The Professional Indemnity Insurance market has hardened considerably over recent years with fewer insurers in the market and professional design practices in the property and construction sectors seeing huge hikes in the cost of their premiums over the last three years.
With premiums now costing between 3% to 5% of a company’s turnover, the challenge of not only securing this essential insurance, but also funding the cost of the annual premium, is very real for any business operating at a significant turnover.
In addition, the Coronavirus pandemic had affected the cashflow strategies of many businesses in the property and construction sector as they had to carefully protect their finances from uncertainty in the market, with payments taking longer to materialise.
As with many companies during the pandemic, Tier Consult Group, the Chester headquartered and UK-wide Civil, Structural and Geotechnical Consulting Engineer, had taken advantage of financial grant support from the government to help cover operational costs and assist with cashflow. At the same time, the Group was faced with a substantial six figure premium for renewing its Professional Indemnity Insurance, a pre-requisite for providing professional consultancy services in the property and construction sector.
Rather than take the full amount from its government support funds, which could have potentially added further pressure to its cashflow, Tier Consult Group sought a loan to help fund the payment. It initially looked to borrow 75% of the premium cost, intending to meet the remaining 25% from its own cash reserves.
The company turned to its broker, Paul Mak, Director of Pomegranate Commercial Finance, who recommended Recognise Bank because of our knowledge and experience of working with Professional Practice firms. Many banks don’t like lending to organisations like consultancies because they don’t understand their business models and don’t have the expertise to offer the right kind of lending solution.
At Recognise Bank we took a more rounded, holistic view of the business and the sector it operates in. Despite the challenges that the pandemic was creating with cashflow across the property and construction sector in general, we felt that Tier Consult Group’s debtor book was full of strong and credible businesses. Fundamentally, we felt that Tier Consult Group was a successful, solidly run and financially sound business with an order book and debts ledger supported by similarly strong businesses.
Drawing on the huge amounts of sector expertise within the bank, we analysed Tier Consult Group as a business, which had quite a complex group structure, along with its customers, until we really understood the business and felt comfortable with the underlying risk.
As a result of the confidence, we had gained in the business, rather than just agreeing to the 75% initially requested, we offered Tier Consult Group a Professional Practice loan for the full sum it needed to pay its Professional Indemnity Insurance, which was due imminently. We reasoned that it made better financial sense for Tier Consult Group to borrow the full amount to further assist its short term cashflow during the uncertain times the pandemic was creating for the industry.
The funding was provided at a competitive rate over 12 months, meaning that Tier Consult Group could fund its Professional Indemnity Insurance for the coming year without concern as to the potential impact on its cashflow and focus on developing and growing its business as the industry emerged from the impact of the pandemic.
In what was a real team effort, we also recommended one of our legal partners, Kuits, to create a single company guarantee for the deal, rather than individual guarantees for each of the five companies that make up the Tier Consult Group. Even a last-minute issue with the firm’s own bank over a debenture on the government loan was quickly resolved, saving Tier Consult Group time and money, and giving it the funding it needed.
Ian Thomason, Director of Tier Consult Group, said: “Recognise Bank impressed us with its understanding of our operations and the various nuances associated with the property and construction sector, in particular the challenges faced by SME businesses such as ours during the pandemic and restrictions.
“We were up against a non-negotiable deadline to secure the funding and the bank worked closely with us to achieve this. In particular, we were impressed with Recognise’s flexibility and willingness to think “outside the box” in coming up with a funding package that was in excess of our original request and would provide the business with additional cashflow support in an unprecedented and challenging marketplace.”
Angela Norman, Head of Corporate Development at Recognise Bank, added: “Although Tier Consult Group’s situation was relatively complex, it’s a position that many SMEs are finding themselves at the moment. Good firms need the support of lenders now more than ever.
“We saw this as the start of a relationship, rather just a one-off transaction. Tier Consult Group now knows that we have the experience and expertise to provide it with any future funding it may need, so hopefully the firm will return to us for its future lending needs.”
