term finance is at the right place and the right time, argues Paul Brett, business development direct at borro
Intermediaries are a hardy breed. Let’s face it they have had to be with the double whammy of a global meltdown of the financial markets and the regulator galloping up to introduce further waves of compliance for the lending industry in particular. Clearly many brokers have given up the unequal fight squeezed between falling revenues and the cost, both in terms of time and money, of yet more regulation.
The last two years have been about first of all getting through the immediate crisis and then adapting to the new world order. In the ‘good old days’, it was easy enough to find funds for clients when money was so plentiful. But today it is all so different. What distinguishes those who have survived and started to flourish again from those who have fallen by the wayside, has been the ability to search for and find alternatives to fill customers’ needs and therefore generate more income.
In the absence of new money, we have seen a rise of short term lending, in the main sourced away from traditional lending sources, and the reasons aren’t too difficult to see. On the demand side, short term finance has been a form of liquidity that has found a ready market, particularly as borrowing in general has been squeezed. The shortage of mainstream funding has seen many accept a bridging solution and then complete a property transaction conventionally or refinance a property with bridging and then have the breathing space to sell or refinance again on a longer term basis. As a result, bridging has seen huge growth since the credit crunch really hit home, judging by the number of new bridging firms that have been raising their profile. This alone provides strong circumstantial evidence that there are plenty of takers for bridging products although reliable data on numbers of cases or volumes is hard to come by.
Bridging is definitely the product whose time has come because it provides the grease that oils the wheels for property transactions in the absence of alternative funding sources. It is perhaps not an accurate description to lump all short term funding as bridging, but in the same way packaging became synonymous with the activities of product and service distributors, even when the packaging part was no longer a critical part of the business, bridging has become a ‘cover all’ shorthand.
Intermediaries have not been slow to take advantage of the possibilities that short term funding has offered as alternative funding sources have disappeared or become very limited. The odyssey of this type of finance has continued from being a peripheral form of funding to a level of respectability conferred on it partly by the level of importance it has to the market generally at this time and also because it has evolved its key offering through recognising the prevailing mood for treating customers fairly. Already with a strong self-regulated trade body, the industry is already well placed for formal regulation. On top of that a number of players have already been granted or are waiting for confirmation of fully regulated status. This is a lending channel which is showing all the signs of growing maturity.
To add to the mix, short term lending has become even more multi-faceted with the arrival of lending secured not against property but against high net worth personal assets such as jewellery, luxury cars, fine art and antiques. What is so surprising is that it has taken so long for there to be an alternative asset class suitable as security for a loan. Lateral thinking would suggest that any decent asset, properly valued, should be able to provide sufficient security to raise capital. Yet it has taken a shortage of general liquidity in the marketplace and the restrictions required by a lending industry that has seen property valuations undergo a downward correction, to bring the alternative of borrowing against high end assets to the intermediary market.
At borro, we see this facility as providing further flexibility to the funding mix. Some brokers are already seeing that it can be used in conjunction with traditional bridging products as a top-up source. Because the borrowing is not based on income but solely on the asset value, its position as a non-status source of funds has been well received. It has proved to be a popular way to raise money when traditional secured and unsecured methods have been so severely curtailed.
For example, the property developer starved of funding to finish a development, landlords looking to generate cash for property refurbishment, business people with immediate cashflow problems, have all benefitted from using physical assets other than property to stand behind a loan. In my experience the broker market has always had a strong entrepreneurial streak and finding new ways to help clients is what distinguishes successful businesses from those who cannot change their thinking.
