Funding report: Branching out
If you could step into a time machine and zap back to the day the very first issue of Lancashire Business View came off the presses 17 years ago, you’d find yourself in a very different world.
These were the heady days of bank branches on every high street, with managers who were part of the community, knew customers by name and had the power to say ‘yes’ or ‘no’ to overdraft and loan applications.
It was long before the likes of online banks, apps, Paypal, peer-to-peer lending, crowdfunding and fintech. Cash remained king for most and the cheque was always in the post.
There has been much debate about the retreat of the big banks from our communities. But were things really better back then? They were certainly different.
Paul Spencer, director at Haworths Chartered Accountants, says: “Banks were the dominant lender. Businesses had a long-standing bank manager who would understand their operations and even have relationships with some of their local suppliers and customers.
“This provided comfort value to the bank, with managers empowered to make decisions themselves up to a reasonable level. They delved into a business, spotting its potential and recommending services that would fuel its growth.
“But as with most things, the rise of internet convenience over customer service meant that soon, it was too costly for banks to continue delivering a face-to-face service across the board to businesses of all sizes. Their presence on the high street shrank and in turn, led to a huge growth in alternative providers.”
Crowd funding is also a fantastic way for investors to feel like they are actively a part of something
He adds: “From crowdfunding and fintech, to peer-to-peer lending and online only banks, lending is so different today that in some cases you can make an application in an evening and have the money in your bank the next day.
“It’s created a pyramid comprising of a vast array of lenders, with those at the bottom demanding higher rates.”
Paul believes that, whether due to the multiple recessions of the last decade, the Covid-19 crisis or both, businesses seem far more comfortable operating in debt than ever before.
He points to figures that show that in the last 12 months, there has been the same amount of lending to businesses than in the last eight years.
And he adds: “We’ve been living in exceptional circumstances, of course, but so few companies seem to have enough capital in their banks to survive a storm without borrowing.
“It has an ongoing impact on banks, too; the spike in lending and state of the economy will make them even more selective in who they lend to, and my prediction is that they will take a step back and allow alternative lenders to carry the risk while they focus on larger clients and collecting in what they’ve lent out in the last 18 months or so.”
Jamie Grimshaw is Preston based investment executive at FW Capital. He joined the fund management company after 21 years in banking, predominantly as a relationship manager in a commercial team. He has witnessed the changing landscape first-hand.
He says: “It has changed phenomenally. When I started my banking career, I began on the counter seeing customers in person as they paid their cheques in. You got to know your customer and got a real feel for your customer base.
“If you wanted a business loan you had to come into the branch and speak to a person. Long-lasting relationships were made; there was trust there.”
Jamie says that banking compliance and rules have also increased over time, with banks less inclined to offer overdrafts than they used to be. He also points to the rise of invoice funding.
He adds: “There are fewer and fewer relationship managers in banking these days. A lot of new businesses don’t actually have a great relationship with their bank because it has not been there from day one when they opened their account online.”
And he believes banks are “missing a trick” by not having a longer-term view of relationships and having people on the ground with local knowledge.
However, he points out the “massive difference” alternative lenders have made. “The market is awash with people who will provide you with money”, he adds.
“In terms of choice it is better. People have much more variety now and they don’t have to be stuck with the same options that they use to be.”
Benjamin Dredge, head of corporate and commercial at law firm CG Professional agrees. He says: “The availability and great number of options and structures for finance is something which stands out.
“For clients seeking to fund corporate acquisitions, we have seen a significant increase in funding options, with a wide variety of different funders looking to back those with a proven success in a sector or in delivering an ambitious ‘buy and build’ strategy.”
Andrew Dunn, relationship director at the firm, adds: “During the pandemic, I spent time with an ever-growing list of funders in the market who can provide alternative and more flexible options for business owners.
“Traditional sources of finance have become increasingly complex, therefore for those not familiar with the funding market, it can be difficult to navigate.”
Heather Waters is regional ecosystem manager at NatWest. She says: “With the digital world constantly changing, it is a not a surprise that funding streams and access to finance have also evolved.
“And whilst traditional bank loans are still very much a part of this, many businesses are looking at other options.
“For example, crowd funding was virtually non-existent 10 years ago but for many start-ups or charities it has been a lifeline in terms of being able to operate or grow.
“Crowd funding is also a fantastic way for investors to feel like they are actively a part of something.”
When it comes to technology, she says it has benefited bank customers. “Applying for traditional bank loans has become easier from a convenience standpoint. At NatWest you can an apply online 24 hours a day via our website or mobile app.
“If you are unsure of what type of loan is right for you or your business, there are resources online through The Northern Powerhouse Investment Fund (NPIF) or the British Bank with information about what is available. You really can get everything you need via the internet.”