At some point, most companies will need to borrow money, whether it’s to fund the growth of the business, to manage cash flow or to purchase new equipment. There are plenty of business loan lenders in the market, but it’s important that you take your time to find the right product for your business. Below, Gary Hemming, expert at ABC Finance, outlines for Finance Monthly the basic considerations to make when looking into getting a business loan.

Finding the Right Type of Business Loan

The first step in securing funding is to take time to understand the different types of business loan products. The easiest way to do this is by speaking to an experienced business finance expert, ideally a whole of market, fee-free broker.

The different products available tend to have very different costs, both in terms of monthly repayments and the total charge for credit.

Calculate Your Budget Upfront – and Stick to it

Most lenders use computerised risk profiling systems to calculate the interest rate of each loan. This means that the rate charged can end up much higher than the lenders advertised ‘headline rate’.

As the expected costs can gradually creep up as the lender sees things that they feel increase their risk, setting a budget is key. A number of small steps up in the proposed monthly repayments can lead to you taking on a payment that is really stretching the limits of being affordable.

You can protect yourself against this by setting a maximum repayment upfront and sticking to it. Be prepared to walk away if the risk of taking out the loan outweighs the benefits.

Make Sure You Have the Documents Needed to Apply

Although each lender has their own requirements, there are some common documents that are almost always needed. These are your business bank statements and trading accounts.

Lenders will usually need 3 months business bank statements. These can either be scanned and certified by a suitable professional, or PDF copies downloaded via online banking.

2 years accounts are requested by most lenders, with PDF or scanned versions usually accepted. If your business does not have 2 years accounts, the lender will usually want as much evidence of trading performance as possible.

Management accounts will strengthen your application where accounts are either unavailable or if the latest accounts are more than 9 months old.

Be Clear on How Long You Need the Money for

There are a number of unsecured business finance products available and they all work in slightly different ways. It’s important that you’re clear upfront why you need the money and for how long.

If a cash injection is needed into the business and there is no large event upcoming that will be used to repay in full then a business loan is a strong option.

Where funds are being used to specifically fund a large one-off order, or contract, then there may be better options available, such a trade finance.

Equally, if you’re looking for a facility that can be used longer term and that will grow with your business, a business loan may prove too inflexible. In that case, revolving credit facilities and invoice finance may well be better suited to your needs.

An experienced broker will be able to advise you on some of the most suitable finance products for your needs within a few minutes of your initial chat.

Once You’re Completely Comfortable - Apply

Once you’re completely comfortable, and only then, apply for your business loan. If you apply with multiple lenders, you will be credit searched by each one on application.

Although it can seem like a smart move as you will get quotes from more than one lender, too many credit searches can actually reduce your credit score. To prevent this from happening, it’s important that you take a more measured approach.

You can do this by understanding the lender's criteria and interest rate bands – the rates charged depending on the risk presented to them – upfront.

Once you’ve found what seems like the most suitable, and likely cheapest option, apply with them first, while your credit score is at its strongest.

Finance Monthly hears from Linda Moneymaker, Branch Manager and Loan Officer at Anderson Brothers Bank’s Summerville office, who introduces us to the bank’s history and tells us what makes it the preferred choice among clients in South Carolina.

In 1933, Mr. Ernest Anderson and his brother, Mr. Bishop Bonar Anderson, responded to the needs of several tobacco warehousemen from Mullins, South Carolina who requested financial assistance. The two brothers established Anderson Brothers Bank in the back of the Anderson Warehouse in Mullins. This small office was used to loan money to warehousemen so they could issue checks to farmers immediately following the sale of tobacco. Loans were paid off as tobacco companies such as Reynolds, American and Imperial paid the warehouses several weeks later for the tobacco purchased. The small office quickly evolved into a depository and eventually moved to Main Street, across from the Bank’s present main office in Mullins. Today, under the leadership of Mr. Ernest Anderson’s grandsons, Anderson Brothers Bank remains family-owned and operated. David E. Anderson serves as President and CEO, joined by his brothers Neal, Chairman of the Board, and Tommy, Vice President.

Anderson Brothers Bank has grown from a small operation in the back of a tobacco warehouse to 22 branches throughout the Pee Dee, Coastal and Lowcountry regions in South Carolina with over $650 million in assets. Despite our continuous growth, we have remained committed to our customers by providing innovative financial products and services that meet their needs, while also being heavily involved in our communities through outreach programmes, sponsorships and donations to civic organizations.

