The funding market has seen some considerable changes during this period and here we set out what we have seen in terms of the government support for business and then how the ‘normal’ funding market has adapted:
CBILS
Firstly, we had the launch of the government backed CBILS facilities through the British Business Bank but provided by a number of funders (now c100). The government provided the funders with an 80% guarantee behind these loans. Although challenger banks, fintechs and asset based lenders were on the list, the bulk of the finance was down to the major high street banks, and their performance has been mixed at best. There were also some changes made to the scheme due to the initial insistence of personal guarantees on every deal.
The scheme covers loans from £50k to £5m and can be via loans, asset or invoice finance and some limited property related schemes. Facilities are limited to 25% of total turnover or double the annual wage bill. As the loans are 80% guaranteed, the funders still undertake a viability and credit assessment on each deal, but each funder uses a different methodology and assessment and this means one funder may say no but another says yes.
At the time of writing a total of c.£11.9bn of CBILS have been paid out with a success rate of 51% – this has been available for the longest time but progress has been quite slow and has not increased anywhere near where it was expected to.
We have advised on dozens on CBILS applications and millions of pounds worth of facilities and have found a very wide divergence of service, standards and how the scheme is interpreted. We will be publishing more detail on the best and worst providers during this month, but fair to say we have seen some of the best and worst from lenders out there.
CLBILS
This scheme is for larger businesses with a turnover in excess of £45m and can borrow up to £50m depending on their turnover, although like CBILS facilities are limited to 25% of turnover or double the annual wage bill. A lot fewer lenders provide facilities of this type.
At the time of writing a total of £2.7bn has been paid out with a success rate of 44%
Bounce Back Loans (BBL)
This is for smaller loans from £2k to £50k and these loans are 100% guaranteed by the government. Therefore, the funders do not have to assess the viability or credit worthiness of any application, merely that they exist, match to their systems and can answer all the relevant self-certification questions correctly.
It is no wonder that at the time of writing a total of £31.7bn has now been paid out with a success rate of 82%. There are worries that some loans here are being obtained for dormant and non-trading businesses and will never be repaid.
Future Fund
The Future Fund is for the UK’s businesses that typically rely on equity investment and are either pre revenue or pre-profit, and therefore not catered for under other schemes.
The scheme provides match funding convertible loans from £125k to £5m, but businesses must have raised at least £250k in equity investment from 3rd party investors in the last 5 years.
At the time of writing a total of £419.6m of convertible loans have been approved for 429 companies.
So, in total around £46bn has been paid out thus far, and whilst this is a pretty big figure in any one’s eyes, it represents a tiny 13% fraction of the £330bn of support we were told was on offer for businesses, so when you put it in context of this, it doesn’t look quite as good!
And, of course, it has to be noted that this is all new debt that these businesses are taking on. Companies are taking on debt they didn’t want, in order to survive through this period and will then have to pay it back over the next 5-6 years, and those loan repayments will reduce the debt servicing ability of businesses to borrow money for growth in the future.
We have been providing industry knowledge and advice to many places and organisations and our work was recently used by Insider Magazine for their article on the government backed lending facilities.
In terms of the ‘normal’ funding market, this is returning. However, there is a difference between the trading business funders and the property funders.
On the trading side, a lot of the fintech/challenger players are only providing CBILS or BBL facilities at the moment and no other funding facilities due to the number of applications they can cope with. We are currently advised that applications for the government backed facilities will close in September, but it may be that this is extended. As funders become more able to deal with the volumes for their existing customers, they may open up to non-customers and then to normal non-CBILS funding, but it will take time. However, this is not the case with every trading lender, especially on the asset-based lending side of asset and invoice finance.
On the property finance side, most of the funders are back up and running now but are working on lower loan to costs and lower loan to values. They were a long way off their normal parameters in the early days but are now closer. There are still some notable big-name funder absences from the marketplace though.
Valuers had a major issue getting sites and properties valued but this has vastly improved with new practices being developed through this period to improve the overall valuation process.
Many funders have naturally been carrying out their meetings on Zoom rather than face to face, but for new deals or where viewing the site, area and meeting the people is important, this is not ideal. Once more, this is starting to change now with more and more social distanced meetings and visits taking place.
In both trading and property funding there has not surprisingly been a risk attitude adjustment, and all the while there remains uncertainty, this will continue. I don’t think we can blame funders for this when the whole country and indeed the world is trying to look forward and second guess more than ever what the world will look like, where many well founded and long held assumptions and best practice have gone out the window.
As advisors we are best placed to know what is happening in the market and can provide that independent professional advice our clients need, more than ever.