"We'll meet again" - These were the words used by Her Majesty the Queen at the end of her historic address last week. I hope that day comes during the summer or early autumn, and that we’re able to look back on this period as a time where the country pulled together, united and resolute.
In the meantime the picture for businesses of all sizes is uncertain, but there is support available from the public and private sector.
The Government is taking proactive measures at pace. Last week, its much needed business rate relief kicked-in, while cash grants of up to £25,000 started to land in bank accounts.
It’s reassuring to see the Chancellor acting to support big and small businesses alike, and the announcement of the Coronavirus Business Interruption Loan Scheme (CIBLS) is helpful in many ways.
However, I believe making the scheme interest free for a year, could cause further issues down the line. Borrowing costs are already at a historic low, meaning that savings are small for individual borrows. Furthermore, there’s a real danger that many businesses could mistake this deferred interest period for some kind of grant.
The demonisation of personal guarantees, and calls to waive them during this period, may cause further confusion regarding CIBLS. The reality is that those eligible for CIBLS must be viable businesses. It is a commercial facility to be repaid and secured in the usual way.
As a financial services partner to our 12,000 businesses, we have a unique approach to risk. A guarantee can be an important part of the security mix, depending on the risk profile of a business. It keeps Directors interested and focused.
Funders will of course follow rules set out by the Government, but businesses will only be able to access emergency SME loans if they borrow in the normal way that underpins most commercial lending.
In the current environment, the definition of viability is open for debate. As a consequence, many businesses applying for CBILS will not qualify. Additionally, in a category many are dubbing ‘the squeezed middle’, there are many businesses likely to be too large for CIBLS, but too small for the Bank of England’s commercial paper.
There is support available from the public and private sector.
It’s here, I believe, forms of finance such as invoice finance and asset based lending will come in. Funders that are open for business and committed to looking at unique ways of unlocking working capital for SMEs, will fill this void and support businesses through this crisis.
Companies that are relatively cash rich in better times will see things tighten, and leveraging a debtor book can provide a valuable – or even lifesaving – source of cash.
Bad debt protection is another important element of providing SMEs with the support they need. This is also something we’re currently able to support SMEs with, providing new and existing clients with bad debt protection reviews so they can understand which debts can be protected against customer insolvency, non-payment or protracted default.
However, this too could be impacted if credit insurers are forced to reduce limits. The availability of credit insurance is important in enabling access to sufficient SME funding levels. For this reason, in the UK the ABI, credit insurance providers and funders all need to work together with the Government to find a solution.
Working together is the key. If businesses act now and protect their cashflow and supply chains in this way, we will meet again and we will have seen this crisis through together.
In the meantime, and beyond, we’re here to help and make sure more businesses grow and thrive.