CFI: Opinion
There is a place for sensibly structured loans
by
Rob Lankey,
head of lending, Aldermore Commercial Mortgages
one of the defining char- acteristics of the recent eco- nomic slump is that it has not been caused by a lack of demand, but by a lack of funding. the lifeblood of the economy - cash - has been severely restricted by banks, who are currently more concerned with rebuilding their balance sheets and re- capitalising their operations, than in lending to the Brit- ish economy. the uK government has pumped nearly £1 trillion of support into the banking sector since the onset of the financial crisis. its rationale for doing so has been that without access to money neither British citizens nor
aldermore, we have a strong balance sheet, negligible bad debt, no reliance on wholesale funding and we’re actively lending. in fact i can confirm just
how surprised we’ve been in recent months by the na- ture of the deals we’re hav- ing presented to us. they are deals which, to be hon- est, we would have expected to go to the major clearing banks who would have been happy to agree the deals on the finest of margins, but that is simply not happening today.
What’s more, if the deals
are in any way unusual or require an element of inno- vative thinking in order to structure a loan which works for both the lender and bor- rower, then the traditional banks appear to be throwing out such applications with- out a second thought. to confirm, these are not marginal cases in terms of
“ There is a place for banks that can sensibly structure loans, not over- stretch on loan to value, and work in partnership with borrowers should difficulties prevail”
British businesses can spend and invest, both of which are essential activities if we want to see the economy grow. However, despite this mind-boggling amount of money being made available to uK banks, very little of it appears to be making its way through to small businesses who need it most. Speaking on behalf of
credit quality. this is per- fectly good business being submitted by companies that have simply found that their usual sources of fund- ing have dried-up. and, an- ecdotally, we hear that the main clearing banks are tak- ing longer to assess loan ap- plications and are being far more rigorous in applying their lending criteria than
40 mortgage introducer JUNE 2010
ever before. gone are the days of fast decision making and being able to exercise a degree of flexibility in order to help a perfectly good deal go through. the problem has also
been compounded by the withdrawal of a number of commercial mortgage lend- ers from the market. the financial issues being ad- dressed by small and medi- um-sized businesses aren’t simply to do with lenders being unwilling to lend, but also result from fewer lend- ers being active in the mar- ket. to use that well-worn phrase, it’s a classic ‘double whammy’. So what is the solution to
the current market woes? unfortunately, there is no quick fix and i would not be honest if i did not say that it could be another couple of years before small and medi- um sized businesses see an end to restrictive bank lend- ing. the banks that were once cavalier (some would argue they were bordering on reckless) in the past have
“ The harsh truth is that the majority of banks are still not committed to fulfilling their fundamental role, which is to lend money”
retreated, and as they assess their own problems, busi- nesses have suffered as they struggle to secure replace- ment funding. the high street clearers
are still lending money on ‘vanilla’ loans against prop- erty, but the problem with these transactions is that they generate very little prof- it for the people who invest in them. High street banks appear to have forgotten that businesses borrow money so that they can make a profit from the asset they are bor- rowing against, be it a small business buying an industri- al unit, or a property investor who is purchasing an invest- ment to generate a return. Business owners tell us
they want banks to return to a risk/reward model where a loan is structured for the benefit of the customer, rather than an anxious bank wanting to be repaid as soon as possible. if the loan doesn’t benefit the custom- er, why would they borrow the money in the first place? new banks don’t carry
the baggage of the property crash. We are not advocat- ing a return to the former excesses of the past and lessons from the credit crunch must be learned. However, there is a place for banks that can sensibly structure loans, not over- stretch on loan to value, and work in partnership with borrowers should difficul- ties prevail. Banks that don’t lend. it’s
an interesting concept but not one that i think is going to win much favour amongst small and medium-sized businesses.
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