SME lender CapitalFlow targets professional landlords with new credit licence
Alternative lenders vying for ‘golden opportunity’ opened by the country’s pillar banks,
SPECIALIST SME lender CapitalFlow has applied for a retail credit licence as part of its plans to lend to private property investors, chief executive Ronan Horgan has said.
The Swords-based company has lent €260m worth of loans to 1,650 businesses across the country since it was established three years ago. It predominantly offers the likes of hire purchase, invoice discounting, refinancing and property lending to its clients.
If approved, CapitalFlow will come in line with rival specialist lender Linked Finance, which is regulated by the Central Bank.
Horgan said he was trying to build a €500m balance sheet over the next three years.
“The licence will allow us to lend to professional property investors in their own name, if your main occupation is something else we’re not interested,” he told the Sunday Independent.
“It’s a demand that has come from the customers really. We’d also love to become part of the lenders out there who are regulated.”
The application was made by McCann Fitzgerald on behalf of CapitalFlow in December, with a decision due on the matter by the end of March.
During the week, Horgan announced that he intends on advancing €300m worth of loans in 2019 alone, a significant ramping up of operations here. He also said that a further 20 staff will be added, bringing the headcount up to 90, and that a regional office in Co Cork will be opened.
CapitalFlow was acquired by London-based equity firm Pollen Street Capital in 2016. Since then the owners have pumped around €45m into the business. Horgan said he did not have any insight into how long Pollen would stay as investors in the business. “There will be an exit at some stage, Pollen will want to get their return back,” he said.
Horgan also noted the increase in alternative lenders in the market, including a number of peer-to-peer operators. He stated that peer-to-peer lending was a product that the company may explore but that it was not on the horizon currently.
He also claimed that problems can arise in peer-to-peer lenders when economic downturns begin to take shape.
IRELAND’S pillar banks have lost sight of small and medium business and gifted a marketplace to alternative lenders, according to the head of specialist lender CapitalFlow.
Chief executive Ronan Horgan said that the likes of AIB and Bank of Ireland are more interested in “vanilla-style” residential mortgages, car loans, and large-scale corporate facilities.
His business has lent around €260m to smaller companies across the country since establishing here three years ago. The company has also announced plans to lend more than €300m in 2019 and add an extra 20 staff.
Horgan’s business plans to operate in the sectors that have not been focused on by the pillar banks.
“I think if you were to set up a bank in today’s world you wouldn’t have branches, you would probably do residential mortgages, personal mortgages, car loans, and it would be all online. At the moment banks probably have 50 different products that they have to manage, which is far too many.
“This has provided us with a golden opportunity and our disruptive business model is to reintroduce traditional lending practices.”
CapitalFlow targets corporate loans, typically below €5m, taking on numerous customers that “wouldn’t be touched by the banks”.
“We’re very traditional, we like that old-school style of banking. You go out, you meet, you get to know the client. You hear their growth story and the financial information and then you make a decision,” he said.
“If he got his house repossessed 10 years ago but he’s back on track again and you can see his repayments over the last three or four years we’ ll back him again on the basis that he doesn’t do something stupid. ”
That flexibility, Horgan claimed, will remain should one of its clients get into trouble as a result of Brexit.
“The uncertainty of Brexit has kept a lid on the Irish economy to a certain extent, probably in a positive way,” he said.
“If our customers get into trouble and trading conditions become more challenging, we’ll be quite flexible with them. The reason for that is that we know what it’s like when there are bumps in the road. We’re talking about developing 30- or 40-year long relationships with these people.”
The company is also pushing forward with its invoice discounting products to encourage more management buyouts. Under the discounting product, CapitalFlow lends on the value of a company’s debit book, providing up to 80pc of its value to create cash to buy an owner outright.
“Using invoice discounting like that hasn’t really taken off in Ireland in the last three or four years because there hasn’t been a lot of enquiring and management buyouts, but we can see that activity ramping up,” he said.
“People have more confidence now and the big thing is now ‘when am I going to sell? I’ve gotten through the recession, I was going to retire when I was 50, now I’m 60. Things are a bit better now — now is my opportunity to get out’.”
Since 2015, Horgan said the company has been focused on creating an stable platform for lending that will allow it to “push the boat out”. One of the main avenues for growth targeted by Horgan is references from financial advisers, accountants, and brokers.
“Most of the time SMEs listen to their accountant or their broker,” he said.
“We get lots of our business from that market at the moment but we haven’t make a concerted effort to target it and what we want to do is reach out to that community because that’s how we’re going to scale our business. We won’t scale our business by doing lots of advertising and going directly to each individual SME.”
CapitalFlow plans to exceed the level extended by fellow specialist lender Linked Finance, which operates on a peer-to-peer basis. Horgan conceded that there was “certainly a demand” for peer-to-peer lending and said that he would be open to creating a similar product in the wake of consumer demand.
“On the peer-to-peer lending, while the business of the economy is going well I’m sure the peer-to-peer businesses will do fine. It’s actually when the tide goes out that we all have to be careful about how we manage that,” he said.
The future ownership of Horgan’s business is unclear. It was acquired by UK-based fund Pollen Street Capital back in 2016, which has since invested more than €45m in the business. Originally part of RBS, Pollen Street was spun out into a separate business in 2014.
In January of last year, the non-bank lender merged with BFF Capital Partners to beef up its real estate division.
The move marked the firm’s entry into property lending and bridging loans.