In this article Non-Executive Director, Dave Shalliday looks at how the banks may soon alter their lending preferences, as well as exploring some key considerations for business leaders as government support schemes begin to wind down.
Back in May this year I penned an article entitled the three stages of recovery, as a guide to help management teams to navigate their business through the severe impact of COVID-19. When I look back, I realise that very few of us anticipated that many months on, we would still be firmly in the grip of stage 1.
The winding down begins
While the government's financial support schemes, along with the job retention scheme have been of significant help to businesses, we now see that the support has an expiry date and the 'stabilisers' will soon be removed. As the economy rebases itself and adjusts to the enormous impacts of the pandemic, business leaders are beginning to understand the lasting impact for their own business models.
Access to the various government backed loan and support schemes has presented a 'too good to miss' opportunity for many businesses, with a relatively easy application and assessment process and no capital or interest repayments for 12 months. These 'emergency' schemes, however, may not in every case represent the best long-term solution.
It is also true that the banks themselves have been forced to make strained decisions in what are unprecedented times, and there have doubtless been times that the lending criteria born out of the 2008 recession would have been bent in order to help support customers and businesses in need while uncertainty was at its highest.
Choosing the right funding structure
However, having the right long-term funding structure in place is imperative. Going forward the mainstream banks will revert to a sector based focus on credit risk analysis and individual companies need to ensure that they align with the best banking partners for them.
CBILS have a 6 year repayment horizon, are not portable and in the event that a business needs to realign with an alternative and more suitable lender, will require to be refinanced on more 'normal' credit assessment terms and conditions. How will the business stand up to this scrutiny and financial modelling?
Decisions taken now must not, wherever possible, constrain a business from putting in place the optimal funding structure which addresses the structural defects caused by the pandemic and also provides the correct working capital liquidity for future growth.
While my article from May still holds true in regard to the steps to be taken, it is also clear to me that there is a risk of business leaders choosing a funding partner that may not be best suited to their business in the long term.
It is also essential businesses strongly consider the types of borrowing they do, and not commit themselves beyond that of what they can service in the 'new norm' market we may see in the coming months, or even years.
We would stress the importance of putting due diligence into any borrowing decisions. At Verde, we are impartial and are able to assist with financial forecasting and modelling, as well as identifying the right funding partner that will provide the greatest longevity for your business.
To talk to Dave Shalliday, or any of the Verde Corporate Finance team, please call: 029 2240 3445 or email firstname.lastname@example.org. You can also book an appointment with one of our experts at a time to suit you by clicking here.