Fixing The Rate Of Your Commercial Mortgage – The Ship Hasn’t Sailed

 

A few days on from an interest rate hike I’d ask you whether the benefits of looking to fix the rate of your commercial mortgage still outweigh the down sides – and suggest that they do.

From twelve months ago, when the Bank of England was sounding out banks and financial services companies on how prepared they and their systems were for the chance of a negative base rate, we evolved to an economy as we transitioned out of the pandemic restrictions of heated demand and shortness of supply – also called inflationary pressure.

A near perfect storm of contributing factors are driving a seemingly endless upward pressure on costs:

•       Demand outstripping supply of almost every raw material
•       Delays in materials and manufactured goods in the supply chain globally
•       Record freight costs, and restricted availability of freight, to get the same goods and materials to the UK
•       Chronic shortage of HGV drivers within the UK to distribute at all stages of the supply chain
•       Combination of factors has driven energy costs up – and these are still rising
•       Several sectors of the economy suffering chronic staff shortages and an inability to recruit

As I write this we are heading back into another possible economic storm caused by the new rapidly spreading Covid variant, Omicrom. Already hospitality, retail, events and entertainment sectors have had the rug pulled from underneath them when entering their busiest period of the year – the path back out of the pandemic period is again not a straight one.

Cost pressures are feeding through to virtually every business in the economy – and these are not costs that UK companies have much if any control over at all. And that brings me back to my question – is it still a good time to fix the rate of your commercial mortgage?

If you feel that inflationary pressures are going to mean that the next move in rates will continue to be upwards, then fixing your mortgage at a currently available fixed rate would make sense.

And when we talk about price rises – energy prices up 4 to 6 times, and many materials up 20%, 30%, 50% or doubling – then the 5% CPI number for November would seem to be a very modest number that has to move higher in the coming months?

But psychologically, fixing your commercial mortgage rate is exerting control over a major cost to your business – not to mention the physical roof over your business!

If you are budgeting and forecasting for your business for the coming year in 2022, then unfortunately with some costs you might be as accurate with a coin toss as a calculator; but with a major cost like the mortgage fixed for a 2 year or 5 year term (or longer) you would be adding accuracy to your budgeting, and hedging against future interest rate rises that would immediately add to the call on cash flow to your business if you are on a variable rate mortgage.

Which takes us full circle to the question of whether the upside to fixing the interest rate on your commercial mortgage outweighs any downside.

Many of our clients are applying personal finance logic to their commercial mortgage decisions – and deciding that fixing the rate now removes the risk of increased costs if interest rates continue to rise, at a time when they already face so many increases in costs that they have no control over.

 

We help clients source the best commercial mortgage solution for their business from our whole of market panel of lenders – why not let us help you fix the cost of the roof over your company?

Mark Grant, December 2021.

mark@fiduciagroup.co.uk

Run A Business? Resolve To Give Yourself A Break This New Year.

 

Like everyone, I am hoping that the major supermarket chain’s advert “This Christmas, nothing’s stopping us” is spot on, and the Omicrom variant does not require further restrictions to come in to force that would limit our ability to spend this year with family and loved ones.

The decorations have been up for a couple of weeks at our house, and my thoughts have turned to New Year’s. 

And not where the evening is going to be spent and who with, but what I will be giving up on January 1st, and how many hours or days until I break this year’s resolutions.

And over the month of December, I don’t go through this ritual alone; no, I will join the office or WhatsApp banter about what I am giving up and how this will be the year that I stick it out – and as usual I will place the side bets that I will stick at it longer and more effectively than the colleague/friend concerned.

Ironic really, as most of the gambling is done as I am pledging to cut down on…erm, a flutter on the football; or the number of kilos I will shed is inflated and thrown out there as I wipe the crumbs from my mouth of the latest mince pie I am sampling. (Why believe the Which? survey when you can buy a box of mince pies from every supermarket and eat them yourself?)

