When originally developing the content for this quarter’s webinar, ABL director, Alex Beardsley wanted to title the presentation, ‘A new era’ – not expecting a second lockdown to be heading our way.
Instead, the seminar seemed more like ‘Back to the future’ — with many of the government’s finance schemes extended.
So, what is the current position of the UK economy?
It’s important to remember that businesses do not operate in a vacuum but are instead subject to the goings on in the macroeconomic environment.
However, it is getting increasingly difficult to predict what might happen next, with talks of a ‘V-shaped recovery’ long over. Inflation is still lower than expected, at 0.5% in September, although house prices have grown by 2.5% — against all predictions from several experts.
Brexit is only serving to add to this uncertainty, with businesses not to be blamed for taking their ‘eye off the ball’ when planning for the transition, due to more pressing Covid concerns.
The last economic recession saw a distinct lack of cash. Now, there is plenty of cash available, but the economy is in disarray due to massive change in our behaviours — the full outcome of which remains to be seen.
It is not surprising that the housing and hospitality industries have been the hardest hit, with a recent ONS survey highlighting these businesses are only operating at 75% — with a massive 32% unsure if they will survive.
This has been compounded by 17% of workers permanently shifting from office to home, even hoping to remote work post-pandemic — and the repercussions that will have for the businesses which serve the needs of office workers.
How does the UK finance market look?
There has been a huge change in how funders operate, with tighter credit policies and the move away from funding to brokering in the CBILs market. This is due to lenders requiring new or different products to suit the needs of business.
It remains to be seen if the CBILs scheme has been effective, with the stifling of core lending and it now becoming unclear what a ‘normal’ loan looks like.
Total Covid lending has reached £61.26 billion at the time of writing, with overall bank lending through the government support schemes and non-Covid related lending up by 63% to £200.8 billion, in the period between March and August this year.
A new trend in partnerships between banks and external alternative-finance companies is arising, as lenders look to, again, create fresh offerings for the varying needs of their customers. A great example of this is Barclays & Market Finance.
In addition, the spotlight is shining directly on funders and rates relating to CBILs lending.
What do we need to prepare for in the coming months?
We’ve all got a whirlwind six months ahead of us, so preparing now is essential.
• From 1st December, the Crown will take preference over other lenders when it comes to insolvency processes – something which is already causing worry within the industry.
• The Christmas period — a time when funding would normally be required to cover many things related to the season — is up in the air at the moment. Whether it is ‘cancelled’ or not, Christmas will certainly look very different this year, and the levels of funding needed by businesses will change too.
• Let’s not forget, 1st January sees our exit from the EU. Again, it is uncertain if we will have a deal or not, but businesses will need to prepare for the impact that Brexit will have.
• CBILs has been extended to 31st January also, so if cash is needed now is the time to apply.
• Elsewhere, Rishi Sunak has announced that the furlough scheme will be extended to the end of March, giving businesses a reprieve in relation to salary costs during this interruption period.
• April 2021 brings the start of repayments for the CBILs and BBILs — an important date to plan for, if you have taken advantage of either of these schemes.
What has the impact been on SMEs?
I think we can all agree that change is the only constant in the current climate.
Customer expectations of lack of personal guarantees — relying on government backing instead — and lending at the Bank of England base rate is the norm. It is important to note this is not the case and moving forward it is not in the funder’s interest, nor is it sustainable, to provide ‘cheap cash’ to businesses.
Examining all your options is key. We’d recommend studying all products that are available before making a decision — access to working capital will be limited going forward, so a long-term finance strategy is essential.
Funders are also starting to assess lending on profitability and serviceability as the pandemic lingers on – putting businesses in a difficult situation as they struggle to assess when loans can be repaid. This means some can’t access the very business interruption loans designed to help them survive.
With funders now turning down more and more businesses, it can seem as if the organisation has been denied CBILs altogether, but this is not the case — they can apply with another lender.
So, what do SMEs need to know?
Businesses should be aware that they can apply for multiple CBILs — up to a maximum of 25% of turnover — and for finance products over multiple products such as asset, loan, properly, and invoice.
It is also important to avoid a scattergun approach. Once a CBIL has been denied, you can’t apply from that lender again for six months — meaning there’s little to no chance of receiving it.
And what do you recommend that businesses do?
As a starting point, we advise the following:
• A full review of working capital for the next 12 months. If your assessment shows that you need more cash, apply before CBILs ends on 31st January.
• Assess all your options — your broker will be able to offer assistance on this.
• If you haven’t already, carry out an in-depth review of the impact that Brexit will have on your business.
• Read more about why asset based lending is also known as working capital finance in Alex’s latest article for Global Finance Banking Review to find out more.
If you need further information or would like to discuss your finance options for the year ahead, get in touch with us today.