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Semper founder and director Andrew Way explains how brokers can assist SME clients obtain commercial loans, especially those who have been unable to access finance from banks.
Speaking to The Adviser’s In Focus podcast, Mr Way observed that the coronavirus pandemic has accelerated the demise of what he calls “zombie businesses” while bolstering those businesses with a positive outlook, or “those with a future”.
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Under these circumstances, he said it would be useful for brokers to identify the types of SME borrowers in the market in order to be able to match them with the appropriate lender.
The first type of borrower Mr Way identified are stressed borrowers.
“Nobody really can help [them],” he told The Adviser.
“They need to de-leverage.”
The second type of borrower is the continuity borrower. Their loans could be maturing, but the banks may be unsure about whether they have the appetite to continue assisting them, according to Mr Way.
“If they’re looking at continuity borrowing, that means they have equity but the banks are either reluctant to lend or there is this stasis in the process because [of] the elongated application times, [and] they can’t wait,” Mr Way said.
“We can hold their hand and we can provide them interest carried loans, perhaps up to 12 months or longer where they don’t have to service, where it gives them relief on capital flows.”
The third group of borrowers, particularly in this environment, is what Mr Way calls the “opportunity takers”.
He describes this group as “people that are looking at the prey that has appeared in the market”.
“And we are there unfortunately to support them, too. If they can relieve somebody of financial stress but take advantage of a purchase opportunity, we can be there very quickly, too,” Mr Way said.
“Luckily, we, in the unregulated space, are able to help all of them, whereas the banks are going to cherry pick the ones that they can assist with because of their cost of capital of carrying those that are likely to default.”
According to Mr Way, Semper only deals with asset-backed loans and assists borrowers who have assets.
“That sounds perhaps a little unfair, but that’s the market in which we play,” Mr Way said.
“If they have assets and they’re stressed, they need to de-leverage to get back to bank lending. We can hold their hand and be more patient than a bank can.”
COVID-19 increases complexity
Before the onset of COVID-19, Mr Way said that brokers dealing with commercial transactions had to navigate two dynamics.
The first one was timing.
“You usually have clients that have an immediate need, so obviously the banks are not best suited to that,” Mr Way said.
The second dynamic, according to Mr Way, was circumstance and price.
“Obviously, they may be two degrees away from bank funding and they need to get there,” he said.
However, COVID-19 has resulted in a third dynamic, which increased complexity, with Mr Way noting that “there’s nothing simple in the current market”.
“Everything seems to have some edge to it. But that’s okay. We’re flexible enough to be able to deal with it,” he said.
He advised brokers to work with experienced lenders, especially during this period.
“Ex-bankers, I think, are the best because that way you’re going to get a blend of a good rate and the ability to react in time with high complexity,” Mr Way said.
You can listen to Andrew Way’s full podcast here:
[Related: In Focus: Commercial lending during COVID-19]
