Old meets new
Dan Walker took over the helm at Sancus Finance at a pivotal time for the alternative lender. He talks to Peer2Peer Finance News about the new business structure and the benefits of a personal approach
Alternative lender Sancus Finance is not your typical peer-to-peer platform, and neither is its managing director Dan Walker your typical P2P boss.
For one thing, Sancus is listed – or at least its parent is, Aim-listed alternative finance vehicle GLI Finance. A pretty grown-up status in a predominantly teenage P2P sector where private ownership with its less rigorous governance requirements is still very much the norm.
And for the other, Walker himself is an ex-corporate lawyer who spent 10 very successful years in structured finance at Lloyds. It’s easy to imagine him as a go-ahead young partner in a top law firm had things panned out differently.
Smart yes, but also measured and thoughtful. Not a swashbuckling entrepreneur hell-bent on beating up the banks. The two thus make for a complementary if somewhat unusual mixture.
“I like the combination of old and new that Sancus provides,” says Walker.
“It’s doing all the good things that banks do, plus a bit more. But it also has the benefits of an alternative finance house – it’s more flexible and more willing to embrace tech.”
As for his legal background, he reckons that has a number of advantages when it comes to running a lending operation like Sancus.
“As a lawyer you are probably pretty risk averse, and you are taught to view everything through a risk prism,” he explains.
“I think that is no bad thing – obviously in business you have to take certain risks but it is about knowing what they are and mitigating them as much as you can.”
It also means that he is no stranger to hard work. “If you have spent a few years at a Magic
Circle law firm then you have the work ethic and the professionalism that comes with that,” he adds.
That kind of commitment to the job is likely to come in pretty handy, as Sancus and GLI Finance generally have had a busy time of it recently and there is plenty more work still to do.
2016 was something of an annus horribilis for the group as a whole, whose track record of profitable growth took a nasty hit thanks to a £16.5m loss for the year – largely due to problems with GLI’s fintech investment portfolio.
But bad things can have good outcomes, and the root-and-branch look at the structure and strategy that resulted seems to be working – in its latest accounts the GLI group turned that loss into a modest operating profit of £0.1m.
“It’s about simplification of the business, separating the Fintech Ventures from the lending business,” says Walker.
“And all the lending is now under one umbrella and branded Sancus.”
So the old brands such as Funding Knight and Platform Black are now branded Sancus Funding and Sancus Finance respectively, and owned by the Sancus BMS subsidiary. Sancus BMS itself made an operating profit of £1.6m in the last financial year.
Even the simplified structure still seems fairly complicated to this observer, but there is at least a logic and branding consistency to it. There are now two divisions to the group, says Walker, the investment vehicle Fintech Ventures and Sancus BMS, the lending operation.
The ventures portfolio of 11 fintech investments will continue to be supported, but “the real engine room for the business is now on the lending side,” affirms Walker. “There is a desire to get back to paying dividends for the shareholders.”
The Sancus BMS lending division itself has three operating businesses. There is Sancus, which provides short-term asset-backed loans in Jersey, Guernsey, the Isle of Man and Gibraltar. Then there is BMS Finance in London providing secured longer-term loans to UK SMEs supported by capital from the British Business Bank.
And finally there is Sancus Finance, the part of the business that Walker runs, which specialises in the provision of working capital in the UK.
“We provide short-term working capital to small businesses and educational establishments through our three products – supply chain finance, education finance and invoice discounting,” he explains.
For small businesses, Sancus can provide much-needed working capital to smooth out bumps in cashflow – or even to generate a return.
“If they pay a supplier early they can achieve a discount,” says Walker.
“So the economics then are shared between us – it becomes a treasury operation.”
On the funding side, Sancus offers returns which vary from four per cent with a 100 per cent capital guarantee for the more cautious lender, to a racier 10 per cent with concomitantly more risk to invested capital.
Shareholders in the wider GLI group include family offices and high-net-worth individuals, plus institutions including Axa and Artemis.
Sancus’ borrowers range from businesses turning over a couple of million to FTSE 250s and educational establishments turning over £150m.
“The group as a whole [all three Sancus lending operations] has lent in excess of £800m in total,” affirms Walker.
“Across that range you’d see an invoice for £5,000 but also a £17m property deal.
“That is one thing we are keen to maintain – a broad range of options which most of the alternative finance market doesn’t have.
“If there is a borrower we’d like to lend to, then we try to find a way to do so.”
