Asset finance will be needed coming out of UK lockdown

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s the Coronavirus ripped through the country, the role of lenders changed from a support system for business into an essential lifeline for the economy. Lenders became a channel for Government funding to flow into the country’s businesses and ensure the economy survived while many parts of it were mothballed.

After shifting onto an emergency footing in 2020, lenders must now look ahead to economic recovery. Government support like CBILS and the furlough scheme will come to an end in their current form and traditional modes of lending will come back to the fore.

Uncertainty will continue to pervade the business landscape and having access to cash reserves will be more important than ever. One of the essential roles of the lending industry in 2021 will be working with clients to provide certainty and facilitate the move back to some form of normality.

After a busy start to 2021, we have outlined some of the key pinch points we see for businesses this year, how they will impact the lending landscape and how lenders can help steady businesses through the turbulence ahead.

The early months of the year are always difficult to manage. Reduced billing from December means that cash flow is often strained just as double payments for both tax and VAT hit. Businesses often need extra finance to get through this period in a normal year, and now we’re seeing the combination of these pressures with the uncertainty of the pandemic. This is placing extreme strain on businesses’ cash flow and limitations on effective financial planning.

We saw a major uptick in businesses accessing finance through the CBILS scheme at the end of last year as lockdown loomed and the pressures of the first quarter lay just around the corner. We expect to see lending activity increase significantly over the coming weeks as the pressures of the first quarter begin to set in and business build their cash reserves.

Government support schemes like CBILS have provided a lifeline to entire industries during the pandemic. However, we know that these financial lifelines cannot be sustained indefinitely.

As we approach the end of CBILS in March and businesses prepare to take employees back onto the company payroll in April as the furlough scheme tapers off, we expect to see a major increase in borrowing through government schemes. This is consistent with the trends that we have seen approaching previous deadlines in November and September.

This flurry of borrowing will be exacerbated by the uncertainty of what lies beyond the schemes. It’s unlikely that government will look at March and April as a cliff edge, and we expect there to be some form of reduced support that continues. But the question currently is what that support will be.

It is important that the Chancellor provides clarity to businesses and lenders to ensure they can plan their lending and financing options carefully beyond Q1.

Business have taken on unprecedented debt because of the pandemic, and 2021 will see many begin to repay.

This means businesses need to manage the competing requirements of investing in their recovery as revenue begins to come back in and paying back the cash they borrowed in 2020. This will be a difficult balancing act and businesses need to plan carefully to ensure that they don’t rush to reopen before financially feasible. Failure to navigate this carefully could lead to business failures and increased pressures on lenders.

Asset finance will play an incredibly important role as businesses look to drive growth while managing repayments. All businesses will want to retain strong cash reserves. Leasing options will allow them to invest in the facilities and assets they need to drive growth, while not taking the hit of a lump sum.

Savvy business lenders have aimed to defer the impact of repayments on CBILS loans by offering customers a payment holiday of up to 12-months on top of the interest covered by the Government for 12 months. This allows businesses to recover from the pandemic without the immediate financial burden of repayments.

Brexit burst back to the top of the business agenda at the end of 2020. But aside from those that trade directly with the EU, the effects of Brexit are only starting to be fully realised. For now, announcements like Nissan’s commitment to keep manufacturing in Sunderland are strengthening business confidence in the UK.

We have not seen a major uplift in borrowing activity so far, but the lingering threat of disruption may lead to an increase in borrowing activity later in the year as business shore up their finances against potential economic shocks.

Uncertainty will unfortunately continue to be the hallmark of 2021. We expect businesses to want strong cash reserves throughout the year and this means lenders will continue to play a central role in sustaining industries and economic activity.

It is important that the Government acts to ensure that businesses have as much certainty as possible. The end of financial support schemes must be navigated in a way that allows both lenders and borrowers the time to adjust and adequately plan ahead for whatever comes next.

Business lending was essential to economic survival in 2020, and now it will play just as important role in recovery.