In our fifth and final ‘The Future of Finance’ webinar, hosted by ABL’s Alex Beardsley, we talked about all things Covid impact, and trading out of the pandemic. Find out what our key takeaways were, in this blog.
At ABL, we’re not economists, we’re commercial finance experts, business strategists and run a company ourselves. And we do get a lot of information from our partners and organisations that we’re members of — such as CBI and our local Chambers of Commerce — on a local and national level.
We also work across all finance products, and don’t specialise in one particular type of finance or sector, meaning that we can understand peaks and troughs in varying industries
The UK economic position
The economy grew by 0.4% in February. Things are starting to open up again and that shows in this figure, which is lower than forecast, but still heading in the right direction.
Growth is strongest in the hospitality industry as the sector prepares to return to some sort of normality, and consumer spending has increased as people get back out into the world.
Output in the healthcare industry has dropped by -2.7%, due to reduced Covid testing and compared to the peak in January, and has been boosted by the vaccine roll-out.
The strongest recovery has been in the manufacturing sector. At ABL, our customers in this industry are taking advantage of CBILs and the general situation to increase output and employment.
And on that subject, unemployment rates fell to 4.9% in the three months preceding February, but there are now more than 800,000 less workers on payroll than before the pandemic.
It is also worth noting that the Bank of England is keeping interest rates at 0.1%.
The effects of the pandemic
It has now been over a year since the first lockdown, and within the finance industry we’re starting to see the effects filtering through. Including:
- ‘CBILs hangovers’ – lenders are cautious, and many are still sitting on CBILs applications that are awaiting pay-out amounting to over £200m that they need to sift through before they go back to normal lending.
- More due diligence – lenders are being more selective about who they deal with. ABL have recently been told they are one of only a select number of intermediaries on various lender panels.
- CBILs pre-packs — the first of these are starting to drop, and this means that lenders approached to fund the new company are reluctant to do so if there is CBILS borrowing. We expect to see more of this and build up a clearer picture as the insolvency market opens up.
- Changing customer expectations – personal guarantees are starting to be reintroduced after a year of not being needed, thanks to government-backed lending. There is insurance that can be taken out to protect personal finances, but we need to re-educate organisations and business owners that this risk is normal and necessary. Low rates are also an issue, these will not be available in future and firms need to understand this.
- The impact of payment holidays on future applications – e.g. deferments on VAT, or other payment holidays. These are starting to make it difficult to obtain funding for growth going forward. This is particularly evident in the Pay-As-You-Grow scheme, that should be used with caution.
There is a general flux in finance options – businesses need to think about the future when making the decisions today, and understand consequences of certain types of finance.
The UK finance market
The finance market in the UK is currently extremely complex. Lenders had moved on to CBILs, with traditional lending becoming non-existent.
As CBILs came to an end, the Recovery Loan Scheme was deemed as the next big thing. Actually, it has become the elephant in the room, because it’s not the same as CBILs – it’s the ability for lenders to lend with a government guarantee if they wish, and not for a specific purpose like CBILs.
The market is also extremely competitive at the moment, sometimes leading to bad practices. For example, lenders reducing the number of brokers allowed onto their panels. The amount of finance put out with CBILs means that lenders don’t have the cash to lend. This means that businesses need to deal with reputable finance companies and brokers, that are members of FIBA and NACFB.
It’s also prudent to look for lenders that are patrons of these organisations, or are part of their own industry regulating body such as UK Finance - IFABL (Invoice Finance and Asset Based Lending) or ASTL (Association of Short Term Lenders).
Further to this, new recovery funds announced by lenders are probably just marketing terms, but they are still injecting cash into UK businesses which is great as it will encourage growth.
And increased regulation is creeping in, which is a good thing. For example, discretionary commissions are no longer permitted in the automotive industry – they have to state how much commission is part of the deal. But is the lender or the broker responsible for disclosing this? At the end of the day it is both, as they have the responsibility to make sure that the customer is as risk free as possible. At ABL, we’ve always disclosed this.
