The interactive event — which was sponsored by Allica Bank, Alternative Bridging Corporation, Colenko, Fleet Mortgages, Hope Capital, Market Financial Solutions (MFS), Sopra Banking Software, United Trust Bank, and YBS Commercial Mortgages — was held at The Courthouse Hotel in Soho, London.

Chaired by Medianett Publishing’s managing director Beth Fisher, the commercial finance discussion welcomed Gareth Anderson, head of business management at Allica Bank (pictured above, left); Miranda Khadr, founder of Provide Finance (middle); and Tom Simpson, MD at YBS Commercial Mortgages (right) as panellists.

Gareth kicked off the conversation by pointing out which aspects of the market are “keeping SME owners up at night”: inflation, labour issues and the volatility of the market.

“When I talk to SMEs at the moment, rising costs come up time and time again — inflation is on the mind, rightly so, of all SME business owners. The second [issue] is the labour market, as they are struggling to get access to good workers with the right skills at the right price. And thirdly, it’s the uncertainty. No business owner — whether you’re seeking to buy your own property where you’re going to operate and trade from, or you’re a commercial investor seeking to acquire a property for rent — likes uncertainty. Of course, we always have this, but there’s just so much more uncertainty now than there has been before,” he elaborates.

According to Miranda, overall there are several lenders in the market still willing to provide commercial loans. However, she noted that specific markets, such as hospitality, have not received as much support.

“Certain sectors, like hospitality, have been far worse hit — partly because of the economic crisis we’re currently in [and] the energy costs — and they’re simply left high and dry. I think we've got to put pressure on the forces that can make these changes [to provide] individualised sector help for each particular group of businesses.” 

She also stated that many SME firms do not know or care about how they’ll afford their debt — something she claimed is an area of concern.

Following this, Tom emphasised that brokers are “more important than ever” when securing finance for SME businesses. “[When] we think about the variety of SME businesses, there's a wide range of needs, so the role of a broker is to help businesses and property investors work through which are the best lenders for their specific needs. Their role is more critical than ever — [they’re] connecting SMEs and property landlords to the right kind of finance provider for them, potentially saving them a great deal of interest costs,” he explained.

 
Gareth Anderson, head of business management at Allica Bank

When asked which types of rates are more popular with the commercial mortgage market, both Gareth and Tom confirmed that fixed-rates are more sought after by their borrowers.

“[About] 75-80% of our commercial mortgages last year and this year are fixed, and I don’t see that changing any time soon,” stated Gareth.

Things are very similar for YBS Commercial Mortgages as well, as Tom confirmed the lender’s loans are largely fixed, but he explained that this does vary by segment.

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Moving on to the subject of government-backed support loans, Miranda said there are several misconceptions around this topic. 

“I think anyone that's had a CBILS [facility] thinks they can't have a Recovery Loan Scheme [one]. You also have people that don't understand that there are loans out there for non-Covid affected businesses, and the list goes on,” she elaborates. 

While Miranda has seen multiple lenders out there offering government-backed loans, YBS Commercial Mortgages decided to take a different approach and did not get involved in this.

“We stayed out of those government schemes when Covid-19 took off, as we very much wanted to focus on getting our business off the ground with a standard commercial mortgage offering. We had a strong balance sheet behind us and felt like that was the best way we could support.”

The conversation then moved to the increase in applications from borrowers for commercial mortgages in specialist markets, such as healthcare and care homes. According to Gareth, Allica Bank saw a 50% increase in flow of healthcare deals over the last 18 months, primarily due to the aging population and the shortage of beds.

“We're starting to see now much more professional single operators that have proven their mettle on one [care] home, earning the right to go and look at a second and a third,” he continued, adding that understanding a borrower’s background and business plan is essential when assessing deals from less experienced care home operators.

Miranda also pointed out that reports from the Care Quality Commission (CQC) — which regulates all UK care homes — are massively important, as any Requiring Improvement rating received on the last inspection might potentially cause an issue when finding funding for this type of asset.

“Another key thing is that a lot of these lenders don't work off a typical EBITDA model; they'll work off what cash flow is available for debt servicing, and some of them would like to see you in a contract to fix your utility costs for a period of time due to energy inflation,” she added.

 
Miranda Khadr, founder of Provide Finance

The discussion concluded with the panellists’ outlook for the next 12 months, with Tom stating he was cautiously optimistic about the market’s recovery in the second half of this year.

“I think once there's a period of stability and a sense that people know what's going to happen in the market, I think they will come back in.”

Miranda felt more pessimistic: “I'm not seeing the sunrise quite yet, and I think the current climate is pretty bleak. I believe we are going to see a lot of businesses fail without some type of government stimulus that helps each sector, and I think the challenges are far greater than they have ever been.”

Gareth finished the panel with some positivity, saying: “I think it’s going to be a long journey out of this, and there’s going to be failure, but there will also be an awful lot of SMEs within the UK that will come out of this potentially stronger; I just don't know when. 

“They might need that a little bit more support from their lenders, their professional partners or the network that they work with, their customers, and their suppliers to get them through, but we should never underestimate how resilient and adaptable SMEs are.”