Exclusive: The man behind the unsecured

Exclusive: The man behind the unsecured "madness" saving SMEs




Following the successful launch of a Wells Fargo-backed unsecured commercial lender into the UK market, B&C's Ian Walker bagged an exclusive interview with the man who heads up the operation.

Following the successful launch of a Wells Fargo-backed unsecured commercial lender into the UK market, B&C’s Ian Walker bagged an exclusive interview with the man who heads up the operation, to answer the question on everybody’s lips: “Unsecured commercial lending…what’s the catch?”

Boost Capital, which launched into the UK market just six months ago, is aiming to tackle the SME funding gap via an $82 million (£54.35 million) fund from US investment giant, Wells Fargo Capital Finance, part of Wells Fargo & Company.

The lender has however caused quite a stir amongst the industry, with many questioning just what exactly the catch is? Commercial lending in itself is an incredibly risky market, but unsecured short-term commercial lending, is indeed quite a different ball game.
 
The lender holds a significant presence in the US market, a successful model spanning over 12 years of operation has resulted in the lender taking up a large market share, and employing over 120 staff across the States.

We got to meet the ‘man behind the madness’, EY Entrepreneur of the Year finalist, Marc Glazer, President & Chief Executive Officer of Business Financial Services and its subsidiary lender, Boost Capital.
 
B&C Interview:

IW: First of all Marc, what potential did you see in the UK market?

MG: What we see is that the UK and the US markets are on a parallel. Firstly, they go hand-in-hand and I think everybody knows that. US entrepreneurs are typically more aggressive and quicker to make decisions, so I think what we saw in 2009 and ‘10 in the US, we are starting to see in the UK now.

Secondly, post financial meltdown, I think the US entrepreneur was quicker to get back on his feet and look to strengthen the economy, we were immediately providing finance to businesses just two years after the crash; I think, now, we’re starting to see that in the UK. We’ve noted this, and we’ve seen an opportunity where we can begin to help the SME market - at least there’s a language commonality! There’s a similar business model here. I spent a good year doing my due diligence with businesses in the UK.  We saw a good opportunity and so we set up shop, and spent another nine months trying to market an alternative solution to the obvious problem, and indeed how we differ from that problem?

Do you think there is a difference with the UK recovery and the US recovery then?

I think it started earlier in the US, I think we were hit earlier. We typically just… eat the crow faster and grow; I think here you just debate things a little bit longer.

[Of course, we’re British!]

Exactly! I think the downturn started earlier in the US, thus… the recovery obviously did similar!

Things are going in the right direction, which is critical for us, now that SMEs feel like things are getting better; we’re seeing people that are genuinely hungry for credit. It’s a situation that two years ago was just completely out of the question.

The product itself, the unsecured commercial market is classically a little bit of a…taboo, so, how do you manage the risk? What measures do you have in place if a deal goes wrong?

None.

But, what collateral do you have?

None.

But look, we’re still a quality business, we are in a very risky market, as well a job we do on underwriting – inevitably – there are going to be losses. But at the end of the day, if that is the case, that is money out of our pocket.

...So how do you…???

It’s all about how the business is operating, and how we think that business continuing to be successful is a good risk for us.

In the US, we’ve done 20,000 of these... we’ve never repossessed anything; assets on the books have no bearing on what we do. We are not making a financing decision based upon protection by assets. The way we get paid is if the company succeeds.

Did you face any problems establishing the company in the UK?

It just…took time! I mean… it took nearly six months just to open a damn checking account!

Is everything a little quicker in the US then?!

Just a little bit, it’s more like hours in the US, rather than months…

But that’s a model we attach to our UK business, we’ll give you a decision in a day and funding in five.

Let’s talk about that funding line…

Being financed by the likes of Wells Fargo, it’s incredibly easy to bring syndicates in behind it.

Financing is just not an issue at all.

How did it come about?

We’ve been doing this for 12 years, Wells Fargo is very thorough, obviously, but in the US, if you want to have a £50 million+ funding line, and you’re a lender? They are the only show in town.

