The Coronavirus Business Interruption Loan Scheme (CBILS) has been one of the most affordable and highly subsidised finance products ever available in the UK, but with it due to end shortly, Jonathan Lowe, Investment Director at Maven, shares his thoughts on where businesses could turn to next to fund future growth and help capitalise on any substantial or pronounced market recovery.
The end to one of the modern world’s most turbulent years is nearly upon us, and aside from the terrible human and social cost of the pandemic, UK businesses have faced challenges that many of them will never have contemplated, much less had to deal with in the past.
The Government’s support for businesses in 2020 has been extensive – furlough, Bounce Back and CBILS are now everyday words and phrases – and has prevented the demise of many companies, and protected the jobs of many more individuals. Crucially, the financial sector has stepped up to the plate as accountants, advisers, commercial finance brokers and an array of funders have all played their part in securing cashflow support for their clients.
November’s date shows that £42 billion of loans under the Bounce Back Loan scheme had been approved with £19 billion of lending agreed under the CBILS, which clearly demonstrates both the need for finance from SMEs, but also the significant contribution made by the finance and advisory community.
And the banks – so often maligned in the past, sometimes justifiably – have provided huge support for their customers. Smaller organisations than they once were, with far fewer people, those people worked tirelessly in the Spring and Summer to ensure their businesses customers received a vital financial lifeline.
But what next?
No-one can predict the next phase of COVID-19. We could continue to see a cycle of further spikes, increased social and economic restrictions, and yet more damage to business confidence and capacity to survive. Equally, promising data from the clinical trials, and recent approval for the roll-out of the Pfizer / BioNTech vaccine, gives real cause for optimism that a scientific route to ‘normality’ will open up soon.
The Government-backed finance schemes remain in place until early 2021 and we at Maven continue to provide CBILS loan finance to Midlands SMEs via the Midlands Engine Investment Fund (MEIF).
I fully expect that going into the new year, businesses will have the confidence, and the market opportunity, to shift from survival to growth. Many businesses in certain resilient sectors are already in that position. But potential funding problems remain for some companies.
The experience of previous economic shocks tells us that as many businesses enter insolvency proceedings coming out of a recession as fail during one. This is usually because they have raised finance on every asset on their balance sheet to survive, and then run out of working capital to fund new orders or contracts.
The UK funding market is larger and more diverse than it has ever been.
Since the 2008 credit crunch, there has been an explosion in alternative lenders and peer-to-peer networks, supported by an active broker community, working effectively as intermediaries between borrowers and lenders, under the auspices of the National Association of Commercial Financer Brokers (NACFB).
But the market is still heavily dominated by the main high street banks and invoice finance providers. Having spent 2020 supporting their customers with CBILS and Bounce Back facilities, what will be their appetite for growth finance in 2021? Capital adequacy, stabilising their portfolio and managing risk in an uncertain economy are likely to be the priorities of the biggest lenders to UK businesses. Anecdotally, these trends are already starting with many smaller, alternative lenders having already exhausted their limited capital.
Where, then, will entrepreneurial businesses go when they need finance for growth?
Who will finance investments in the capital, premises, people and skills needed by companies to scale?
Who, in short, will help get local economies back on track, creating job opportunities in communities affected by COVID-19?
Part of the answer lies with regional, Government-backed funds such as the Midlands Engine Investment Fund (MEIF) and the Northern Powerhouse Investment Fund (NPIF). Maven manages the MEIF Debt Fund (together with the NPIF Equity Fund) and has built up a strong track record of supporting ambitious smaller companies, across a range of the UK’s most vibrant sectors.
Regional funds are, by their nature, geographically close to the businesses they support, with local offices and teams of experienced finance professionals, who’ve been there, seen it and got the t-shirt in understanding and providing finance to those businesses who can’t secure funding from a bank.
It is these local professionals, with strong local networks and who are plugged in to the local business community, that will play a vital role in unlocking the shackles around access to finance and supporting the economic recovery across all UK regions throughout.
If you are an innovative Midlands-based business who is aiming to grow in 2021 and are considering your funding options, MEIF Maven Debt Finance could be the solution. Our team have worked with countless businesses across the Midlands region helping them to fulfil their growth potential. To find out more about how debt finance can transform your business contact us on firstname.lastname@example.org.
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