I question, and have come to the conclusion, that New Year’s resolutions in this format are actually bad for us: I do myself so much mental self-harm during the aftermath of the latest ‘epic fail’ at sticking to them that I would have been better doing everything in moderation in the first place. I’m fairly sure that the excess in the run up and the resolution fail are fairly equally balanced in terms of damage to me!

What I need to do is give myself a break. One drink doesn’t mean I need to prop up the bar the whole of January. A couple of left-over chocolates don’t mean that I should carry on eating sweets for the whole month – because I will still be having a very healthy month by recent standards if I just get back on with my resolution.

Business owners and management must approach the end of 2021 with the same trepidation. No matter how well laid the plans have been this year, the utterly unique and unpredictable nature of the economic environment has made it virtually impossible for companies to have the right plans and preparations in place for whatever happens next.

Case in point: Demand. Who foresaw the simultaneous scale of global demand leading to chronic supply chain issues in the ‘just in time’ model – combined in the UK with the fallout from the Brexit trade deal having completed; suddenly whole sectors of the UK economy faced staff shortages and there was a lack of haulage drivers to deliver the goods and materials that we could source.

You only have to look at the last two weeks to confirm that the one certainty of 2021 is that you cannot be certain of what comes next, and of exactly how that will affect and impact you: 11 days ago additional mask wearing in shops and on transport was going to be followed by an update in 3 weeks – 4 days ago we were urged to work from home again…

But I do believe that if we break down our company resolutions into manageable pieces then we can identify a path through pretty much whatever gets thrown at us.

By this I mean don’t just have one strategy, one set of targets, one ‘Plan A’ if you like, and if something derails that two weeks into January just throw your arms up in acceptance that you have been knocked off your chosen course – and accept whatever happens to you as a result.

We have seen this year that the companies who have fared better are those that have been pro-active and have tried to get ahead of the game to find out what their options are, what is available to them and how to make the most of the situation that has been forced on them.

We are looking at 2022 as the year of the company that has the resolve to trade their way out of the appalling economic conditions that the pandemic has inflicted on us, but that has a flexible approach to how they achieve that. One slip, one bump in the road, one resolution in their strategy that is not kept through their own fault or events beyond their control, will not derail their end game and targets.

Business owners and directors have to give themselves a break when things change out of their control next year, because what might have been a ‘given’ in scenario analysis historically cannot be relied on to repeat itself in 2022.

There are too many unknowns, too many consequences of those unknowns – the only positive response will be to have the flexibility to adapt to the new reality and move forward again from there.

Flexible resolve will put you in a position to always quickly adapt to the ‘Plan B’ that at New Year’s you didn’t even realise that you needed yet – but business will need this flexibility and positivity to keep the direction of travel forwards. (And like the Government, it may be a good idea to have a Plan C and D up your sleeve too.)

So, I will practice what I preach, and one custard cream won’t mean I have to beat myself up like I haven’t eaten the whole biscuit tin. Just like your business shouldn’t halt due to a cancelled order, staff absence or supply chain delays – have the flexibility to see past that issue, adapt to whatever the new reality is and stick to those resolutions as closely as you can.

And give yourself a break.

 

Mark Grant, December 2021.

mark@fiduciagroup.co.uk

FIDUCIA’S COMMERCIAL FINANCE SOLUTIONS

 

A Guide To Our Range Of Commercial Finance Solutions For Trading Businesses From All Sectors, Property Investors and Developers.

Fiducia Commercial Solutions can source a wide range of commercial finance options for your company in products under headings like Commercial Property, Investment Property, Development Finance and Business Finance – but what does that mean in practice?

Gone are the days of approaching your bank (as your only option) and choosing from the menu items of: Overdraft – Loan – Mortgage.

To source the best outcome for your requirements, and a suitable solution for you, we use a whole of market panel of lenders:

•       High Street Banks
•       Challenger Banks

•       Product Specialist Lenders
•       Peer To Peer

•       Fintech

Some of our lenders you may not have heard of, some only deal with commercial brokers and some of their products and rates are exclusive to the commercial broker channel.

