In March small ticket lender Secure Trust Bank (STB) launched a UK asset finance arm as part of its business and commercial services.
Its asset finance arm would target SME financing, providing routes to buy and refinance physical assets, including plant equipment, commercial vehicles and machinery, hire purchase, lease finance and refinancing.
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With regards to regulation in the UK market, Secure Trust appointed Haydock Finance as its authorised representative for hire purchase and lease solutions.
Interest was high from the Leasing Life readership, due to the nature of new competition and interest in the market.
Growth
2014 was a record growth year for the asset finance industry in the UK, with asset finance new business reached £25.4bn (33.68bn) in 2014, an increase of 13% compared to the previous year, according to the Finance and Leasing Association (FLA).
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By GlobalDataThese were figures that allowed FLA members to write £100bn of new business last year, while commentators have said that the key issue this year is to grow the market, rather than individual company market share.
STB has been a recipient of this growth, delivering pretax profit of £26.3m (36.25m) for the year ended 31 December 2014 for its parent, the Arbuthnot banking group.
At the time it published its result Arbuthnot Banking Group chief operating officer Andrew Salmon said the group’s focus was identifying areas where it could "enable us not to have to compete on head-to-head with the big banks."
As the market recovers to pre-crash levels, the number of those eyeing healthy margins and double digit investment returns is increasing.
And with between ten and twenty banking licences for the market in the press at the Bank of England, as sources have said to Leasing Life, it seems that operating in the market is an attractive option for those in similar markets like invoice financing or bridging loans.
There is a certain need of innovation for smaller entrants to link to established players in the market.
At the time, Steve Worrall managing director at Haydock Finance said the partnership between STB and Haydock was mutually beneficial as it was "completely unique" and provided STB with proven systems and resources so that it could quickly establish a presence in the market, competing with stronger balance sheets and higher value assets.
Regulatory or operational hybrids could allow the small ticket market to flourish in a way that could help to fill gap in lending left by the high street banks.
"Many of us have been involved in the SME lending space for some time, and you can see there is growth there, and there has been a bit of a credit gap there for the past few years. It feels like the right thing to do," said STB managing director Paul Marston to Leasing Life.
Mason ran Lombard’s asset finance SME division for four year between 2005 and 2008, with a significant number of those people now employed at STB, which made it "a natural play" that STB would want to enter the asset finance market.
"We think that we’ve got a good proposition for SMEs for asset finance, we are doing things on a case by case basis. I think there’s also space for replacement assets to become more efficient," said Mason.
March STB appointed Graham Drew as managing director of asset finance and Arthur Burton as risk director for asset finance, both familiar faces in the market place.
Drew joined STB from fellow challenger bank Shawbrook, where he held a partner manager role, with previous positions at Credit Suisse, GE Capital Solutions and DLL.
Burton, a 25 year industry professional as head of credit & risk at Shire Leasing and previous jobs at Close Business Finance and ING Lease UK, was also brought on board, which Marston indicated had something to do with some recent centralised central funding experience.
"Graham (Drew) came in with a big background in vendor [finance], recently doing broker with Shawbrook, and Arthur Burton came in from Shire, who recently had an £80m cash injection from the British Business Bank, and he’s gone through that experience."
It also seems that the small ticket market is the good place to try funding variations and innovations on small businesses funding needs.
"I’ve given them both [Drew and Burton] the mandate for owner-occupied mortgages. If lenders are going into and meeting the business and being assessed on the ability to repay, and the asset is an immovable asset, why can’t they do that for an owner-occupied trading mortgage? So I decided to put that through our asset finance rather than our real estate finance," said Marston.
As a small entrant focused on the small ticket market, there are supportive elements to help a newbie get associated in the market, as Marston advised STB had found while trying to help fill the lending gap.
"We created links with British Business Bank and joined as a patron lender to the NACFB. We’re very keen to see where the referral platform goes with the bigger lenders: if you’re declining something, you have to formerly pass that on."
As for strategy, apart from filling the gap left by high street lenders, there are always efficiency improvements for small businesses that small lenders can focus on to help build the brand in the market.
"People talk about the UK not being as productive as it could be: there is a case to argue that businesses still need replacement assets to become more efficient, and I think that, with new business growth, is where we can make a difference," said Marston. n