Before joining the Anderson Brothers Bank team in March 2017, I spent 20 years in Banking and 13 years in Consumer Finance, holding positions from entry-level customer service to management. When Anderson Brothers Bank decided to expand into the Summerville area with a brick-and-mortar location, they asked me to consider joining their ‘family’ as Branch Manager. I knew it would be a welcoming change to be empowered to help my customers. Over the course of a year, we have hired great talent and we continue to integrate successfully in the competitive Lowcountry banking market. Our customers even tell us that we are ‘the friendliest bank in town’ in which we take great pride.

Through my years of experience, I have found that listening to my customers so I can fully understand their needs is the key to my success. As a matter of fact, I am blessed to have customers refer their friends and family to me based on how I treat them from the moment they enter our lobby. This is also part of Anderson Brothers Bank’s motto of ‘treating you like family’.  Above all else, I realise my achievements as a Branch Manager and Loan Officer is a result of a team effort at ABB.

Our Summerville branch’s strip mall location is the first of its kind with Anderson Brothers Bank and is related to cultural influences by this generation of consumers who require less face-to-face interaction and increased mobile and online banking. While we provide a wonderful, friendly lobby atmosphere in which to bank, we also offer innovative mobile and online banking, online mortgage application and will soon offer online account opening and a deposit-taking ATM in place of the standard ATM in our branch parking lot. Anderson Brothers Bank has built its reputation on helping individuals, families and businesses as they journey along life’s path and, here at the Summerville branch, we strive to maintain that status. While larger, corporate banks continue to acquire smaller, hometown banks, we remain family-owned, a place where employees know our customers by name and business is often conducted on the strength of a handshake.

Website: https://www.abbank.com

Iwoca has found that female applicants are 18% more likely to repay small business loans on time than their male counterparts. Women-led small businesses make up an estimated 20% of iwoca’s customers and it has supported an estimated 2,400 women business owners in the UK with almost £50 million in lending since its launch in 2012.

iwoca uncovered the data in response to a study by the Federation of Small Businesses (FSB), which found that a quarter of female small business owners cite the ability to access traditional funding channels as a key challenge, with many relying on alternative sources, such as crowdfunding, personal cash and credit, for growth.

While this technology-driven risk platform draws on thousands of data points to make credit decisions, gender is not included. iwoca’s data scientists were able to calculate gender-based statistics on loan repayment rates by checking customer application forms for self-identified female titles and then comparing the approximate default rates for both cohorts.

Christoph Rieche, Co-founder and CEO of iwoca, said: “More can be done to narrow the entrepreneurial gender gap in the UK. Making it easier for women to access business funding would go a long way to achieving that. Sadly, the reality is that banks are withdrawing critical finance from across the entire small business sector and unless the Government takes action to encourage greater competition that will allow alternative providers to fill the hole, women will continue to be at a greater disadvantage from an unfair system, regardless of their higher propensity to repay on time.”

(Source: iwoca)

Following a 66% share drop, hundreds of thousands of families that lend off Provident Financial have been placed in limbo, as the firm collapses due to a glitch.

According to reports, a software bug made it impossible for Provident Financial, a blue-chip FTSE 100 company, to collect debts from clients. This resulted in a 66% drop in shares within a day, bleeding £1.7 billion out of the Bradford based company’s gross value.

It’s now considered to be the biggest ever one-day stock price fall for such a firm. The company CEO, Peter crook, immediately resigned. The whole ordeal has also resulted in several investigations and the axing of its dividends.

On top of this, the 137-year-old company’s customers, mostly vulnerable low class families with very little income, will be affected.

The software that created the bug was introduced following a £21.6 million overhaul of the firm’s doorstep collection business, which collects customer debts on loans with up to 535% annual interest. A rehiring of staff fell flat and failed the firm, then an appointment system software that was introduced also failed to improve efficiency, all in all letting the company down when it came to meetings with clients, and therefore slumping profits.

According to the Daily Mail, Chairman Manjit Wolstenholme, who has taken over the daily responsibility of the company after Crook resigned, said: “We’ve got people on the ground, but we have issues with the software being used by them. Agents are turning up at the wrong time when customers aren’t there.

