Moneybarn’s commercial director Shamus Hodgson talks to Sotiris Kanaris about the company’s new light commercial vehicle finance offering and the reasons behind its launch
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In October, Moneybarn entered the light commercial vehicle market with a finance product for subprime customers. The new offering – a conditional sale agreement – has a minimum loan amount of £5,000, with three-to-five year terms available.
The product is aimed at self-employed and sole traders, a group that Moneybarn has been servicing for years but with a "slightly different" product.
Moneybarn commercial director Shamus Hodgson says the company looked into the LCV market, as well as the self-employed and sole-traders segment of the market and identified an increased demand for non-standard.
"There’s been an increase in the number of self-employed and sole traders over the past few years, across many different industries," he says. "Therefore we believe there’s an increased requirement in the non-prime market."
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By GlobalDataHodgson adds that the company has identified a gap in the market, as it’s under-serviced by finance companies of a similar scale to Moneybarn. He also points out that many self-employed and sole traders have been finding it difficult to access lines of credit.
"These are the type of customers who are actually driving some of the growth in the UK economy at the moment and many of them can’t get access to mainstream finance,"says Hodgson.
"This is not always because they have a poor credit history. It might just be because they have recently started out on their own." Apart from market research, Moneybarn’s decision to enter this market was influenced by feedback from its broker partners, who said that there was an opportunity within the market.
Hodgson highlights that the company has entered this market not just for coverage, but also to provide brokers with a wider and better range of products, which will in turn generate more business for both parties.
"It’s more about ensuring that when customers talk to one of our brokers, or come directly to us, there’s a product that suits their needs," he adds.
Compared to the subprime car market, the subprime LCV customers’ needs are different, as the use of the asset is different. However Moneybarn found that customer behaviour does not differentiate considerably between different subprime markets.
Hodgson says: "We’ve been servicing self-employed and sole trader customers for many years. We understand the customer behaviour of that market segment, as we have a good track record of the type of customers who will access this product. Customer behaviour doesn’t change significantly in the non-prime market; there are often characteristics that are exactly the same as car customers."
Product design
When designing the product, Moneybarn had to take into consideration features such as the acceptance criteria, age, mileage and exclusions.
"The exclusions that we might put around LCVs would be different to those around cars," Hodgson says. "There are exclusions with any lender around cars. For example, most lenders will not finance a taxi because of the additional miles they would put on.
"There are some things that will adjust and change the residual value of an LCV, therefore we had to design the product with those exclusions in mind. For instance, if a customer puts a refrigeration unit on the back of a transit van, that will have an impact on the residual value of the vehicle."
Residual values are always considered in Moneybarn’s assessments of its products. Hodgson says the company found that self-employed and sole traders take good care of their vehicles.
"The type of customers we are servicing need these vehicles for their livelihood, so even though they might be using the vehicle for some fairly heavy activity, they tend to take good care of it. In addition, LCVs are designed to be used in a different way than a car. Vans are designed to be used by builders and plumbers; so they can take a bit more hard wear than a car," he explains.
Hodgson says that at the moment there’s a healthy requirement within the LCV space and that he cannot tell if the non-standard LCV market will continue to grow if the car market slows down.
Although he acknowledges the fact that the increase in self-employment is not "recession-proof", Hodgson says that this market segment is always of a considerable size in the economy, therefore there will be demand for such products even in an economic downturn.
He adds: "I think you could argue that the reason why we have seen an increase in self-employment and sole traders has actually been because the economy hasn’t delivered the increase in jobs that it potentially needs. People are forced to go out and do their own thing. I wouldn’t say it is recession-proof but to a certain extent the economy has always had this core of self-employed people and sole traders that we serviced over the years."
The LCV product is the first product launched by Moneybarn after its acquisition by Provident Financial Group in August 2014. Hodgson comments: "One of the exciting things about being part of a group, is that it means we have the ability and the backing now to come to market with really progressive ideas that will lead the market rather than just be part of the pact."<