This is a guide to the commercial finance solutions that Fiducia can access for clients – we can of course go into more detail when talking through their suitability for your business, and your eligibility for the lenders’ criteria.

Many can be used to manage and conserve cash flow, and to help you trade out of the current environment or manage demand in ways that you may not have previously thought about.

Commercial Mortgages

Commercial Mortgages are used to fund the purchase, or refinance of, commercial and semi- commercial properties. In general terms, there are 2 types of Commercial Mortgages:

•       Owner Occupied - The purchase or refinance of the property where the company is currently operating, or the purchase of a new property to move to and operate from.
•       Commercial Investment - The purchase or refinance of commercial or semi-commercial property which will be rented to another company to operate from – essentially a commercial Buy To Let.

Residential Investment / Buy To Let

An investor may purchase, via a limited company (“Special Purpose Vehicle” or SPV), an investment property as part of a long-term investment strategy. These range from a single property to building a portfolio of properties, BTL's to HMO's and MUFB's.

Bridging Finance

Short-term property finance with faster completion compared to traditional mortgage finance; the ‘Exit’ from the loan is commonly the sale of the asset, or long-term re-financing.
Multiple uses: auction purchases / requirement to purchase quickly / refurbishment and development periods / releasing equity to raise working capital.

Development Finance

Finance terms available vary according to the initial value of the property / land, the costs and fees of the development work, the projected value of the completed development and your previous experience of development. Variants include:

•       Light Refurbishment - Cosmetic refurbishment with no structural changes.

•       Heavy Refurbishment - Contains cosmetic work, but usually renovation work including structural changes or changes to the footprint of the property.

•       Ground Up Development - Commonly starts from vacant land, can include demolition and rebuild projects.

Recovery Loan Scheme

Open For Applications to June 30^th 2022 - The scheme replaces the government's original business support loan schemes - Bounce Back Loans, CBILS and CLBILS:

•       Term Loan funding starts at £25,001, up to 6 year terms

•       Invoice and Asset Finance starts at £1,000

•       Commercial Mortgages, Investment Mortgages and Bridging Loans also available under the RLS

The scheme is limited to £10m per company, or £30m per group

Business Loans

•       Secured Loans - The lender takes a guarantee to back the loan, which is normally a tangible asset that a company owns like property, machinery or vehicles.

•       Unsecured Loans - With no tangible security backing the loan, these are riskier for lenders – and this is normally reflected in a shorter term and higher interest rate.
•       Revolving Credit - Similar to an overdraft, you agree a facility limit and term and can ‘dip in and out’ depending on your needs. You only pay interest on the funds that you draw down.
•       Merchant Cash Advance (MCA) - Using the regular income from Debit / Credit Card transactions to help fund business borrowing, helping to smooth income in seasonal markets. No fixed loan repayments, your repayments are tied to the volume of business you take through card transactions.
•       Short Term VAT Loans - Lenders offer 12 week loans to help to settle some or all of your VAT bill – you can repay weekly or monthly.

Invoice Finance

•       Invoice Discounting - The simplest form of invoice finance. You keep charge of credit control, and get paid up to 90% of your invoice’s value on the day that you issue it to your customer, with the balance when they settle.

•       Invoice Factoring – As per Invoice Discounting, plus the lender manages your credit control - this can free up your time to get on with running the business.

•       Selective - You select either the clients or the individual invoices to put into invoice finance, so you only use the facility when your cash flow requires it.

•       Specialist Sector? - Construction Finance, Recruitment Finance and Professional Services Finance are just a few examples of specialist products that could be tailor made for your sector.

Trade / Supply Chain Finance

Trade / Supply Chain Finance is a revolving facility that can be with UK based suppliers and manufacturers as well as overseas, is flexible to accommodate deposits if required on order and other costs including import VAT and freight if these are applicable to you. And if it is from overseas, then lenders are also commonly experts in FX as well.

