Commercial First in funding talks with white knight from Middle East

Mortgage company wants to start lending again, but banking freeze has left it stuck in hibernation
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The Independent Online

Commercial First, the Essex-based commercial mortgage lender, is in talks with a Middle-Eastern investor about taking a stake, in a move that could enable the firm to begin lending to clients once again.

Commercial First, run by David Johnson, owner of last year's Grand National winner Comply or Die, currently advances more than £1.5bn in commercial loans to small and me-dium-sized enterprises, but it has been forced to turn off the taps since the effective closure of wholesale lending markets last year.

Mr Johnson said: "We are in hibernation at the moment. We want to be able to lend to customers, but with the market effectively closed, we can't. Small businesses are really suffering – we can see it on a day-to- day basis. So it's imperative that the Government does all it can to ensure lending starts again and it trickles down to small firms in Britain, which are the cornerstone of the country."

He added: "A Middle-Eastern investor has gone through the basic due diligence procedures with us and we are hopeful something could be done. But it's by no means certain. What was a 1,000-to-1 shot is now single digits to one."

Philip George, the managing director, wrote last week to Mervyn Davies, the former chief executive of Standard Chartered bank who recently became minister for trade promotion and investment, asking for a meeting to put the case for wider government lending guarantees. The letter said: "Knowing your desire to open up lending to the SME sector, we would be delighted to see if we could help achieve yours and the Government's aims. The simplest way of doing this would be for you to open up a banking facility from one of the major clearers to ourselves with the Government's support. We would then be able to open up new lending almost immediately, such that there would be no administration or cost involved for yourselves or the bank providing the wholesale finance."

Another letter from Mr Johnson to Business Secretary Lord Mandelson, sent in November, remains unanswered.

Mr George said: "The 12,000-plus people we have leant more than £2.2bn to during the last five years aren't your sub-prime with high delinquency. Our write-offs are less than 1 per cent. Some 80 per cent of our borrowers live and work in their properties – they have everything to lose. Small businessmen and women in this country feel disenfranchised."

Lloyds Development Capital (LDC), the private equity arm of LloydsTSB, has a 28 per cent in Commercial First, which had previously borrowed wholesale cash from Deutsche Bank and Barclays. The remainder of the company's equity is held by Mr Johnson and management.

Mr Johnson said: "The commercial lending market needs to be unblocked. We have the infrastructure ready, sitting here ready to spark into life, but at the moment we are handcuffed. We operate in an arena that the banks don't want to, and the quicker we get things moving again, the better."

One of Commercial First's borrowers, Rebecca Steadman, a Bristol-based businesswoman who runs a takeaway pizza business, said: "Our inability to borrow meant that I was forced to pay excessive overdraft costs with my bank, LloydsTSB, which came to more than £400 a month. It made for a horrendous nine months until I could sell off another part of the business."

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