2020 was a year of surprises. The coronavirus pandemic, and the speed in which it spread, caused a wave of reactions from the lending market. Products disappeared overnight and lender’s criteria changed daily.
As we head into 2021 there are hopes for a recovery. Although, what that will look like and when it will happen remains unclear. Our Head of Engagement, Catherine Lidgley chats to Pilot Fish Managing Director, Richard Jones to find out what he is seeing in the market and what we’re likely to see next.
Catherine: What do you think the market will look like for SME owners in 2021?
Richard: Trying to forecast market trends is never easy. This is particularly so during a pandemic where lending options are heavily influenced by the Government’s response.
If I had to make a prediction it would be more use of CBILS and Bounce Back Loans. Lenders will offer these facilities for as long as possible to mitigate risk during uncertain times. In addition we will see greater need for asset backed loans. This could be in the form of invoice discounting. Or we may see business owners being asked to put personal property up for security. For some sectors, like retail or hospitality, this may be the only way to secure debt finance.
Catherine: If you could give business owners your ‘top five’ insights or advice for 2021, what would they be?
1. The government backed Coronavirus Business Interruption Loan Scheme (CBILS) is still available up until the end of March 2021. The scheme is designed specifically to support SMES hit by COVID and offers business loans of up to £750,000. Borrowers pay no interest or repayments for the first twelve months. If you are eligible it makes sense to apply for this finance early before the rules change.
It’s likely we’ll see a CBILS hybrid offering from the Government to replace the current scheme after March 2021. I suspect it will be a less generous offering to the current scheme.
2. Bounce Back Loans and CBILS Loans that were taken early in the pandemic will require capital and interest repayments this year. The timing of this is likely to hit SMEs just as they are in recovery mode. SMEs may wish to consider an interest only product or consolidate their debt to help reduce the monthly repayments.
Business owners should speak to an advisor before taking out a new facility. An advisor will be able to determine the most cost-effective option for your personal circumstances.
3. The pandemic has hit hospitality, leisure, retail and commercial property sectors the hardest. As a result, these are likely to be some of the last businesses to bounce back. Businesses in these sectors are facing a challenge to raise finance. It’s not impossible to raise finance in these sectors, but expect to present a strong case.
Ensure you have up to date financial forecasts and business plans to support your application. Speak to an experienced business advisor who will know where to place your case and will save you time.
4. Asset backed deals were on the rise in 2020 and we’re likely to see that continue in 2021. Lender nervousness and market volatility has put an end to higher risk lending. The market is expecting higher default rates and is preparing for this with the extension of asset backed deals.
For many business owners using their personal home or investment property as security is a last resort. However, we fully expect this to become more common in 2021. For many it may be the only credible way of raising the finance they need.
5. Finally, with the ever-changing circumstances of the pandemic SMEs should allow for more volatility in their budgets. Allow for plenty of flexibility in your cash flow forecasts. If you are expecting drops in cashflow during 2021 act sooner to put a flexible facility in place. Time scales for implementing facilities have increased.
We’re likely to see an increase in the use of invoice discounting lines and revolving credit facilities this year. Businesses are heading into 2021 in recovery mode and we are likely to experience peaks and troughs in cashflow for a few months yet. Flexible facilities will offer a buffer when needed.
Want to find out what 2021 will have in store for the property sector? Read our interview with Director of Property, Alice Williams