Businesses must manage their expectations when it comes to commercial finance

Business Insights

It’s an exciting time to be working within the commercial finance sphere, as the economy is showing extremely welcome signs of improvement, with businesses boldly looking to spearhead recovery.

Yet, with customers still expecting the same quick-and-easy cash to be readily available – which is understandable for those which are still feeling financially squeezed – there must be a route to making processes as efficient as possible.

While the nation is now planning to trade out of the pandemic, the assessment of lending requirements has increased since pre-pandemic levels. Financiers are requesting additional Covid impact statements to understand how businesses have been affected during the last year – in order to make an informed decision on an application. In addition, they want to know whether the positive or negative impact the pandemic had on the business is set to continue.

For the new Recovery Loan Scheme (RLS), lenders want forecasts and business plans – something that was not needed for the Coronavirus Business Interruption Loan Scheme (CBILS). These requirements are also becoming commonplace for standard business loans too, which was not the norm before Covid.

What’s more, pre-2020, lenders would only require three months of bank statements, whereas CBILS called for six. Now, it’s not uncommon to require a whole years’ worth – alongside detailed management information – so the full financial impact of the pandemic can be assessed.

Although it might appear daunting at first, the landscape isn’t as scary as it might seem – and these extra checks and balances are a necessary precaution when it comes to our nation’s recovery. Ultimately, lenders want to see businesses succeed, but as they take on more risk, they’re asking company owners to provide more reassurances in return.

In contrast to the relative ease of applying for the government’s Covid support loans, RLS examines affordability in a lot more detail, which is unsurprising as the very nature of CBILS was to see businesses through the peak of the crisis – as well as being guaranteed by the government.

As such, it is unrealistic to hope for the same ease of application many have become used to during the last year. But forearmed is forewarned, and it’s far easier to secure funding when you know what data to collate – ahead of time.

Take personal finance as an example; applicants must provide proof of income and monthly outgoings. It’s the same principle which is being applied in the context of commercial funding, to provide lenders with the confidence that a firm can pay back the loan.

This may sound obvious, but it wasn’t always the case when borrowing through Covid interruption schemes last year, thanks to Rishi Sunak’s reassurances that the government would foot the bill if not.

Looking ahead, there’s a new range of products entering the market too, such as revolving credit facilities, investment and venture debt funds focused on growth. Secured term lends are making a comeback, too, but it’s important to note that not every offering will add genuine value – and the lowest rate isn’t always the right fit. Rather, the impact of a financial product must be assessed across the board in terms of the suitability and fit for the business and its purpose.

This is where businesses can utilise commercial finance intermediaries which have an understanding across the whole range of facilities to structure and coordinate the supply the information in a way that lenders understand and can see the potential.

Not only that, but this process provides company owners with complete oversight of their businesses – and can aid growth plans with quantitative data and options with which to choose from.

It’s universally-accepted that government-backed finance schemes were created for the specific purpose of helping businesses when they needed it most – which we now appear to have done, if the data continues in the same trend.

Although it’s clear there’s an ongoing uncertainty about the short-term and long-term impact on the economy, we must remember that we’ve lived through a moment in history – and we’re still dealing with much of the aftermath. Therefore, many lenders are understandably cautious, but this has given rise to a new wave of financial institutions that understand risk and want to support businesses that are taking such opportunities, with a view to accelerated growth.

While owners and finance leaders accepting that it is perhaps unrealistic to expect Covid-lending parameters to be available moving forwards, it’s important to see the positives in the commercial finance landscape and explore all opportunities too – as knowledge is, after all, power.

David Baum, ABL Business