“It’s not behaving because the data that’s in there isn’t good enough for what we need to do. This is something we should be able to do something about.”

Mortgage sales for the UK decreased by £1.8 billion in July, down 10.8% on the previous month, according to Equifax Touchstone analysis of the intermediary marketplace.

Buy-to-let figures were resistant to the general decline, down by just 0.2% (£3.9 million) to £2.6 billion, while residential sales dropped by 12.8% (£1.8 billion) to £12.2 billion. Overall, mortgage sales for the month totalled £14.8 billion, up 10.8% year-on-year.

All regions across the UK suffered a significant fall in sales. Scotland suffered the biggest slump of 19.8%, followed closely by Northern Ireland (-18.5%), and the South East (-15.4%).

John Driscoll, Director at Equifax Touchstone, said: “These figures show how volatile the mortgage market can be. Sales have tumbled in July, with every region suffering substantial declines as buyers are put off by continuing political and economic uncertainty, coupled with the worrying gap between inflation and wage growth. These circumstances may be further compounded by the potential for an interest rate hike as early as September, driven by continued pressure on the pound.

“On a more optimistic note, mortgage sales are up over 10% year-on-year and a dip in sales for July is not uncommon; however, as the summer period comes to a close, the long-term outlook for the market still remains very unclear.”

The data from Equifax Touchstone, which covers the majority of the intermediated lending market, shows that the average value of a residential mortgage in July was £199,286 (2016: £188,115) and £159,721 for buy-to-let (2016: £158,415).

Equifax Touchstone utilises intermediary and customer profiling tools to provide financial services providers with a detailed understanding of their marketplace and client base.

(Source: Equifax)

Here Chris Labrey, Managing Director UK & Ireland for Econocom talks to Finance Monthly about the management of long term payment models and how they can play a part in the implementation of cyber security measures.

If businesses have learned anything over the past few weeks, it is that the issue of cyber security has never been more important. Despite the severity of the WannaCry incident — which started off affecting numerous NHS trusts across the UK and evolved into something that affected computers in more than 100 countries — it was a stark and much-needed reminder that no business can truly count themselves as safe, no matter the area or industry.

For those working in the legal sector, the unfortunate truth is that they are more vulnerable than most. On a daily basis, lawyers, barristers, solicitors and more are dealing with highly confidential information — the kind of information that is extremely valuable in the eyes of online hackers. If these individuals were able to infiltrate IT systems and seize this data, the consequences of it being leaked could be disastrous.

With this in mind, it is essential that all law firms put sufficient security measures in place, but there are several obstacles that make this process more complicated than many first anticipate. Firstly, the necessary tools for comprehensive protection often require a significant capital expenditure investment, and many firms struggle to pay this without any negative financial repercussions. What’s more, it is not uncommon that this money comes straight from the pockets of the partners, which results in additional strain for those looking to take a proactive stance against the cyber threat.

Even if the majority of firms could afford to pay the considerable one-off payment to protect themselves, they often fail to consider whether they have the sufficient resources to manage and maintain these various tools and systems. Security is not an automated service —it requires staff that are on-hand to monitor and detect any potential vulnerabilities and then decide on the appropriate action to resolve the issue.

However, flexible payment-over-time models represent a solution that makes the process of deploying these security measures much easier — a solution that reflects our 21^st century ‘renter society’ sensibilities, and is being realised by security-conscious law firms. Just like many of us pay for our mobile phones or cars in monthly instalments, the legal sector is beginning to reap the many benefits of using such a model to pay for cyber security protection.

Firstly — and perhaps most obviously — the model means there is no need for a large, one-off payment if businesses want to guarantee protection: instead, the cost is divided into smaller, more manageable chunks that are paid over a pre-determined period of time. Suddenly, the financially-induced headaches that many partners and firms suffer from are alleviated, allowing them the freedom to breathe and implement these new measures without any disruption to regular operations.

Payment-over-time models are also extremely valuable thanks to their flexibility. As the cyber threat continues to evolve and hackers devise new ways of infiltrating IT systems, businesses within the legal sector can continually refresh and future-proof their security measures to ensure they are constantly protected. Outdated systems can be swapped out for state-of-the-art replacements, without having to make another potentially crippling capital expenditure investment.