Asset Finance / Vehicle Leasing

Asset Finance gives your business access to the machinery, plant, equipment or vehicles that it needs to operate, without the full initial outlay of their cost. It can also release value from assets that you already own towards working capital and cash flow requirements:

•       Leasing Finance - Your business doesn’t own the asset but agrees a lease usually for a fixed term and payments. You are in effect renting the asset.

•       Hire Purchase (HP) - This allows your company to purchase an asset over an agreed term with agreed regular payments – the asset is yours when all of the agreed payments have been made.
•       Refinance - In simple terms, your company may own assets that are either unencumbered or partially financed. Lenders will commonly lend up to 70% of their current value less any outstanding finance.

From April 1 2021 for 2 years companies can offset 130% of qualifying spending on plant and machinery against their taxable profit in that first year under the Super Deduction tax relief scheme. Take your accountant’s advice for your business, but it could be worthwhile re- considering plans that had been shelved during the pandemic, or bringing forward plans?

We are sourcing suitable Commercial Finance solutions for trading businesses from all sectors, property investor and developer clients, to help them achieve the best outcome for their requirements.

Why not see what options are available to you?

Mark Grant, November 2021.

mark@fiduciagroup.co.uk

Changing Business Bank Relationship – Benefits Can Outweigh The Effort To Move

 

Talking to clients I have seen and heard the reluctance, dread and even fear at the thought of moving their business banking relationship from one provider to another. If you don’t understand what it involves, how much is taken care of for you and how many benefits there could be for you, then it is an understandable reaction.

Banks may be surprised (and I hope would care) about the number of people dissatisfied with their existing relationship, and the service levels and finance solutions that they are currently provided with.

With business banking we are not talking about someone interested in a £50 cash back incentive for moving their current account – the service and access to suitable finance solutions, all in a friction free way for the company, makes an enormous difference to their productivity, and in a lot of cases sanity!

As we hopefully continue to move away from the pandemic period, raw in businesses’ minds are the early days of Covid-19; 6 hours on hold to talk to ‘anyone’ at their bank – to get picked up and a ‘call back’ booked in for a few days later – which never materialised.

Those few days and beyond could well have been spent with their business closed, no money flowing in and not just themselves but staff to worry about and look after.

Ok, so the loan schemes came in, some businesses started to open back up and the rest we all know – but when they needed their bank the most, the bank was not accessible. This has left a big mark on many businesses.

There are some great Relationship Managers in business banking, who know their clients well and have worked with them in some cases for many years. But many decisions that affect their clients – limits, facilities or just support as a whole – are taken ‘above their pay grade’ by risk teams and committees not connected with the business.

In a time of wholesale changes in banks’ appetite and criteria for funding UK business, your Relationship Manager is no longer able in most cases to hold sway on many decisions that affect you.

I want to touch on a case study of a company that we helped to move their corporate banking relationship and some other areas that may be a catalyst for you to consider moving business banking.

Case Study

We worked with a manufacturing client, and helped them to move their business banking from one high street group to another. The facilities moved over were:

•        Core business banking
•        Invoice Discounting facility
•        Commercial owner-occupier mortgage
•        A CBILS loan

With the benefit of hindsight the company suffered no defaults on their debtors book, but in the heat of the worst early months of the pandemic they did suffer late payments – but were in open and frequent dialogue with their clients about the situation.

Their incumbent bank operates a system driven ‘auto-adjustment’ so that if their day count for payment pushed over their 90 day limit, without any human intervention the system automatically reduced their pay rate on invoices by 1% for every day the day count was exceeded.

And so in May 2020, when their day count pushed 14 days over their limit, the system immediately reduced their pay rate on invoices to 76% from 90% - the day before payroll, and with no warning.

The MD funded the payroll 1 day late, but everyone got paid. The bank repaid the funds and lifted the pay rate back to 85% within a week – but understandably the damage was done. Is this the issue with reliance on tech-driven decision making and an account manager having 90-100 companies to look after?

The story ended well for the business, and they are now with a bank that works with clients on far reduced ratios of account managers to businesses, and talks to clients before any actions are agreed with them.

