The broker-lender conundrum

By Niels Turfboer, managing director at Spotcap

For commercial finance brokers, working with a variety of lenders is paramount to helping UK small and medium-sized businesses succeed. When thinking about their special relationship, two interesting trends have emerged over the years: lenders are becoming more specialised, while brokers are diversifying their offering. As counter-intuitive as this may sound, both developments will benefit UK businesses in the long run.

Lenders: find your niche
There are over 100 corporate finance lenders active in the UK. Their products can vary greatly, offering asset finance, business cash advances, invoice discounting or commercial mortgages – or a mixture.

However, over the last year, we have seen some larger lenders shutting down certain parts of their business. Why? While it seems a good idea from the outset to offer more than one product, many UK lenders had to realise that, in a very competitive market, it can be beneficial to concentrate on one’s core business. By doing so, a specialised lender – with the right offering – might have a better chance at becoming a market leader in their field.

However, there are a few lenders bucking the trend, and sometimes it can make sense for a specialised lender to expand its offering. This is especially true if the addition is closely related to the lender’s area of expertise. A lender focusing on small business loans might decide to shut down their property finance arm as these two are not necessarily related. But the same lender could instead start offering a merchant cash advance, which is closer aligned with their core business.

Ultimately, we expect the trend towards further specialisation to continue. And while we will certainly see new and improved products being launched, we also expect some less successful companies to fold, and others to be acquired by competitors.

Brokers: expand your offering
Brokers find themselves in a very different situation. A few years ago it was sufficient for many to specialise in just one loan product, ie becoming a mortgage broker or specialising in asset-based loans only.

Nowadays, however, many business owners prefer to work with a broker who can sort out their various financing needs. As a result, brokers have started to diversify. And by offering a one-stop solution, they are better able to retain their client, upsell their services and remain competitive.

The shift towards customer service and client satisfaction will become particularly apparent going forward. Constantly trying to go the extra mile and looking for new ways to add value will become the new normal.

The good news is that UK businesses looking for further refined loan products, better customer service and an improved offering from their brokers will benefit. Who would have thought that the combination of specialised lenders and brokers offering a broad spectrum of services would be the perfect fit for UK businesses?