That kind of personal approach reflects Sancus’ business model, which is more finance with a dash of tech than tech with a dash of finance.
“What we are doing is pretty traditional finance in many ways,” continues Walker. “We have a sales team to originate positions, and they themselves have a broker network up and down the country.
“On the credit side we have a bunch of guys with decades of experience who make the decisions. For all those reasons we are quite different from a typical P2P.
“It’s very much a relationship play, that’s what our borrowers value. They even have access to our credit committee – the person actually making the credit decisions will speak to the client. That’s something you very rarely see in a bank.”
Of course that personal model bring its own difficulties when it comes to growth, as the usual fintech economies of scale – which rely on automating as much of the process as possible – are less applicable.
“The challenge is how do you get to scale?” admits Walker. “We have to deliver a compelling proposition to funders and borrowers, but do so in a way that also delivers value to our shareholders.”
That means “never letting your guard down on credit” and also paying real attention to detail around operations.
“When I have seen things go wrong in my career, it has almost exclusively not been a failure of big strategic ideas but a failure of implementation – not dotting the i’s and crossing the t’s,” says Walker.
On the upside, the Sancus model is harder to replicate and perhaps less readily subject to competition – but there’s no room for complacency.
“The key is to make sure we use tech to ensure that we are challenging ourselves to always do those things in the most efficient way,” he adds.
Having been in post since January this year, Walker is still relatively new to the job. What attracted him to it?
“I liked the people I met at Sancus, I thought they were ambitious and credible, and I thought the prospects were good.
“I think there is definitely a place for alternative finance alongside traditional lenders, I don’t see it as one or the other. I think the better alternative finance providers do take lessons from some of the things that banks have got right.”
Walker qualified as a lawyer with Linklaters after a law degree at Oxford, and prior to joining Sancus he was with German bank Varengold. Its UK investments brought him into to contact with the alternative finance scene.
“We went out and found alternative lenders who had a business model we wanted to support,” he says. “We brought the capital and they brought the expertise.”
Before that he spent the decade from 2005 to 2015 in structured finance at Lloyds Banking Group.
“I thought I’d stay for a couple of years and ended up staying for 10,” he explains. “Our team was at the heart of many of the measures that were taken during the financial crisis – we were charged with discussions with the government around the asset protection scheme, for example. It was an extraordinarily busy and interesting time.”
One of the biggest announcements since he joined Sancus came late in January, when GLI Finance announced that it had secured a £50m revolving credit line with Honeycomb Investment Trust. The facility will be used to expand Sancus’ property-backed lending business, with £20m drawn down immediately.
“It’s a big endorsement of our business and our credit process,” says Walker, who as well as being managing director of the working capital business in the UK has also joined the Sancus BMS board.
“We have several other ongoing conversations with institutions that we hope will lead to announcements soon.”
On the supply chain finance side, one of his biggest hopes for growth is the vendor partner programme. This involves larger companies signing up Sancus as their preferred partner for providing credit to buyers, potentially opening the door to numerous lucrative deals through the same client.
So a buyer might want to order more from Sancus’ client company, but that client might not be happy to take on the associated credit risk. With Sancus on board to provide credit finance, everybody gets what they want – in theory anyway.
“We already have a couple of FTSE 250s,” Walker states. “They have incredible customer lists and it can give you access to their whole customer base. It is difficult to pull off because for a company of that size to trust us as a relatively small business with conversations with their customers – that’s a big step.
“So getting there is a long process but it’s a real opportunity for growth.”
Although Sancus is generally pretty agnostic about sectors, it does have one specialist working capital product aimed at educational establishments.
“We are probably the largest non-bank provider to the sector,” he says. “We have for example a £10m line with one university.”
Colleges and universities are particularly in need of working capital, he says, because much of the funding they receive from government is staged and comes in large chunks rather than a steady stream, whereas outgoings tend to be constant.
“It’s a good place to be because it’s a sector which is conservative, in a good way,” he asserts.
“There is proper governance and real oversight. It’s appealing to funders too, it feels like a good part of the market to be lending to.”
So Sancus is a grown-up small business that likes to lend to other relatively grown-up businesses too.
“An Aim-listed entity comes with a certain level of governance,” Walker says. “There aren’t many alternative finance providers that come with that kind of governance. As a funder or a borrower, I would take a good deal of comfort in that.”
This article featured in the May edition of Peer2Peer Finance News, now available to read online.