They did not raise any more funds by moving – but the banking now helps their business work better – even an improvement in bank portal and connectivity with accounts package has given them time back to get on with running the business.

What Benefits Could You Gain From Moving Business Bank?

A bank that listens: And this isn’t a shameless plug for the ‘listening bank’! Some clients are facing a wall of indifference to their current situation and path to recovery from Covid impact. ‘We are not a story book banker’ has been quoted to one client…

A bank that supports what you need: You may have a facility or type of finance that your bank just does not want to support post-Covid. A good example of this is Invoice Finance, and in several cases Invoice Finance for sectors like Construction and Project based work, where there is contractuality to client agreements.

Online access and connectivity that gives you time back: Anyone that runs a business can tell you that their most precious commodity is time – what could they do with more of it in terms of productivity and more time to run their business? The way that you business bank connects with you, offers you access to your finances and funding, and expects you to interact on issues likes monthly reconciliations can make a BIG difference to you as an owner or director of a company.

You ‘pivoted’ to trade out of Covid – but your bank hasn’t pivoted with you: Many businesses had to adapt, change or add completely new areas of business to get through and trade out of the pandemic – and so while your bank may have supported your previous activities, it doesn’t cover everything that you do now.

For example, you always used couriers but now you make so many deliveries that you need your own vans – but your bank doesn’t provide Asset Finance.

So, Where Do You Start?

All of the finance that we source is impartial and with no ties to any particular lender at all. The same is true of our ability to fit your business, your banking requirements and your aspirations moving forward with all of the facilities open to you with another bank to your existing business banking relationship.

Where do you start? With a conversation with us – to discuss what you have in place, what you are not getting that you want from your existing bank / what the problems are – and what you see your best outcome as looking like.

Because we know what is available from business banking providers, and how it can potentially be packaged for you, we then do the legwork and present options that are suitable. Leaving you to get on with the important job of running your business.

 

From our first conversation forwards, you will get the support and reassurance that you are not having to manage the process on your own – and that everyone is working to the same end goal – the best possible outcome for your business.

Your business may really benefit from a business banking move – why not invest a few minutes in a conversation with us today to discuss how?

Mark Grant, November 2021.

mark@fiduciagroup.co.uk

Green Commercial Finance: Opportunity or Opportunistic?

As soon as anything commercial adopts a ‘Green’ label it may raise suspicion that something opportunistic is going on.

So, because I am publishing a blog on Green Commercial Finance at the start of the week when the UN Climate Change Conference, COP26, starts in Glasgow, let me deal with that issue first:

My hope is that how topical the subject is this week may highlight the blog and gain a little more attention for the conclusion that I have drawn.

So like an activist I will shake up the order of things here and reach my conclusion for you at the outset: Green Commercial Finance is an opportunity to play your part, as a business, in the far larger collective effort that is required for us all to act on climate change together. As surely that is the only way that we will succeed.

I have heard many eminent scientists and experts detail the individual things that we can all do to help stop continued damage to the environment. And a common objection to taking these actions has been “but what difference can I make by doing that..”. But it feels like we are at a tipping point where millions of people are prepared to increase the actions they take, and action on that scale will have a positive impact.

The last generation has grown up in an age where doing the right thing for the environment has been cost prohibitive – from the cost of vegetarian alternatives in the supermarket, to the technology that you could use at home to reduce carbon fuel usage, like solar panels. While not fully there yet, the scale of demand for greener solutions to everything helps relatively quickly drive the cost of the choice down. Heat source boilers probably the next example of this?

And so we turn to Green Commercial Finance, and why you can and should look to access it.

First let’s cover the commercial issue – ‘what is it going to cost you?’ – at a time where even with the largest will in the world to play your part, it’s been a hard couple of years during the pandemic, and you are already seeing costs increasing from every angle.

The answer is nothing, and in fact the opposite. In any situation where your business is going to enter into the expenditure regardless, then Green Commercial Finance incentivises your expenditure to have a positive impact environmentally.

In a nutshell, your funding is discounted to incentivise you to do the right thing, and play your part.

