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November 26, 2010updated 12 Apr 2017 4:18pm

Is it time to integrate the broker market?

Broking firms are owned, staffed and led by experienced ex-finance company professionals, who were victims of the industrys drive to reduce the sales teams of many of the funders.

By Adam Tyler

Photograph of Adam Tyler, CEO at the National Association of Commercial Finance BrokersHistorically, UK finance brokers have evolved from a market where new business proposals had to be placed after being initially rejected by prime lenders. The market subsequently grew and brokers became the first port of call for many customers.

Broking firms are owned, staffed and led by experienced ex-finance company professionals, who were victims of the industry’s drive to reduce the sales teams of many of the funders.

Research has shown this reduction in a sales force is more or less in direct proportion to the recruitment by those same funders of locally based brokers. As a result, the broker model grew and flourished during that period, despite the fact that a number of funders have withdrawn from the broker market in recent years making 2010 a very difficult year for NACFB members.

In the UK, the bank branch networks are nowhere near as important a sales channel as in Europe and subsequently this lack of interest combined with availability of funding through non-sales force lessors has allowed the UK broker industry to survive.

This in turn has provided the increased opportunity for these active lessors to seek good business from their broker networks. If you have access to a source of funding, not only is it a good time to be a broker, but also the time to build a really good lending book.

There are around 800 leasing brokers in the UK with about 500 introducing the majority of the business in the country. This represents a good split between the small and middle- ticket market with some real specialists dealing with the top end.

On top of this again there are a number who specialise in cars and small vehicles. These brokers have their own market and their own funders.

But our studies show that around 58% of leasing brokers will also mix their main business with cars.

Many observers point to the fact that locally based finance brokers are largely unique to the UK and some European countries limit broker activity by the very structure of the leasing industry.

The use of a high number of small, local lessors spread across a country provides an easy-to-source route to finance for small- and medium-sized enterprises, without the need to use a broker as a local contact.

However the middle ticket market in some European countries does rely on intermediation by brokers. During some parts of the recession in the UK the fall in direct sales was greater than that of the UK broker market.

FLA’s industry statistics for the third quarter of 2010 state that, although business finance as a whole was down 8% compared with the third quarter of 2009, broker introduced finance grew by 8% in the same quarter compared to the previous year.

Some of the traditional markets across the continent where regional lessors looked after the local SMEs are under threat due to new regulation. But how different is this model really from the UK broker market where some of the larger brokerages run their own book and broke larger or more complex deals with the main funders in the market?

Do we now have a basis to look at the integration of the UK broker market model?

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