Its unique, we are one of a couple of players that have that kind of opportunity behind it, the majority of our competitors are funded by hedge funds. 

Tell us a little bit about the targets for Boost over the next year and of indeed, will Boost maintain its dedication to the intermediary market?

We are incredibly confident in implementing our strategy into the UK, which means we’re looking to lend out around £20 - £30 million in our first 12 months of operation.

In regards to intermediaries, I think that in the States, whilst we are very much intermediary-based, over here intermediaries serve a far more vital part of the transaction. In the US, it’s a little more of an ‘after thought’, whereas here, it is almost expected. There’s a lot of expertise that the broker has in the UK, brokers have a really distinct ability to process an issue with a customer, and find the best solution for them. We see a lot of potential here, and we will of course maintain our business model to suit that.

So do you think in the US it’s more of a formality?

In the US, I think that alternative financing is very ubiquitous, people know it exists, and don’t necessarily need a broker to find it. I think we’re four to five years behind the UK. In the UK, brokers handle far more products, depending on the need.
In the US, it’s not as personal, here, brokers have the ability to actually meet a customer and talk over all the different options that area available to them. We have a good idea of the types of brokers that we want to approach with our products, we would like to get relationships with larger houses that understand our products and can organically produce leads.

We are looking to limit the product to those that can handle the product and groups under that, rather than small-scale brokers.

Who is your competition?

I don’t think there are people that are doing exactly what we’re doing, On one side you have the banks, who are just all ‘no no no’, then you have consumer-type lenders, but in the middle there are those on different tandems of what we do. But with us, it’s a process, ok, so your personal credit isn’t that great, you haven’t been in business that long, but you’re a successful entrepreneur, you’re good at what you do, you want to grow your business and the banks say no? We can offer you money in five days, and here it is. It’s certainly not a monopoly, but I don’t think anyone else really has the capacity to offer the kind of product we do.

The inevitable question, do you think there is an expiry date on this market?

No.

Look, in the US, under a $1 million, banks can’t get their head around it. There’s so many overheads, when you think of capital adequacies and regulation and the like, so for us…it’s a market that I don’t think banks will ever consider. If they do come back in and start lending, be it here or the US, I don’t think it will have an effect on the kind of business that we are doing.

Five years ago, the banks were in a place they really weren’t supposed to be in, they’ve learnt their lesson…

A question often put to our bridging lenders, and one which I’m sure has a completely different answer, does demand outweigh supply?

Yes, demand far outweighs supply. Even years ago when the banks were filling at least a small portion of that market, there was still demand, but not nearly as much as there is now.

What value do you see in bodies like the NACFB?

I think it certainly helps us get whom we are out to those brokers that are interested in looking. Now it’s up to us to maintain those relationships and how can we utilise their skillsets.

I don’t think there is going to be hundreds and hundreds of brokers pushing us out there; I think there will be 10-30 companies that will make up 80 per cent of our business. It’s our job now, to ensure we get the message to those people, and identify those that can strengthen our business moving forward.

Do you have similar bodies in America?

You know what, we don’t. We have the NAELB, who are brilliant – but they don’t have the organisational traits of the likes of the NACFB. You couldn’t go to a show in the US and say, ‘ok… where all the brokers at? ‘ Because typically we just don’t have the kind of brokers that the UK has.

There are commercial finance brokers in the US, but they are very specialised, they literally offer one incredibly niche product. Brokers here have such a wide range of products, such as bridging, commercial and invoice… it’s just unheard of.
For example… in the US, it’s pretty unheard of to find a broker that specialises in something like mortgages.

It sounds like what you’re saying is the UK market is a hell of a lot more lucrative!

[Laughter] Well, it’s a lot smaller here, but the potential of brokers here is phenomenal. Particularly with those that choose to help the SME sector.

I mean in 12 years you can do a lot wrong and a lot right, we’ve learnt a lot, and that experience we have had we can take across the pond and implement here for the sake of the SME market.

1 Comments

  • Photo

    Scott Ford

    nice article ian.. some risk theyre taking there, must be mad!

Leave a comment