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End of an era: a new dawn for business finance?

Last week I saw the final lending figures for Coronavirus loan schemes. The highlights:

  • £79.3bn of loans to 1.67m businesses across the UK
  • Businesses across the South West received over £5.6bn in funding under the government’s two largest Covid-19 loan schemes, the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS), broken down as follows:
    • Nearly 126,500 loans worth nearly £3.6bn have been provided across the region under the Bounce Bank Loan Scheme
    • Over 8,600 loans worth over £2bn have been provided across the region under the Coronavirus Business Interruption Loan Scheme

As I am sure most of you are aware, the above schemes closed to new applicants on 31 March 2021 and then there was a period where applications in the system could be processed, which I think came to an end on 31 May 2021. So, what now?

Life after CBILS and BBL…

We have written about the huge amount of debt that has been drawn down by UK businesses since the first lockdown and some of the implications for business finance.

I am going to stay at the positive end of thinking about this – Scott Bebbington, from the Business Recovery team wrote a short blog which touches on the situation when you cannot repay your Bounce Back Loan.

I write this blog in the context of findings from a report published this week (Access to Finance Spotlight) that indicates: “The demand for finance was thought to be strong amongst SMEs at all development stages across the UK.”

Here are seven things to think about as we enter this new era:

1.Projections and management information are going to be key

As Scott mentions in his blog, loan repayments should be factored into your financial forecasts. I would suggest the projections are created in an integrated fashion so that they are easy to update and flexible to modelling different scenarios. These then should be used proactively to foresee cash deficits and to act to secure funding or take other actions to reduce/eliminate cash deficits where possible, for example by reducing debtor days. Some ‘basic’ advice yes, but it is often the basics that get forgotten.

I also anticipate more lenders looking to use live (cloud) accounts information in their lending decisions. Another reason to get that bookkeeping up to date…

2. Not all loans will be as easy to land as Bounce Back Loans

Enough said…

3. Remember the ‘Pay As You Grow’ scheme

For those who have taken out a Bounce Back Loan, remember that if you can foresee problems in making repayments your lender should be offering the PAYG scheme, which can be used to extend the loan term etc. Your lender should have advised you of this facility.

4. The Recovery Loan Scheme (RLS)

Only time will tell how popular this scheme is, but a quick Google search picked up a couple of reports that the scheme had got off to a slow start – and this is consistent with comments from colleagues and contacts. But arguably it’s early days yet. Here’s an outline of the Recovery Loan Scheme (RLS), with 45 lenders accredited to administer the scheme at the time of writing – and I know of one based in the region who is seeking accreditation.

5. There are more sources of debt than the high street banks, and there are more types of finance than debt

The Access to Finance Spotlight report comments that: “Lack of SME awareness of resources available was a concern among respondents. For example, over three in five (64%) respondents said that SMEs in their region or nation were not confident in their knowledge of where to obtain information on the types of finance and specific providers available.” This was cited as the biggest barrier to demand for finance.

We try to assist in this area through our access to a variety of alternative lenders, through direct contacts, platforms such as Capitalise, blogs and events.

6. LIBOR is no more, but environmental, social and governance (ESG) and net zero are

As Paul Crocker blogged back in May, LIBOR is being discontinued and this will impact on a significant proportion of British businesses in some way.

I was interested to see a section in the Access to Finance Spotlight report on ESG and net zero which included the following:

  • Access to specific finance that SMEs needed to realise their ESG and/or net zero goals was seen as limited
  • Awareness raising and educating SMEs about ESG and net zero was identified as a crucial step towards filling the finance gap

7. Innovation funding to the fore?

Admittedly, the focus on innovation predates Covid-19, but I would argue that the challenges and business opportunities brought on by the pandemic will increase the amount of innovation being carried out by SMEs. The UK Government and LEPs have allocated funding to assist SMEs in carrying out R&D and we periodically try and summarise available R&D funding. We will also, I am sure, have a segment at our ‘Finance in…’ events on funding for innovation.

PKF Francis Clark

At the end of a tumultuous period dominated by two debt products – CBILS and BBL – we have entered a new era where we anticipate less demand for debt and a more refined demand for funding.

Consequently, we are looking to evolve our offering in this area – specifically for smaller businesses.

Across the firm, for example, we are trailing packages to assist in preparing financial projections, looking at products and processes to assist with improving credit scores and more generally working with clients to get their cloud accounts up to date.

In essence we here to work with you on your projections and management information and, if required, to assist in determination of funding requirements and match with funding available. Please contact your client engagement team or me if you have any questions.

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FEATURING: Richard Wadman
Richard qualified as a Chartered Accountant with KPMG in 1993. Since 2006 he has worked in Corporate Finance, firstly with the predecessor firm in Truro… read more
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