As factoring brokers Cashflow UK and Hilton-Baird exchange business with lessors, Norton Folgate embarks on structured turnaround deals.

Fred Crawley and Brendan Malkin report on these overlaps in asset based lending and asset finance  and the opportunities they pose to finance companies.

Andrew Bullard hardly has a spare moment these days. Ever since he took up his position as head of business at Cashflow UK Limited, an invoice finance brokerage, he has spent much of his time travelling around Britain, meeting customers and catching up with business partners. On most weeks, he spends just two days at his offices in Eastbourne.

There is good reason for all this activity. As well as wanting to significantly increase the number of deals Cashflow UK brokers, he also wants his company to return to the number one spot it held in the factoring intermediary sector before it was bought by Bibby in May 2008.

One way he wants to achieve this is by sharing more business with asset finance brokers.

This works by what Bullard calls a process of “reciprocity”: Cashflow UK forwards leasing deals to leasing brokers, which in return pay Cashflow UK a commission for each deal assigned; in exchange, lessor brokers give Cashflow UK their factoring and invoice discounting deals.

Mark O’Neil, joint managing director of Vantis’ Commercial and Asset Finance division (VCAF), thinks that this is a good idea for the industry. VCAF introduces both invoice finance (IF) and asset finance (AF) business, and is aware of how different the two funding markets are.

Focusing on the differences

For a start, much more is going on in invoice finance – O’Neil says there are between 75 and 80 active funders in the market, with at least three new ones (Team Factors, Innovation Finance and Partnership Finance) emerging in the last six weeks alone.

In addition, without wanting to make the asset finance market look commoditised, variance between IF funders comes down to a lot more than rates.

IF is an “evergreen” product – where payout is continuous and the agreement has no fixed term – and according to O’Neil, “the wrong client matched up to the wrong funder can cause big problems later in the relationship”.

As such, deals are much more likely to satisfy both parties in the long run if they are introduced by a broker with a wide range of IF funder contacts.

Reciprocity schemes such as those operated by Cashflow UK mean that AF brokers can be sure of clients’ IF applications reaching appropriate funders, rather than all being fed through one or two invoice financiers that the broker happens to know.

Cashflow UK is not alone in being open to IF proposals from lease brokers, either.

Hilton-Baird (HB), the current leader of the invoice finance broker market, is a firm that is taking a greater and greater interest in asset finance.

HB managing director Evette Orams says that co-operation between AF and IF introducers is certain to increase in years to come, and HB has placed plenty of IF proposals sourced from asset finance brokers.

Orams reinforces the importance of getting the right funder for the right deal, and explains that HB’s standard practice is to introduce a proposal to two or more funders, in order to ensure the right fit.

Unlike most lease brokers, HB does not ‘package’ deals for underwriting – it simply introduces opportunities to lenders, making multiple introductions more feasible.

Interestingly, HB has also begun to pass on some asset finance requests from IF customers to funders it knows in the AF sector. Since these deals tend to be those for which HB cannot find an appropriate ABL solution, they tend to be fairly specialised, and thus placed with firms employing committee rather than “scorecard” underwriting.

Also, and interestingly as a potential source of commission to AF brokers, Orams says that HB can often find an ID or factoring solution to a customer request for asset finance.

This means that for brokers with equipment proposals that are difficult to place in today’s limited funding world, it might be worth speaking to an IF broker like HB to see if an “asset-based” resolution can be found instead.

Finding a new niche

Other brokers back in asset finance, meanwhile, have embarked upon a similar course of consolidating on the overlaps in the leasing and factoring markets.

However, rather than offloading deals that are not core to their business, these brokers instead are seeking to bring together finance products.

The reason for doing so is simple. While the recession, on the one hand, has meant companies are deferring their investment in capital expenditure, on the other it has given rise to a proliferation in refinancing requirements.

Structured products that might include a mix of asset finance and factoring can help fulfil these demands.

Some brokers have embarked on an aggressive push to attract these types of deals, and in doing so have effectively re-labelled themselves as turnaround specialists.

Norton Folgate, for example, has just launched an ABL offering, aimed specifically at restructuring situations.

Managed personally by managing director Robert Keep, the new product set is designed to bridge the gap between traditional asset finance and more complex corporate finance transactions involving equity as well as debt.

Among the tools Keep intends to deploy for this purpose are not just asset and invoice finance, but receivables finance, inventory and stock finance, debenture-backed term loans, commercial mortgages, chattel mortgages and access to a special “corporate rescue” fund.

Jumping on board

Bullard made clear that there are other brokers looking to enter the turnaround space.

“There are more Phil Betts-type people wanting to get into the marketplace,” said Bullard.

Bank-owned leasing companies have also not been blind to the benefits of bringing their asset finance and factoring businesses closer together.

Barclays did this some years ago when it formed Barclays Asset & Sales Finance, and ING Lease Group followed suit back in late 2007.

Last month, La Tribune, the French newspaper, reported that Credit Agricole was merging its leasing and factoring operations. Many others are doing the same.

Other brokers, too, are finding ways to capitalise in the new leasing-factoring revolution.

The leasing-factoring alliance, however, is still in its infancy, and there remains plenty of room for growth.

Bullard says around 10 percent of his business comes from sharing leasing deals with asset finance brokers, but he expects this to grow to 30 percent in the medium term.

“We’ve recently forwarded two vehicle deals and two hard asset deals to asset finance brokers, but there is plenty more we could be doing,” he says.

Article contributed by Fred Crawley – Senior Reporter, Leasing Life & Motor Finance

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