BUSINESS FINANCING
THE RISE IN PROMINENCE OF ALTERNATIVE LENDERS
Much has been said and written about alternative lending providers in Northern Ireland over recent months . Those businesses with a more traditional outlook will normally seek finance from their bank , whereas others are actively seeking to tap into the rise of alternative lending in Northern Ireland . Arthur Cox has been at the forefront of legal developments in the finance sector in Northern Ireland for 20 years , with Finance Partners Kieran McGarrigle and Stuart Mansfield providing expert advice on a wide range of banking , restructuring and financial regulatory issues . Below , Kieran discusses the role of the alternative lender in Northern Ireland .
Deleveraging Some banks in Northern Ireland have been deleveraging distressed loans and the assets which secured distressed loans since 2012 . This process is moving towards a conclusion , with one more significant portfolio to be brought to market in 2017 .
Local banks which embarked upon deleveraging from 2012 will say that their balance sheet has significantly improved as a consequence of this strategy , whereas those banks not involved in deleveraging will say that their balance sheet has always been sound , meaning they did not need to embark upon a wholesale disposal of loans .
All banks , whether they have deleveraged or not , will now say that they are ready , and willing , to lend and that they are open for new business .
Emergence
Banks in Northern Ireland have been faced with a challenging few years . The property crash in 2008 has undoubtedly forced banks to look more carefully at how their capital is utilised when lending but this , whilst prudent and necessary , has allowed a number of alternative lenders to emerge to provide finance to businesses in Northern Ireland which could not , for a variety of reasons , get the same ( or better ) financing terms with a local bank .
The challenges for banks are not over yet and their regulator , the Prudential Regulation Authority , now requires banks to separate , or ringfence , certain core banking services critical to individuals and small and mediumsized enterprises from wholesale and investment banking services .
This is a significant reform with which Arthur Cox is assisting a number of banks in Northern Ireland .
Regulation
Alternative lenders generally escape the rigorous regulations imposed on banks because they do not provide banking services such as current accounts , overdrafts , residential mortgages and consumer loans .
Alternative lenders , generally , focus on commercial loans to businesses which are not normally as heavily regulated and are funded generally by private investors .
This has allowed a number of nonbank lenders to emerge and gain market share in Northern Ireland as the banks continue to regroup after the property crash and deal with the changing regulatory landscape .
An increase in alternative lending As is the case with most things in life , there is a myth and a reality when it comes to alternative lending .
The myth is that alternative lenders will become a dominant force in Northern Ireland and will eventually replace banks . However , the reality is that the role of the alternative lender will be determined by the constraints , both regulatory and commercial , on what transactions banks can ( or cannot ) finance .
At present , we are seeing alternative lenders predominantly featuring in real estate financings and assetbased lending ( ie invoice discounting ).
Assetbased lenders are not new to Northern Ireland and will continue , as they have always done , to compete with banks to provide cashflow solutions for businesses where they take title to , or security over , realisable assets .
However , there has been a significant increase in the number of new real estate finance providers in Northern Ireland and we expect this to increase further over the next two years .
Real estate transactions
As some banks deleveraged distressed loans , the selling bank would exit the relationship , but this did not mean that the loan was no longer distressed ; it meant that the identity of the “ lender ” had changed .
The borrower still had a loan to repay which was generally greater ( and in some
“ The challenges for banks are not over yet and their regulator , the Prudential Regulation Authority , now requires banks to separate , or ring-fence , certain core banking services critical to individuals and small and medium-sized enterprises from wholesale and investment banking services . This is a significant reform with which Arthur Cox is assisting a number of banks in Northern Ireland .”
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