Fast-growing businesses within the legal sector are understandably wary of spending any significant amount of money on IT systems, especially if they find themselves doubling the size of their workforce in 12 months and find that the systems they spent so much money on are no longer sufficient. Payment-over-time models eliminate this problem entirely, as they allow businesses to scale their estate up or down according to specific business needs and requirements. This approach allows businesses to match the investment costs with the business benefits over time.

The threat of cyberattacks is only going to continue to evolve over time, and so the legal sector is left with no choice but to invest in the relevant security measures to protect themselves. If they fail to do so, they risk enormous financial and reputational damage, as well as the obvious loss of any data that is seized in the process. While putting these measures in place might have previously been tough for many law firms, the popularisation of payment-over-time models is the much-needed lifeline that they need to survive during these tough times.

John Mould, Chief Executive Officer of ThinCats, shares his thoughts with Finance Monthly on the ins and outs of loan grading, also known as loan scoring.

Credit scoring in the wider world is well documented, and loved and hated in equal measure. But when it comes to accurate analysis in the alternative finance industry, there is huge variability across the platforms.

Because the direct lending industry is relatively young within the finance sector, few platforms have had the chance to build up data-rich, seasoned loan books to use for developing risk prediction models. As a result, many rely on scorecards developed using information from the wider UK universe of companies, partner with credit reference agencies, and use a mixture of off-the-shelf credit risk scorecards, their own metrics and human judgement.

Commercial Credit Data Sharing (CCDS) is expected to kick off later this year; a scheme launched in April 2016 that requires nine major banks to share credit information on all their (willing) SME clients, furnishing finance providers, including alternative lenders, with a wealth of current account and credit information not previously available. This is expected to provide a considerable uplift in the accuracy of credit scoring models over time, and hopefully will facilitate the alternative finance industry in serving a host of currently overlooked smaller businesses.

However, it is not as simple as just having access to information; not all grading systems predict the same event. Some are calibrated on publicly-available data, to predict formal insolvency events; others are trained to predict all forms of company closure, insolvency and dissolutions; still others are trained on proprietary (i.e. not publicly available) customer data, including events such as late payments, not necessarily associated with insolvency, as practiced extensively by the main banks. This is the current challenge that data scientists face: building risk models that predict very specific outcomes; accurately reflecting investors’ experience of risk and return, but also affording borrowers fair and objective assessments.

ThinCats has allocated a considerable amount of time and resources to these issues, and the company is in a position to give UK SMEs more than just a number crunching, ‘computer says no’ experience, whilst also protecting the interests of the lenders.

As a secured lending platform, investors’ risk exposure and net returns are driven by both default risk and the ability to recover capital given a default. The ThinCats grading system makes the distinction between these two risk components, providing every loan on the platform with two grades; a number of security ‘padlocks’ and credit ‘stars’.

In order to produce these relative gradings, multi-layered processing models have been developed in-house. The credit grading model consists of an in-depth analysis of the company’s financial health, the ‘Hybrid Financial Score’ and its dynamism, the ‘Dynamic Score’. These scores are combined through multivariate analysis of the observed levels of insolvencies within the calibration data set (approx. 500,000 borrowing companies in the UK) to give a rating of one to five stars for each applicant. Over time, specific information about P2P defaulters as a differentiated segment, will be integrated into the model.

This is complimented by the security grading, represented by a maximum of five padlocks and determined by the asset to loan ratio, based on the value of the borrower’s assets relative to the outstanding loan amount. All loans listed on the ThinCats platform are then professionally qualified by the credit team.

This all combines to produce an award-winning analysis of information, ensuring that businesses looking for loans are given a fair and balanced hearing, and that investors know that each loan has been thoroughly assessed and vetted based on the most accurate information available; a complex system, but one that proves beneficial for borrowers and lenders alike.

The UK Car Finance market has grown aggressively over the last few years, fuelled in part by innovation and a growing ability to serve the sub-prime market.

Car-buyers have a number of options now available to them if they’re unable to be a cash-buyer – including Hire Purchase, Personal Loan and the newer Personal Contract Plan.