Areas where incentives are available include, but are not limited to:

•       Property development – Tools to help to enhance the energy performance of new build, converted or refurbished property
•       Property investment – Enhanced rates applied to higher rated properties on energy performance, which are better for your tenants as well as the environment
•       Vehicles and transport – Funding for investment in low carbon and all electric, including supporting charging infrastructure
•       Reduction in waste and/or improvement in recycling ratios
•       Investment in infrastructure, machinery, plant, property and processes to lower carbon and greenhouse gas emissions
•       Investment to improve water and energy efficiency
•       Support for companies who deliver positive environmental impacts for regional areas and communities
•       Eco-efficient or circular economy activities
•       Waste management and recycling sector
•       Renewable energy – multiple subsectors including Solar, Wind, Hydro, Waste, Heat Pumps

A bit like the scale of the problem, there is a very long list of activities and types of investment that are covered under Green Commercial Finance – but I take great encouragement from the fact that there are so many ways for you to be rewarded for playing your part.

Far from an opportunistic blog to piggy back onto this week’s headline news about the COP26 conference, this is just the start of us playing our part by helping UK businesses source greener funding. And to be clear – we don’t earn anything more by pointing you in this direction, and in some cases it may be the opposite – but that is not what drives our work for you.

We are told that we are at the point where ‘putting change off’ will make that change too late.

Don’t put off playing your part – ask us how to use Green Commercial Finance in your business TODAY.

Mark Grant, November 2021.

mark@fiduciagroup.co.uk

What Is An Appointed Representative in Commercial Finance?

 

I guess that I should be clear what I mean when I say ‘Appointed Representative’ or ‘AR’ as it will be easier to retype many times here!

An Appointed Representative in financial services is a person or company that is authorised to carry out specific types of activity under the regulatory umbrella of another firm that is directly authorised by the FCA.

Why might you do that rather than be directly authorised yourself? Headline reasons are cost, together with monitoring, administration and reporting activities that comes with direct authorisation, and for which you are wholly responsible as an FCA directly authorised firm.

So as an AR of a company that is themselves directly authorised, your costs are lower and most if not all of the administration of your authorsation falls to your network provider – BUT that is not to say that you don’t have obligations to uphold.

As an AR network provider we are vouching for the person and firm that is an AR of our network – that you are solvent, reputable and trustworthy, and that you will uphold the regulations relating to the area in which you operate and carry out your business in a compliant manner.

In short, it’s our neck on the block!

Our own authorisation and reputation are affected by your conduct as an AR – so therefore we put the time in to ensure that:

·       you are trained in both our approach to clients and the areas in which you will operate

·       each case is conducted in a compliant manner

·       you access the necessary CPD and compliance training annually

The most common examples in the UK of AR networks are in residential mortgage broking. There are multiple network providers in residential mortgages – underlining how well the process works, and we see examples of one man bands up to 40 or 50 advisers where the model is beneficial to the business.

We have the good fortune to work with one of the largest, and in our (slightly biased?) opinion best, residential mortgage networks in The OpenWork Partnership. We are one of only a couple of partners that their residential mortgage brokers can introduce Commercial Finance cases to.

Which in turn brings me to our own AR network – the Fiducia Commercial Finance AR Network.

Being a Commercial AR on our network could be a full time self employed role or a part time role alongside your existing business – in other words it could be a totally new venture, or it could compliment your existing business and network.

To us it means a partnership and collaboration – we have a vested interest in ensuring that:

·       you are trained fully in all aspects of your role

·       you are aware of your compliance obligations, and you have the tools and systems to carry them out

·       you keep current in updates and changes in the commercial finance market and products

The partnership and collaboration goes beyond the set up, induction and kick off of your AR activities; we have a USP as an AR network provider that positions us head and shoulders above most of the market - we do the same job that you do!

The Fiducia CommercialAR Network offers you a cost effective route to authorisation and a lot MORE beyond.

