“Our economy suffered a very severe crash, leaving the bulk of lending in the hands of three surviving banks, hands that have been full for most of the subsequent years,” says Ciaran MacAreavey, managing director of Close Brothers Ireland, an alternative lender to traditional merchant bank financiers.
A significant number of overseas banks left Ireland in 2008 and took whatever additional supply of finance they had with them. However, not only did UK-based Close Brothers continue to lend through the tumultuous period, it increased its market share in Ireland.
“We had a very strong capital position when the capital liquidation crisis took place,” says Adrian Sainsbury, banking division managing director of Close Brothers UK. “In fact, our loan book grew by 20 per cent in 2009. You must keep lending through the economic cycle. Inevitably, another cycle will come. But we’ll keep lending.”
The growing influence of more independent players such as Close Brothers in the Irish financial market can only be seen as a positive. For one, it demonstrates new confidence in our war-torn financial system. But it is also the new reality.
"We're seeing a movement – from 100 per cent bank financing on balance sheets to more diversification, thanks to so many new entrants," says Donnchadh Cullinan, manager of growth capital and banking relations for Enterprise Ireland. "I for one believe this to be a very healthy market shift, and I hope we never go back to the old scenario."
Regulatory reform is also playing its part in improving the application process for lenders and borrowers. Banks were unwilling to lend from 2008 to 2013, but there has since been developments and the Central Bank is changing certain processes for a borrower applying, allowing for greater transparency throughout the process, and even enforcing a 15-day limit on responses from lenders to any application.
However, 15 days is just a maximum: “We can give people an answer within 24 hours,” says MacAreavey.
Prudent lenders
Adapting to new markets does not come easy to established financial institutions, which argue that their ability to survive major global economic meltdowns is for the very reason they are prudent lenders. However, some say Irish banks were not fiscally conservative but short-sighted in their lending behaviour – and that this trend began long before 2008.
“Banks lost all ability to understand how to lend to businesses that weren’t either directly or indirectly involved in building, property and construction,” says Cullinan. “The guys making the decision struggled to understand what the tangible outage was worth from, say, a tech company.
“They didn’t have enough experience determining reliable criteria for what made one software/tech enterprise or another bankable. But that is changing.”
“Fintech” is more than just a zeitgeist tech term with little or no substance to back it up. This is particularly true in Ireland, where innovation in the financial services sector is being fostered all the way up to government level.
“There are plenty of new products on the market,” says Damien Kenny from Convertibill, a pioneering “no nonsense” lender that offers a complete suite of order finance, supplier finance, invoice finance, sales finance, distribution finance and lease finance products.
“With Convertibill, SMEs don’t need to use cashflow to pay for goods in advance,” he says. “Our order finance product allows businesses to expand. Convertibill’s distribution finance allows businesses to finance all their trading process from start to finish with the one provider.”
There is also now increasing use of technology in the business application process. “Applying for finance can be an administration-intensive business,” says Kenny. “The use of technology allows businesses get approved quicker and get their finance when they need it.”
Talking to a human
Most SMEs would prefer talking to a person than dealing with a computer when it comes to finance, at the very least so as to cut out much of the application forms needed by a robotic system.
While technology has the potential to simplify or eliminate entirely all kinds of lending bureaucracy, it likely never will replace the importance of personal relationships in business.
“We place a very low value on customer introductions through digital distribution call centres,” says MacAreavey. “We use tech to improve our communication and delivery channels but, ultimately meeting each and every one of our customers is key to the Close Brothers business model.
“We place one of our team at the heart of your business to talk about your financing needs. Of course we use tech; our guys have mobile tablets that can process details into a central system instantaneously. But it compliments, rather than takes the place of, the building of personal trust.”
Improving the application process requires a mix of technologies that can eliminate unnecessary time wasting, but also greater understanding between lender and borrower. In the 21st century, it can no longer be the us versus them approach of the past.
“The most important thing we do differently in the future is the ability to offer bespoke finance solutions to each of our customers separately,” says Adrian Sainsbury. “Of course, they have the opportunity to access our product info online before dealing with us directly. We also schedule web chats in preparation so we can clarify anything.
“But having a visit from one of our managers is not only important from the client’s perspective. It helps us better understand the types of business our customers are engaged in – and, ultimately, share in a continued success together.”