The emergency loan schemes of CBILS (Coronavirus Business Interruption Loan Scheme) and BBLS (Bounce Back Loan Schemes) will be looked back upon as a huge saving grace for businesses and the wider UK economy in general. Over £79.3bn of loans were given to over 1.67m businesses across the UK, as the pandemic decimated the UK workforce. This allowed for much needed breathing space as well as reduction in cashflow for businesses struggling to keep afloat during the unprecedented period.
As the pandemic draws to a much-needed close and restrictions are eased, it will be interesting to see what lending options are out there for businesses post-COVID. Many analysts have predicted a rise in interest rates to combat the huge sums of borrowing from the government over the past 18 months, potentially deterring businesses away from seeking additional financial aid.
We spoke to Nordens’ Head of Corporate Finance, Darren Hahn, about the future of lending options, the criteria to gain lending and what other options are out there for businesses wishing to expand and achieve growth.
Do you think there will be a rise in business lending in the next few months as lockdown has finished?
Absolutely, internal working capital cycles have been extended with longer lead times for stock. As well as this, suppliers are chasing debt and tightening up on credit terms, with trade debtors often taking longer to pay. External working capital is necessary if businesses wish to achieve growth and expand operations.
With the furlough scheme and bounce back loans coming to an end with deferred payments now due and being collected, external debt is a commercial risk business owners must assess. Instead of looking it as a burdened debt however, it’s crucial to view lending as an investment which is essentially what it is, just like a mortgage.
Through meticulous planning, preparation and risk assessment, the right lending partner and amount could see your business achieve exponential growth and take it to the next level. It’s definitely something worth considering if your ambitions are to succeed.
What are the other types of lending options out there for business post-pandemic and how easily retrievable are they?
There is still the government backed recovery loan scheme available for businesses who have been affected by COVID-19. We are however starting to see standard commercial lending make its long-awaited return after the pandemic put a halt to many proceedings.
There is a real appetite for property-backed lending and growth lending, as the economy is on course to recover faster than expected. This has led many businesses and individuals to expand their operations in the hope that a boom in profits will likely suffice as restrictions have finally come to an end. As with all lending there are hurdles to jump around, including credit scores and affordability, therefore every business will be different. That’s where Nordens can really help out, with access to over 100 lenders who can guide your business and understand exactly what’s available and whether it is the right fit for you.
Will banks and lenders be hesitant in lending to certain types of businesses (e.g start-ups, SMEs) due to the risk of not being paid back on time or at all?
Banks have notoriously always had a stricter criteria around the businesses they can lend to. Because of this, certain ‘high risk’ sectors may struggle to get support from those institutions which can often lead businesses to feel alienated. That being said, there are over 360 lenders in the UK alone, all with their own criteria and so just because one bank may not be able to support a business, that doesn’t necessarily mean another lender won’t.
It all boils down to really understanding where the business is at and approaching the lenders with the matching appetite. They will want to see what the business’ ambitions are and whether it’s worth it for them. Approaching lenders with this mindset will put you in the best possible position to leave with an offer that suits your wishes.
Do you think interest rates for loans will continue to rise as the economy slowly recovers?
The CBILS (Coronavirus Business Interruption Loan Scheme) and BBLS (Bounce Back Loan Scheme) saw the best rates for fully unsecured lending we have ever seen and likely will ever see. This was a huge lifeline for thousands of businesses up and down the country, at a time when survival was key.
As the economy recovers, we can expect that rates will return to pre-pandemic levels as soon as the end of this year perhaps. The important thing to think about however is the return on investment; rate vs growth of the business in return. Your lending must be completely aligned with your growth plans as if not then you could be in deeper trouble than what was previously expected.
What advice would you give to businesses who are looking for a loan yet are scared that it could cripple their business long-term?
Get in contact with us at Nordens as we are always willing to help, no matter what capacity. Aside from that, explore your options. Understand what’s available to you, the monthly financial implication of taking said funding vs the projected benefit of doing so. It’s also important to take a look at the business’ credit score, which has a huge effect on the interest rate offered and therefore the amount of interest paid. The example below is of an A rating vs a C rating.
We hope this has outlined to you exactly what lending options are out there post-pandemic and what will need to be considered beforehand. If you require any more information on any lending options or our strategic advisory services, please don’t hesitate to get in contact with us at Nordens where one of our trusted advisors would be happy talking you through your query.