·       MORE lenders and products on a whole of market panel where some funders only accept authorised brokers

·       MORE protection for your business with PI Insurance coverage

·       MORE access to your sector, lender and product information and personal development tools via NACFB membership

·       MORE choice and suitable solutions for your clients

·       MORE compliance, finance, system and admin support

·       MORE business support from the Fiducia broking team

·       MORE regular commercial finance news and views from industry experts

·       MORE lender and products updates + regular network BDM webinars

We are not a commercial finance brokerage that has just set up an AR network as a sideline without putting in the ongoing and long-term support.

We are not a franchise that takes a large up front payment in return for a couple of webinars and a manual that points you towards your promised six-figure salary – because believe me if it was that easy then that’s where I would be and not blog writing this weekend!

We are not ‘working the numbers’ and just getting as many people through the door because then dissatisfied leavers don’t affect us too much.

We are commercial finance brokerage that works with our ARs to provide them with the tools and support to enable them to help their clients – and not just at the outset, but on an ongoing basis.

Especially in the current period of recovery, and what we hope will be the worst of the pandemic behind us, support from a team experienced with getting deals over the line that aren’t always straightforward could be the difference to being a successful AR.

 

That’s what being part of the Fiducia AR Network could mean for you – being part of something bigger that you can lean back on for support in multiple ways whenever you need to.

Take the first step towards being a successful commercial finance broker by talking to us about the Fiducia Commercial AR Network.

Mark Grant, October 2021.

mark@fiduciagroup.co.uk / 07854 382700

‘Just-In-Time’, or Just Late? - We Can Fund Your Supply Chain

 

A supply chain blog hardly needs any introduction or context at the moment – you cannot turn on your TV, head to the supermarket or go to get petrol without having the issues front and centre in front of you.

Of course the majority of UK businesses aren’t in the petrol forecourt business or the supermarket game – BUT the issues around delays and inflated costs in supply chain are affecting virtually every UK company.

The UK supply chain landscape is suffering some chronic issues:

·       Costs increases in energy, raw materials, parts and stock can’t always get immediately passed on to customers

·       Staff shortages widespread in food processing, retailers, agriculture and hospitality to name just a few sectors

·       Wages for new hires and temporary staff spiralling, poaching and hiring bonuses prevalent

·       A shortage of drivers in logistics, and the cost of haulage and freight transport at record levels

·       Covid case levels stubbornly stuck in the mid to high 30,000’s daily for the third month

If major firms (with presumably deeper pockets than the average business) are restricting trading operations, imagine the effect these issues are having on SMEs broadly in the UK and the drain on their cash flow from long delays and far higher costs.

Your company needs suitable funding that fits in to the cycle of business and trade that you are doing.

·       Using cash for supply chain in this environment is not sustainable.

·       Taking a business loan to finance your supply chain just puts fixed payments immediately into the calendar – and you are probably starting to repay before you have been able to receive payment from end customers.

We help UK businesses fund their supply chain from within the UK and overseas with Supply Chain Finance and Trade Finance, and wanted to lay out how broadly it can help business in a variety of sectors in the UK economy – especially at the moment.

How can Supply Chain Finance and Trade Finance help you?

Let’s lose the common misconception first – Supply Chain and Trade Finance can be for stock, materials or goods sourced within the UK, as much as it can be used the purchase of raw materials and finished goods or parts internationally.

Trading with suppliers or manufacturers can begin with either an order from a client that you have to fulfil, or having to ‘stock up’ on the goods that you sell because your customers will expect a quick delivery after they make a purchase.

Depending on the nature of their business, companies either buy raw materials that they manufacture or assemble to create finished and saleable goods, or they will purchase ‘finished goods’ from a manufacturer or supplier – packaged and ready for delivery to their customers.

How can the finance be used?

Supply Chain and Trade Finance can be used to fit a wide range of business types:

·       Purchase raw materials or finished goods

·       Trade can be with UK based companies as well as overseas

·       Commonly finance companies are also experts in FX

·       Goods can be pre-sold, or to provide a stock for sale

Your business can improve prices and terms from having the backing of a trade facility and being able to pay earlier; Supply Chain or Trade Finance facilities can be flexible to accommodate deposits if required on order, and other costs including import VAT and freight / haulage if these are applicable to you.

