Welcome to the thirteenth edition of Leasing Life’s digital briefing magazine.
Providers of asset finance and leasing – be they high-street lenders, challenger banks or non-bank lenders – will be keenly following how the government manages (or unwinds) its various emergency schemes of recent weeks designed to keep businesses and workers on life support as Covid-19 drains the life out of the UK economy.
In this digital magazine, we've assembled a collection of some of our most telling recent reports that signpost the various government responses and industry reactions to the coronavirus pandemic.
The first article in this collection picks up the story in early March, as the first effects of the pandemic were being felt across the leasing sector.
We spoke to Eamonn McMahon, the managing director of EquipmentConnect, to get his view on how the equipment leasing sector may fare. (See ‘We may be looking at a six-month correction’ says equipment finance chief).
The government has cooked up a veritable alphabet soup of acronyms, such as CBILS, CLBILS, BBLS and CCFF, to try and keep business afloat, with £330bn-worth of government-backed loans, grants and tax cuts offered to struggling companies and individuals to get through the emergency.
The Coronavirus Business Interruption Loan Scheme (CBILS) offered an 80% government-backed loan programme for firms with a turnover of less than £45m, the 'larger' variant (CLBILS) was for businesses with a turnover over £45m, and the Bounce Back Loan Scheme (BBLS) targeted micro-businesses with 100% backing.
With 5.9m UK SMEs on the frontline, the bulk of government aid was directed at small businesses and, as a result, there were few government schemes that did not have a bearing on the leasing sector – not least of all because many leasing companies are themselves SMEs.
The Bank of England temporarily suspended the size of the capital buffer that banks need to set against their lending. They followed this up with historic low-interest rates (now at 0.1%) but felt compelled to offset their negative effects on bank profits with a strong dose of Term Funding, specifically a variant called the Term Funding for SMEs (TFSME): an emergency scheme that offers banks the cheapest borrowing rates going if they lend to SMEs. The BoE also committed to buying up corporate debt issued by companies (and banks) through the Covid-19 Corporate Financing Facility (CCFF).
During the crisis, industry trade body the Finance & Leasing Association has been keenly engaged with the policymakers, government advisers, civil servants and government committees that feed into the coronavirus emergency schemes.
We spoke to Simon Goldie, the FLA head of asset finance, about lobbying government to open up SME funding. (See Prising open CBILS is an FLA work in progress, but time is running out).
Given the length and depth of the recession that potentially awaits, many asset finance providers are they themselves (along with their clients) battening down hatches.
Many too are having to come to grips with the sheer volume of requests for forbearance from their clients and the loan impairments on their books, as well as revisiting their wholesale funding arrangements.
In April, we reported on Fitch Ratings who saw the need to respond to the growing downside risks to mid-sized UK banks' credit profiles. (See Fitch takes ‘rating action’ on six mid-sized UK banks active in asset finance).
In the midst of this upheaval, the government introduced a grant to help support the 5 million self-employed workers in the UK, which on the surface appeared to address the plight of hundreds of commercial finance brokers not on company payrolls.
The Self-Employment Income Support Scheme (SEISS) allows sole traders or those in partnership to claim a taxable grant worth 80% their monthly profits, up to a maximum of £2,500 a month, although individuals with annual trading profits above £50,000 and limited company directors who pay themselves through dividends are not covered under the scheme.
The scheme also does not cover the self-employed who provide their services through 'personal service companies', a limited company set up to provide the services of a single contractor, typically used by professionals looking to use the 'limited' structure as a means of restricting any potential negligence claims.
A great number of commercial brokers – and members of the National Association of Commercial Finance Brokers (NACFB) – are believed to have fallen through the cracks of this system. (See NACFB supports self-employed brokers with 4-month membership-fee holiday).
BoE funding has also been hard to come by for non-bank lenders, despite being included in SME funding arranged through the British Business Bank. Stephen Haddrill, the FLA’s director general, has been fighting their corner. (See FLA urges MPs to consider a bigger role for non-banks and to reform CCA).
But let's not forget that the economy – and by extension, the asset finance sector – is being kept on life support by the nation's key workers, be they NHS staff, bus drivers or supermarket workers.
At the coalface of today's emergency is the NHS, which has been managing shortages of medical equipment and personal protection equipment, a fact not lost on some fast-acting SMEs who have pivoted their operations to manufacture much-needed PPE, and have done so with support from their asset finance providers. (See Close Brothers restructuring supports face shield production for NHS, Gener8 provides £400k in invoice finance to firm manufacturing PPE for frontline NHS staff and Simply funds face shield production for Covid-19 frontline staff).
Finally, coronavirus has accelerated trends in how we network, and in our sector the AFPA Trust is doing its part to try keep the community of asset finance professionals in lockdown talking through its weekly Zoom catch-ups. Group discussions have ranged from Rishi Sunak latest directives and what social distancing will mean for the workplace of tomorrow to more personal reflections on isolation and coming down with coronavirus symptoms. (See Asset pro chat Zooms in on videoconferencing).
Let’s hope that we come out the other side of this both healthy and wise, with an industry not too battered or neglected by the powers that be, but resilient enough to continue serving and enabling the wheels of the economy to turn.
Alejandro Gonzalez, Editor