April 2019
By Adam Tyler, Executive Chairman - FIBA
Plenty of choice for our customers
There is no comparison between today’s market and the one that emerged from the credit crunch of 2008, as during the run up to that time we had nearly 100 lenders to call on to help us place business. As the crisis reached its peak, the number had halved to less than 50 and that was stretching it really.
Today the exact opposite is the case. At a conservative count there are over 500 lenders involved in the sectors which make up the wider commercial finance space. Clearly, having such a wide selection of lenders is a huge positive and along with my colleagues in the sector, we have worked hard to champion the widest range of lending options for brokers.
But, as we work to add more of the lenders you want to see on the FIBA panel, the growing number of these funders coming into the market continues to present another challenge for the industry.
Although demand for SME finance is strong, we are fast reaching a point where, with so many new lenders entering, criteria and pricing can only be taken just so far to create a point of difference in creating demand. Two things are beginning to happen, which we all need to be careful how we handle.
Firstly, procuration fees and commission payments are beginning to edge up. Not a problem in itself if it remains realistic and transparent to the customer. However, those of us who were broking pre-2008, will remember the oversupply of lenders led to procuration fees, particularly in the residential sector, ending up out of control.
In 2019, one of the real differences is that we all work in a regulated environment and I would urge you to pay particular attention to this aspect of a lender’s proposition, particularly if they are not on the FIBA panel. I have always been a strong advocate for ensuring brokers are paid a fair sum for introducing business to lenders. However, as fees increase we need to remain vigilant that the customer is getting value for money and that our lender partners are not increasing their costs too much to pay for any uplift in fees payable at the outset of a loan.
Our regulator is already looking closely at the commissions earned in vehicle finance and this could be the start of a read across into the broader commercial finance sector, which could come under its own scrutiny at some point.
The second point is about lender criteria and underwriting. However, before I do, it is important to point out that in the majority of instances, lenders still carry out stringent tests before any funding takes place. But, we need to be particularly careful if you come across any lenders offering propositions, which require no more than the property as security. Asset only lending is fraught with danger, not only for the customer but also for the adviser recommending it.
Ability and intent to repay have, along with suitable security, been the watchwords of responsible lending, and non-regulated or not, we live in a regulated environment and anything that is likely to cause customer detriment, however long after the event, will be officially discouraged and the perpetrators could suffer consequences, which could make their future in the lending sector untenable.
There are plenty of lessons that we have learnt from our many years of experience that will mean we can continue to enjoy our industry in its current excellent health for a lot longer to come.