GROWTH
sustaining, so every year we have enough to make a medium sized acquisition.” Robert Nichols thinks there are two
issues involved in financing an agency at the moment. One, obviously, is the effect of the credit crunch, which pushed Edmund Cude into using private investors as a source of funds; “lots of professional contacts, and then contacts of contacts.” That was expensive, compared to bank funding, “but we had to look at that type of people, or we would have had no funding at all.” But, he says, there’s also a second factor,
which is company size. “It’s still a tough environment, but we’re a bit bigger now, which makes it easier to access finance. You need to be out of the small business regime,” he says, to have the best chance of securing funds. Where does a small business stop being
small, though? Robert Nichols puts it at £1m in turnover, and that’s the definition used by the British Bankers Association in its Code of Conduct. But the banks may use different cut-off points; for instance, Graham McKean, head of property at Lloyds TSB Commercial Banking, says he looks at companies with up to £15m turnover as part of his SME remit.
The bankers’ view
What are the chances of smaller agents getting funding for expansion from the banks? Mike Conroy, a senior manager in commercial banking at HSBC, says the banks on average approve around 80 per cent of requests for finance – though they are usually asking for security, which wasn’t always the case before the credit crunch. He believes one of the reasons for the perception of credit being difficult to get is simply that many small businesses don’t apply. But he admits that while the
bigger household names in the sector are well capitalised, “It’s more difficult for the smaller guys, and it would be fair to say the banks are treating any request for finance with more scrutiny than would have been the case some years ago.” Agents who want finance, but are handling only 70 per cent of the business they had a few years ago, will find it difficult to make a case given lacklustre prospects for the sector. But Graham McKean says of the property sector, “We’re active in it and
PROPERTYdrum JANUARY 2012 47
experience. Because they have seen a number of business plans in the sector, “They can check the sort of returns an agent says they will make in their business plan with what other agency firms are achieving,” and they will be able to advise on funding.
The problem with an estate agencies, is that though they may be a good business, they
have no collateral.’ eD MeaDe DouGLas & GorDon
we’re lending in it.” Lloyds TSB has increased its lending to SMEs in the property sector nine per cent year on year for the year to date, so credit certainly is available for the right projects; that’s a total of around £1.5bn a year, though that does include loans to investors and property developers, as well as agents. Robert Nichols reports fruitless
conversations with relationship managers at one bank who didn’t understand his business, and who he says, “didn’t have the authority to lend us what we needed.” However, Mike Conroy points out, banks generally have a central unit with expertise in particular sectors. So though a branch manager may only deal with a single agency, there are managers within the bank who have far more
Both Lloyds and HSBC claim that they are still lending to businesses.
The secTor? At Lloyds TSB, 100 managers have been dedicated specifically to the property sector. The bank has also signed preferred supplier relationships with the National Landlords Association ARLA and RICS, to support its lettings agent customers. “We look to understand the sector with a greater depth through our relationships,” Graham McKean says; “It’s a bit of a specialist approach. Since the property sector, of which estate agency forms a part, is a very important part of our business.” The bank has even been developing a
is iT The squeeze or
product specifically for lettings agents which allows virtual accounting for client accounts. “We want to make our customers more successful than they would be with any other bank,” McKean comments. Robert Nichols agrees that agents aren’t
being discriminated against. “I don’t think it’s sector specific at all,” he says, “it’s SME related. To do a small amount of lending, the overheads are large, so the banks either have to crank up the interest rate, or they need some kind of securitisation scheme.” He quotes the Small Business Loans Scheme, which seemed to offer Edmund Cude a good funding route, but says, “though it sounded like a good idea, no-one in the bank knew anything about it.” One issue estate agents often face is that of finding security for loans. Ed Meade
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