VAT funding or VAT loans on large asset acquisitions, mainly commercial property, is still a relatively new type of product in the alternative finance sector, but one that is an essential part of any commercial broker’s kitbag. As the products and processes start to mature, we are starting to see the implementation and roll out of new technology to make the borrowing experience, for both client and broker become a lot quicker and easier.
Pre-2018, most VAT funding was done where applicable by the high street banks and senior debt providers. However, as LTVs started to constrict, and lending criteria tightened, more and more clients via their brokers, were looking for an alternative solution to fund that additional 20% payable upon practical completion, without tying up available liquidity or capital at HMRC. This gave rise to specialist VAT funders who would not only fund the VAT but liaise with HMRC to chase, and ultimately recover the loan. From my own experience, in the early days, I know this was very much done by Excel spreadsheets, scanned passports, and 20-plus page facility agreements. All of this added to the administrative burden, required the clients to provide large application fees to be paid upfront, slowed down underwriting and, ultimately, added cost to the deal.
There is no doubt that technology can and is helping the alternative finance sector, and we are also now seeing these advancements in the VAT funding space. There will always be ‘old-school’ lenders, armed with a spreadsheet and a black book of contacts but today’s clients are now expecting better levels of service, competitive pricing and utilising the technology that everybody has in their pockets these days.
An example of this is evident here at Adsum. Using our proprietary technology, the client, once terms are agreed, goes through an onboarding process online, utilising their mobile phone for KYC/AML, signing agreements, and uploading relevant tax documents. Gone are the days of printing out 20 pages of legal text just to sign the last one, scan them all, and email back! The platform gives a completely transparent process available to the client, broker, accountant, and solicitor, so all parties can track the progress of the deal. It is because of these advances we can remove the need for clients to pay a fee upfront, trusting our technology to help the client get the loan drawn down smoothly and quickly. With Making Tax Digital (MTD) becoming more and more relevant, embedding VAT funding into this process is a natural progression for tech-based funders.
I have always advocated that technology is only useful if it solves a problem, and making VAT loans quicker, easier, and cheaper for the clients seems a good starting point. “There will always be ‘old-school’ lenders, armed with a spreadsheet and a black book of contacts.”