Anecdotally we know that roughly 46% of Covid loans are still sat untouched in bank accounts in the UK, which is massively down from the last quarter, when this figure was over 80%. It will be interesting to see what happens with this, as there are still applications waiting to be paid out.
Manage-aways are increasing, where banks are asking customers to move their facilities as portfolios are restructured to de-risk lenders position. Talk to us if that is happening to you.
We’re also seeing that Employee Ownership Transfer (EOT) is the new kid on the block, and lenders are supporting these transactions. Whilst not new, EOTs are rising in popularity and at ABL we are seeing a lot of enquiries about this.
And it’s becoming obvious that there is a rate war with funders, as rate-conscious customers drive it down. However, we need to look at the added value of a finance option rather than just the rate, and if it’s low, we need to look at the reasons behind it, and what caveats are involved.
The Recovery Loan Scheme
Finance under the RLS can be in the form of loans, or can be used across facilities such as invoice finance, overdraft, asset finance etc. – for any business purposes from £1000 to £10m. There are no minimum trading periods, either. This finance can also be used to pay off more expensive borrowing, but it is worth noting that lenders have indicated higher rates for RLS.
The scheme is for businesses that need a top-up or gap funding to help them trade out of the pandemic. And when it comes to lenders, it’s all about the repayments – can this company afford to take it on and make the repayments if they have BBLs or CBILs on the books? However, RLS can be run in conjunction with previous CBILS and BBLS borrowing.
There are only 23 accredited lenders currently under the scheme, and the deadline for applications is 31st December, the end date is in place in relation to issues surrounding the Northern Ireland Protocol. This related to EU rules regarding an Undertaking In Difficulty and how that is assessed. We expect the RLS to be available past 31st December 2021, more updates will follow.
The RLS is to be used when traditional finance is not available. Funders are suggesting they will have two pots of money available – traditional funding and recovery loans, and where traditional is not appropriate, they will use the higher-rate recovery loan.
The funding landscape, now and next
There are six main things to consider:
- The Recovery Loan Scheme.
- Super deduction — running from April 21 to March 23, allows businesses buying capital equipment to get 25p for every £1 spent. We’ll see a big increase in asset finance to take advantage of this.
- Fintech unplugged – fintech cannot currently keep up with the complexity of the landscape, but the future is still centred on technology, e.g. open banking.
- Sustainability will be prioritised, and banks that support businesses with a green agenda. Greenwashing is rife at the moment, but this is likely to trickle down to real change and action.
- EOTs, MBOs and MBIs — these are becoming increasingly common as more structured, forecast-driven lending takes place. As we see more, we’ll understand the pitfalls and positives in further detail.
- New finance products — we’ll be working with customers and lenders so that any new products we offer deliver real value.
Impact on businesses
We’re not tax advisors, but the biggest things we are seeing is business owners taking out CBILs and BBLs finance to use on operations, not realising that it’s taxable. Companies need to know where to go for this information, and we’ll be introducing our customers to tax advisors that can help them understand and rectify their situations.
Any business or Director slapped with a huge Tax bill, corporation tax, VAT or Self Assessment should be speaking to us! We can help them finance the repayment directly to HMRC.
Firms also need to understand all options and not just go to the first bank that they contact to raise finance, otherwise they can’t make an informed choice. We’d also advise reviewing any current facilities to ensure there is headroom.
And ultimately, organisations need to find lenders that will support growth and that are reputable – we don’t want horror stories!
EnABL partnerships
We’re currently undergoing a national roll-out, with an ABL office already operating in the South West, and with a North East office to be announced later this year. We’ve also got representatives in the North West and Scotland – as well as our HQ in Yorkshire.
That’s why we’re looking for partners with whom we can add value together. If this sounds like you, we want to work with you! We’re all about utilising the right people and experts, and getting them in front of businesses that they can help.
We’re looking for partners that can assist us in looking after our customers in the short and long-term, so get in touch with us today if this is of interest.