In our latest Future of Finance webinar, ABL Business director, Alex Beardsley, provided insight into what the next quarter looks like in terms of the UK’s economic position as a whole, and the finance industry in particular.
Connecting the dots
In terms of the macro-economy, businesses don’t have a direct impact on it, but it does have an effect on companies and their finances. On the flip side, the finance industry can be impacted by the behaviour of firms.
Organisations can use this information to review their financial situation and work towards a stronger position – identifying opportunities and threats that need to be combated before it’s too late.
The current UK economic position
The economy contracted by 8.6% in the previous year, which is less than the 9.7% that was originally predicted. In the first lockdown of March 2020, the economy shrank by 8%, whereas in November, contraction was only 2.6%, demonstrating that — in combination with varying levels of government restrictions – enterprises are finding a way to operate and become more resilient in the face of the pandemic.
It’s predicted that the upcoming (hopefully) good weather, combined with the vaccination programme in the UK, will improve the public health situation and as such, economic activity will increase in 2021. It’s no surprise that lockdowns have meant a stop-start motion for the economy as a whole.
Over the past 12 months, it’s estimated that Britons have stockpiled £200 billion in savings, as restrictions have meant there has been less opportunity to consume. Therefore, experts predict a spending spree in 2021 that will grow the economy at a rate not seen since the post-WWII years.
2020 also saw the UK move up the table and become the fifth largest economy in the world, overtaking India – with China set to become the globe’s largest economy by 2028, knocking the USA off the top spot.
The UK finance market
CBILs has taken over the finance market, and as such, has become a bit of a taboo word in the ABL office! Covering all types of lending, the scheme is putting non-CBILS lenders under pressure and potentially causing some to go out of business, as they do not have the same access to cheap funds as the banks. There are only 110 accredited lenders for the scheme, so this means that choice in the market could massively shrink.
The invoice finance market is dead at the lower end as companies pay off debt or use loans instead. M&A activity, however, is at an all-time high due to capital gains, tax changes, and entrepreneur’s relief.
Anecdotal evidence from an anonymous bank states that cash borrowed through Covid lending is just sat in accounts – with businesses understandably panic-borrowing last year due to the uncertainty surrounding the economic situation, but now unsure how to use it.
Fraud is on the rise too, with a detected £1 billion in fraudulent BBLS requests in November 2020.
Lenders are introducing new calculations when assessing lending to an enterprise, using EBITDAC (Earnings Before Interest, Taxes, Depreciation, Amortisation, and Coronavirus) — leaving it to be seen if this will have a positive or negative effect as a trend after the pandemic.
ABL has also seen increased intervention by the FCA from a regulatory point of view, especially regarding insurance wins in relation to business continuity.
New changes in rules mean that brokers have to declare market commissions — although ABL has always done this. This further evidences a creeping in of increased regulation and competition, which in turn gives more things for organisations and lenders to consider.
Finally, there needs to be a new loan scheme in the near future, as it is becoming impossible for businesses in retail, leisure, hospitality, culture, and the arts etc. to get any CBILS lending at all – which is the purpose of the scheme in the first place. Lenders are now refusing to give further loans if a firm has already borrowed under Covid schemes.
The market vs us
Current lending statistics from the UK Treasury track ABL’s CBILS requests.
It can be seemed that, despite falling off in May/June 2020, demand for CBILS borrowing has increased dramatically since then, as the CBILS application period has continued to be extended by the Chancellor.
What’s next for UK finance?
So far, the UK has seen over £65 billion in loans issued to almost 1.5 million UK businesses. As such, a new loan scheme is likely to be introduced to support cash flow pressures, manage debt, and support growth.
The current EFG scheme was wrapped up in EU directives, so now that we’re in a post-Brexit world, a new scheme can be more UK focused.
Before the pandemic, a lot of firms that have never used this type of finance before have now realised the opportunities it can afford, and will continue to use it to grow and innovate new products and services.
We will also see change in the alternative finance market, as the cost of funds here are normally more expensive. We’d also like to know if anyone has any thoughts on this, and what they would like to explore. Get in touch with us today to share any comments.
Key dates to put in your calendar:
· Keep an eye out over the next few months for the extension of current support.
· 3rd March 2021 – UK budget announced. This is incredibly important, and we would recommend tuning in to the Chancellor’s announcements to find out what the plan is to get the UK out of this £65 billion debt.
· 31st March 2021 – end of CBILS applications.
· April 2021 – repayments of BBLS and CBILS begin.
The three camps of business mindsets currently
At ABL, we have noticed that there are three current categories of organisations:
1. The sufferers – these businesses can’t see a way out. They have no money and don’t know how to trade.
2. The opportunists – they want to secure as much finance as possible to try absolutely everything, including acquisition, new products etc. Often these organisations demonstrate excellent leadership.
3. The hoarders – this group is sat on a lot of cash that they don’t know what to do with, and that they don’t want to spend due to ongoing uncertainty.
It will be interesting to see how these camps play out, and what new trends will emerge. For example, restaurants that have turned into delis and takeaways have become a huge success, while others have gone under.
Thanks to everyone that attended the webinar. If you missed it and are interested in registering for our next future of finance webinar, you can do so here.