02 Mar Lending trends: CBILS opportunities and Brexit headaches
Guest blog post from Fluidly, our cashflow and funding partner.
Katie Ball, our head of funding, shares some key insights on the latest lending trends, from what we’re seeing specifically at Fluidly to wider commentary on the entire market.
In this month’s column, she looks at classic catch 22 supply and demand issues, which industries are currently deemed favourable to lenders, why CBILS is still so important even for clients you might not have thought about and getting prepared for Brexit cash headaches…
Alongside the usual seasonal trends that certain businesses experience, there are clearly two big circumstantial issues driving an urgent need for business funding right now: the continued pandemic (and its catastrophic impact on businesses everywhere) and Brexit (with its supply chain disruption costs, particularly for certain industries).
We were all hoping to see the back of both things this year. However, it’s now abundantly clear that for at least the rest of 2021, we’ll still be dealing with the fallout of coronavirus and navigating uncertainty and unpredictable costs as a result of leaving the EU.
But what is the impact right now? For your clients, our customers and for the lending market generally?
Supply and demand issues
One of the biggest challenges we’re always facing in lending is around supply and demand. The balance is never perfect, and clearly at the moment there is huge demand – but not necessarily the lending appetite to satisfy it.
Understandably, lenders are cautious, and unfortunately are not generally willing to lend to businesses that are unable to currently trade (or where trade is severely impacted).
This means that the hospitality, travel and construction industries are rarely successful in their funding requests. With the current situation, these industries are naturally considered high risk and unstable, deterring lenders from assisting. Unsurprisingly, these are the sectors demonstrating the highest demand for finance, as they have arguably been implicated the most by the pandemic.
A classic catch 22, and one we are trying to help combat with less-traditional finance routes. If you’ve got clients in these sectors struggling, there are still options, but they will most likely need some specialist support. It’s important to urge them to seek finance with good time (i.e. don’t leave it till it’s almost too late) as it may take time some hunting to find a suitable solution. And they will need to really search the entire market – all of which we can happily help with.
A cash safety net for ‘stable’ businesses
On the flip side, the current lending market is favouring e-commerce, online services and medical-related businesses. Logistics, auto garages and cleaning services are also deemed sturdy, low-risk industries.
Lenders are prioritising those businesses that are still trading in some capacity, and who are able to show they are in a stable position (even if trade has dipped a bit). For businesses in these sectors, we’re advising that they look at taking on finance where there’s decent rates, even if they don’t need it right now.
A cash safety net is a good thing in normal times, and right now it can be critical. It can be tough to predict how industries will be affected from one day to the next. With the one-of-a-kind terms available through the government loan schemes, we’re seeing lots of our partner firms help their clients secure a CBILS as a low-risk cash reserve.
Government CBILS remains number one choice
And on that note, there tends to be a misconception that all eligible businesses will have already exhausted government funding by now. But this is far from the truth.
At Fluidly, we are still seeing the majority of customers focused on receiving government-backed loans. And for a range of reasons, from cashflow issues, to growth plans or bill payments. It’s favourable terms, including the 12-month payment holiday and no required Personal Guarantee, means it remains very much the preferred option for businesses.
Recent research by Reparo Finance revealed that 85% of small businesses that started a CBILS application are still in need of financial support. For some, this is because they didn’t meet the eligibility criteria. And, for others, it’s due to a lack of understanding and adequate support around the application process itself – leading to incomplete applications.
But equally, there’s a large number of small businesses that took a CBILS loan initially that now find they didn’t take sufficient funds. This is particularly as the lockdown hell for firms continues. With the option to extend or refinance an existing CBILS to take the full 25% of turnover, we are helping lots of customers maximise this less well-publicised option.
We’re also seeing lots of partners help clients that took Bounce Back Loans refinance to CBILS so they can increase the cash available to them.
With the current CBILS deadline at the end of March, now’s the time to check if there’s clients who could still get more from the scheme.
In early January, after the border chaos with stacked freight vehicles, the Road Haulage Association warned the real impact of new post-Brexit red tape on businesses was still to come. And we’re certainly anticipating some issues for (and seeing increased demand already from) businesses who rely on a lot of trade from the eurozone.
Business owners are facing a combination of new paperwork and associated costs, additional import-export duties, and confusing new trade rules – all of which will undoubtedly lead to some cash headaches.
With all of the stresses of coronavirus, Brexit became somewhat overshadowed, but it’s still a major concern for many UK small businesses and we’ve got a number of options at Fluidly that could help with the pressure.