8:00 AM, 27th November 2012, About 11 years ago 4
In my last blog about Commercial Lending Facilities I talked about my recent experience at the National Association of Commercial Finance brokers 20th Anniversary Celebrations.
I know for sure that many people will be shocked at my revelations that there are over 30 lenders currently providing property development finance and more so that the majority of them claim to be struggling to hit their lending targets. I asked the question in my last article“could it be that “self limiting beliefs” amongst lenders, brokers and perhaps more importantly, would be borrowers, are prolonging this recession?”
In this blog I will share my perceptions of what’s going on.
It is certainly no secret that many of the better known lending institutions have significantly reduced their exposure to lending. It’s not personal although it can certainly feel that way when a bank says no to what appears to be a perfectly logical proposal. It seems even more personal when a bank calls in facilities after having enjoyed a profitable and uncomplicated relationship with a business for several years. The reality in many cases is that lenders are under instruction from regulators to reduce their exposure to certain classes of lending and often the location of that lending. Therefore, some banks will happily do similar deals to those they will decline in other parts of the country. It’s these types of stories the press have been picking up on and reporting for nearly five years now. As a Nation it could be argued that we have been brainwashed into believing that nobody is lending, hence my reference to self limiting beliefs.
If we wind the clocks back just six years the mentality of borrowers was completely different. If the bank said no borrowers would simply look elsewhere. In fact, lots of businesses would regularly shop around to make sure they were getting a good deal even if their banks were lending. It wasn’t always about price either, some businesses just didn’t like having a new business manager every 12 months or so and being treated like a number as opposed to a valued customer.
As a result of the media based brainwashing I’ve described above I am seeing clear evidence that businesses are accepting no for an answer far too easily. I also suspect that several businesses are not even trying to find finance any more because they have been brainwashed into thinking that their search will be futile.
If only life was that simple! I asked this question of many commercial lenders I spoke to at the NACFB event and their answers included:-
Frustrating isn’t it?
These smaller lenders do well when the mindset of borrowers is not to accept no for an answer and also to shop around for better deals and relationship based banking than the bigger lenders offer. These smaller lenders tend to pride themselves on customer service and relationships but they need the bigger banks to be in the market for their business models to thrive.
The other self limiting belief amongst borrowers is based on price. For over a decade borrowers were exposed to unsustainable pricing models as a result of an over-heating in competitiveness. This became the norm for many businesses and the prospect of paying a lot more for lending or having to have a greater financial input into a deal is now perceived as a rip off or banks not wanting to lend.
So why aren’t the brokers advertising?
I am probably over generalising here but based on the alcohol influenced admissions of brokers that I heard towards the end of the evening have I’m left with the impression that they are too skint to speculate. They have have a very tough few years and whilst they are witnessing green shoots similar to those in 1997 they recognise it’s going to be a very long time before their earnings are back to the levels of 2003 to 2007. In the meantime they are living from hand to mouth, supporting whatever they can’t downsize of the legacies of their former business models. Perhaps the new blood in the market will do better but they don’t have the experience and contacts.
This is part two of my commercial finance blog