The intermediary market has always played a crucial role in helping open the doors to a range of funding needs for businesses of all shapes, sizes and structures. In such a complex economic climate, this specialist support is even more evident as businesses continue to navigate inflationary pressures, higher interest rates and ongoing uncertainty.

As such, it was fascinating to delve into the findings of new research from Thincats to understand the significant differences in how, why and where SMEs source their external funding and their plans for seeking funding over the next 12 months.

The research

This revealed that 75% of small businesses say they have never applied for external debt funding, compared to 38% of mid-sized businesses. Mid-sized businesses are three times as likely (17% vs 5%) to seek external debt in the next twelve months compared to small companies, suggesting a higher degree of resilience and business confidence among these mid-sized firms.

Mid-sized businesses were also more likely to seek advice about funding options than their smaller counterparts. 56% of small businesses said they did not seek any advice, whereas mid-sized businesses were much more likely to speak to an adviser. Just under one-quarter (24%) said they spoke to a commercial finance broker, 23% spoke to an accountant and 17% to a corporate finance or debt adviser.

Of those companies that have secured finance most recently, most businesses were looking for working capital (42%), followed by asset backed finance (33%) then growth capital (21%). When comparing the needs between small and mid-sized businesses, there is a significantly greater take up of growth capital among mid-sized businesses (27% against 13%).

High street banks were the most frequently used source of external debt finance used by 56% of SMEs for their most recent funding followed by alternative lenders (11%), asset-backed lenders (8%) and challenger banks (6%). 60% of small companies used a traditional high street bank compared to 54% of mid-sized businesses.

This data offers some great insights into current funding demands. So let’s now explore how brokers can better understand the nuances of commercial mortgage lending, how to uncover hidden commercial mortgage opportunities and identify the key factors in successfully converting these opportunities.

The nuances of commercial mortgage lending

I’ll keep the next few sections brief as many pointers within these are article worthy in their own right. However, for advisers, the key thing to note is the difference between commercial investment and commercial owner-occupied transactions. Once realised, this will feed into how commercial finance is assessed. Location, business use, property type, any resale factor, turnover, profit and many other factors are important consideration for lenders. Generating a strong overall business picture will then lead into what is the best product type for the individual business. Similar to a residential option, these products are generally based on fixed rates, variable rates and tend to be on an interest-only and/or capital repayment basis.

Uncovering the opportunities

Like in any area of the advice process, good communication is key. Over the past few years, we’ve seen huge numbers of people transition from employed to self-employed and we’ve all seen the stories where people have turned a side hustles spawned from the pandemic into their main hustle and built some seriously impressive businesses. This means that those all elusive commercial mortgage opportunities could already be hiding in your existing client base. All you have to do is ask the question.

Converting the opportunities

Like always, converting the opportunities can be the tricky bit, especially for less experienced advisers, as cases can often be complex in terms of really getting to grips with the applicants requirements, generating a strong understanding of each step in the process and helping them to deliver their business plan and ambitions  over the coming years. Then there is understanding each lenders unique approach to policy, criteria and product requirements.

Having operated in the commercial lending space for many, many years, we understand what type of case each lender will and will not accept, what documents they need and how to best package all this information so that applications are accepted. Not to mention in supporting these cases right through to completion. And this is where a specialist packaging partner can add real value in any commercial transaction and that’s why our intermediary partners trust us to deliver their clients commercial needs so they can concentrate on their own areas of expertise.

Donna Wells, Managing Director at Envelop