But flexibility on purchase options is only part of the reason for the strong growth in the market.  Car Finance companies have also embraced technological innovation to help them broaden their market into the sub-prime sector – i.e. those customers who have an impaired credit history and won’t be able to access finance from the high street banks at their leading rates.

The sub-prime lending market has always been eyed with both desire and caution by finance providers – on the one hand the sub-prime market offers the ability to charge higher rates of interest, on the other hand, the sub-prime borrower market, by its very nature, carries with it a high risk of default. Get the model right and a lender can make handsome profits, get it wrong and the bad debt rates can force a lender out of business.

The car finance market is slightly different to the personal loan market in that during most of the finance arrangements available, the finance company technically retains ownership of the car so can repossess the vehicle if things go wrong with the loan repayments. Traditionally though that was easier said than done – finding the car when the borrower knows the loan has defaulted may be tricky.

The introduction of technological solutions have helped finance companies not only track and locate vehicles but also ‘encourage’ the borrower to keep up the payments under their finance plan.

Immobilisers are often fitted to vehicles, particularly those financed in the sub-prime sector – i.e. those that present the highest risk of the borrower not keeping up the repayments – and they’re clever pieces of kit. Every month when the finance payment is made the borrower will receive a unique pin code to enter into the immobiliser. Fail to make the payment and enter the correct code, the immobiliser will kick in and the car won’t start. What’s more, the Immobiliser will also act as a tracking device making it much easier for the finance company to repossess the vehicle.

So at a stroke the finance company has a) heavily incentivised the borrower to keep paying (or their car won’t start) and b) made it much easier to recover the security for the finance.

The sum of which means that defaults and write offs are down, so the finance companies can be a lot more confident opening up to the illusive sub-prime credit market. Allowing more people to finance a car purchase than would previously have been able to.

All well and good? Well, certainly from the point of view of the finance companies (who book more loans and keep defaults to a profitable level) and the dealers (who get to sell more cars). But what about from the customer’s point of view?

At face value it looks to be good news for the customer, particularly those in the sub-prime space, as more customers are able to access a finance product for their car purchase. But, if the default rates are lower and repossessions are lower (and therefore write offs) – are the interest rates also lower?

A quick look at the top ranking sites on Google for ‘Car Finance’ found a Representative APR of 49.6 for applicants with bad credit – for a £5,000 loan over 4 years that’s a total interest of £5,236.

The interest rates charged cover the costs of providing the finance, including off-setting the loans that ‘go bad’ and are not repaid, and providing the lender with a return for its investment. The rate charged can be roughly translated into the risk represented by the borrower. The lenders have found technological solutions to reduce the risk of defaults and write-offs but still point to a borrower’s credit history to determine a level of risk – which justifies the high interest rates.

There is no regulation forcing a direct correlation of profit levels and interest charged but as we know, a highly profitable sector in financial services quickly attracts profiteering companies eyeing a quick (or large) buck. To keep this growing market buoyant but sustainable the lenders will need an element of self-regulation (and self-control), perhaps forgoing some of the bigger short term gains and passing on some of the profit to borrowers in the form of reduced rates.

(Source: Talk Loans)

Following talks in Brussels, the Greek government has agreed to unlock a further €10.3bn (£7.8bn) in loans from its international creditors, who have also agreed on easing the debt burden of Greece which totals €321bn (£245bn) - worth 180% of the country’s annual economic output. The tranche of bailout funds will be split into two payments: €7.5bn in June and €2.8bn in September. The European officials plan to extend the repayment period and cap interest rates.

However, the debt relief plan is far from the ‘upfront’ debt relief that The International Monetary Fund (IMF) has demanded. Poul Thomsen, director of the IMF’s European programme, said the IMF had made “a major concession”. “We had argued that (debt relief measures) should be approved up front and (now) we have agreed that they should be made at the end of the programme period.”

Germany was in opposition to the ideas about the debt relief, expressing beliefs that a debt relief could not be considered before the end of Greece’s current €86bn bailout programme in mid-2018.

"We achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme," said Jeroen Dijsselbloem, President of Eurogroup. He added that the package of debt measures would be "phased in progressively". This review was the first one under Greece's third eurozone bailout, secured in August 2015, after which Greek Prime Minister Alexis Tsipras called a snap election. This move happened only two days after the Greek parliament approved another round of tax increases and spending cuts, that were demanded by the creditors.