There is an old saying that there are few bank managers who have lost their jobs by saying ‘No’ to potential borrowers. So the fact that the banks appear to have turned off the taps when it comes to lending money shouldn’t be much of a surprise following the heavy cold they caught during the recession.
The economy needs money flowing freely in order to grow but access to borrowing has remained difficult since the recession ended with the big banks, in particular, becoming ever more cautious with their lending policies. Even where they claim to be willing to lend, deals are still not making it to first base because of the banks’ complex and rigid business models and a technical structure that is becoming increasingly unfit for purpose. For the big banks, lending decisions are governed by institutional criteria rather than entrepreneurial ambition.
Neither have they the ability to respond to one-off and special case borrowing needs. We can highlight a recent case where an elderly, retired Devon farmer who holds a very healthy asset portfolio and has banked with the same high street bank for over sixty years wanted a short term loan to facilitate a house purchase. He was turned down as the bank’s computer said ‘No’. Worst of all, there wasn’t even a local bank manager left for him to complain to. He looked elsewhere.
In response to the banks’ continued inability to adapt, the free market has responded, as it always would, with the development of a range of alternative lending platforms. Crowdfunding, crowd-lending or peer-to-peer lending is providing a useful platform to give investors a better return on their money than seeing it languish in a bank or building society. Platforms such as the Government backed Funding Circle, where the first 10% of any transaction is funded through the British Business Bank alongside institutional and armchair investors, has made loans of over £870m since it was established in 2010.
The big four banks in the UK are also under pressure from the so-called ‘Challenger Banks’, niche retail banks established to offer better and more responsive deals to small business and individuals. They are demonstrating sustained growth and don’t have the legacy issues that have shackled their bigger counterparts such as toxic mortgages and financial misconduct liabilities.
However, the investment they have made in building viable banking alternatives is now under threat amid claims that the new bank tax announced by George Osborne in his post-election Budget, will severely affect their ability to lend to small business. This will not only be a blow to everyone seeking greater competition in the market, but will be a disappointment to investors and borrowers who are looking for attractive alternatives.
Disgruntled consumers will also not be impressed by the initial reports from the Competition and Markets Authority (CMA) which is holding an inquiry into the UK bank account market. Whilst it does not recommend breaking up the big banks and confirms that ‘free-if-in-credit’ bank accounts are here to stay, it has managed to alert us to the fact that we actually do pay for our free banking through account fees, overdraft charges and forgone interest.
Crowd-funding and using the services of the challenger banks are not, however, the only alternative sources of borrowing at better rates and investing with higher returns. Bricks Financial, a new south-west based finance provider, specialises in sourcing safe loans and match financing them with investor money, and is a real alternative to the crowd.
Clive Banks, one of the four founding Directors of Bricks Financial explained: ‘Crowdfunding has revolutionised the way people think of raising finance but it isn’t the only alternative to big bank borrowing.
‘For instance, there are many occasions when wealthy people need cash for short term projects or to pay off partners and unravelling other investments to get at their money isn’t a viable option. Neither is the bank because these high net worth individuals often don’t have regular salaries and three years accounts to back their case.
‘Understanding the structure and security of the loan can be complex and not suited to a remote assessment by ‘the crowd’. And even the challenger banks are now huge with complex lending processes. However, borrowing through smaller firms can be swift and highly tailored to individual circumstances.
‘Typical situations where this specific type of peer to peer lending is appropriate includes property purchase or development, tax and Accelerated Payment Notices and divorce settlements.
‘Bricks deals directly with individual borrowers, using investor loans, not remote institutional money. Investors get good rates of return while borrowers are relieved that there is someone to take a realistic view on commercial deals.
‘Our business is firmly anchored in a highly personal and discreet approach and our process is simple and quick – in most cases a 24 hour turn round is possible. It does not rely on personal income or outgoings disclosure, with loans being secured by a charge on assets. We would be happy to hear from anyone with lending or borrowing requirements for periods of 6 months to 10 years.
‘We are local business people who care about local growth and want to put something back into the community by providing ethical and safe asset based lending. We are looking to grow our community of investors to help those looking for development finance. Our aim is to improve the return on investors’ cash by earning 7% interest on their deposited funds, against secured lending. All loans are secured by property with a maximum LTV of 65% to protect the investment that has a minimum entry level of £10,000.’
The offer is working. Examples include Bricks arranging a £140,000 bridging loan within 48 hours enabling a client to make a final payment on a yacht. They also approved and funded £700,000 within 10 days to kick-start a property development.
Founded by four successful entrepreneurs who are using their own money alongside other investors to support businesses and reward investors, Bricks has developed a model that is win/win for all parties. It’s growing because it is locally focussed and has already shown a high level of personal service, flexibility and responsiveness that big firms cannot match.
For more information visit www.bricksfinancial.co.uk