Is the cost of taking finance justified for your business?

In the current environment companies need to conserve cash within the business as working capital can become strained without much notice.

Funding the purchase of goods or materials that are either pre-sold or to provide you with stock leaves crucial cash in the business to cover overheads and unexpected cash calls on the company.

This is especially true when supplementary costs like transport or freight may now be a multiple of what you had first budgeted for when pricing the project or order.

A common objection to arranging finance is the cost of the facility and funding these transactions; beyond the fact that lenders that we work with offer extremely competitive rates on their facilities, I would suggest that these are a great example of the ends justifying the costs of the means. 

The cost of funding will slightly reduce your margin on the transaction – but with very little effect on working capital, and consequently you are still able to meet other demands that you face – as well as to fulfil any opportunities that are presented to you.

If you buy materials or goods in the UK or from overseas, don’t let that be the reason you cannot accept new business or orders, or take up any new opportunities.

Why not get in touch and discuss how we can support you with suitable Supply Chain or Trade Finance options?

How do you want to be supplied?

Mark Grant, October 2021.

info@fiduciacommercialsolutions.co.uk  / 01636 614 014

Is It A Good Time To Fix The Rate Of Your Commercial Mortgage?

 

Far from any claim to have the crystal ball on when and how much interest rates will change, the question is pointing to whether the benefits of looking to fix the rate of your commercial mortgage now likely outweigh the down sides.

From twelve months ago, when the Bank of England was sounding out banks and financial services companies on how prepared they and their systems were for the chance of a negative base rate, we have evolved to an economy as we transition out of the pandemic restrictions of heated demand and shortness of supply – also called inflationary pressure.

A near perfect storm of contributing factors are driving a seemingly endless upward pressure on costs:

•       Demand outstripping supply of almost every raw material
•       Delays in materials and manufactured goods in the supply chain globally
•       Record freight costs, and restricted availability of freight, to get the same goods and materials to the UK
•       Chronic shortage of HGV drivers within the UK to distribute at all stages of the supply chain
•       Combination of factors has driven energy costs up, in the case of wholesale gas by 6 times – and these are still rising
•       Several sectors of the economy suffering chronic staff shortages and an inability to recruit – I did linger over the advert for a cabbage picker on Friday afternoon, annual salary equivalent to £62,000 basic

Cost pressures are feeding through to virtually every business in the economy – and these are not costs that UK companies have much if any control over at all. And that brings me back to my question – is it a good time to fix the rate of your commercial mortgage?

If you feel that inflationary pressures are going to mean that the next move in rates will be up and not down, then fixing your mortgage at a currently available fixed rate would make sense.

And when we talk about price rises – energy prices up 4 to 6 times, and many materials up 20%, 30%, 50% or doubling – then the 3.2% CPI number for August would seem to be a very modest number that has to move higher in the coming months?

But psychologically, fixing your commercial mortgage rate is exerting control over a major cost to your business – not to mention the physical roof over your business!

If you are budgeting and forecasting for your business, then unfortunately with some costs you might be as accurate with a coin toss as a calculator; but with a major cost like the mortgage fixed for a 2 year or 5 year term you would be adding accuracy to your budgeting, and hedging against future interest rate rises that would immediately add to the call on cash flow to your business if you are on a variable rate mortgage.

Which takes us full circle to the question of whether the upside to fixing the interest rate on your commercial mortgage outweighs any downside.

Many of our clients are applying personal finance logic to their commercial mortgage decisions – and deciding that fixing the rate now removes the risk of increased costs if interest rates rise, at a time when they already face so many increases in costs that they have no control over.

 

We help clients source the best commercial mortgage solution for their business from our whole of market panel of lenders – why not let us help you fix the cost of the roof over your company?

Mark Grant, September 2021.

info@fiduciacommercialsolutions.co.uk  / 01636 614 014