One door shuts, another door opens

For smaller borrowers unable to rely on bank lending any more, the likes of NatWest’s ‘Capital Connections’ platform are an encouraging development.

Those at the Capital Structure Forum, a recent conference run by our sister title Private Debt Investor, could not fail to have noticed the bullish tone being adopted by non-bank lenders.

Up on stage for the real estate debt panel, Rod Lockhart, managing director at LendInvest Capital, proclaimed September to have been the firm’s “third-busiest lending month on record”.

This was followed by a stark observation from Christian Janssen, head of debt at TH Real Estate: “The banks have shed a lot of expertise [after the global financial crisis] and they don’t really have the ability to add value in areas they used to. They can’t do ‘different’ transactions any more, and the NBLs can come in and plug that gap.”

In light of this, there has been much talk of a more collaborative relationship between the banks and other non-traditional finance providers in recognition of their relative strengths and weaknesses.

Increasingly the argument is made – particularly in relation to the more complex SME universe – that the banks should continue to be the (highly valued) providers of services such as treasury and payment administration, while the origination, underwriting and management of loans is assumed by the non-banks.

But, for all the talk of collaboration, how easily will the banks relinquish their traditional financing role in reality? Perhaps assuming it would need to wield a stick to get the banks to pass along business to others, HM Treasury this week confirmed that 10 banks – including RBS, Lloyds and HSBC – would be forced to provide details of any SMEs they reject for loans to three intermediary platforms. These platforms will then pass on the details to suitable alternative lenders in the hope that they may provide finance instead.

This followed research showing that nearly three-quarters of SME businesses needing financing only approach one lender before giving up – thinking that if one door shuts, another is unlikely to open. The government initiative is designed to make it clear that this should no longer be assumed.

Meanwhile, at NatWest, came a sign that the UK government may have underestimated banks’ willingness to co-operate with NBLs without any pressure being applied. While not being one of the banks on HM Treasury’s list, NatWest nonetheless announced this week that it was launching its ‘Capital Connections’ platform to point its small business customers to alternative finance sources where borrowing from the bank is not deemed possible.

Having already completed a pilot phase, ‘Capital Connections’ is now heading into the full launch phase. Among those organisations that may be sent referrals are Assetz Capital, which provides non-bank loans to SMEs and property developers; and Together, which offers short-term finance, auction finance, residential and commercial mortgages and secured loans.

Whether by force or through willing acceptance of the realities of today’s lending environment, the banks are moving to a different model that effectively accepts a place in the market for NBLs. This week provided further confirmation of an unstoppable trend.