Honesty is the best policy when dealing with lenders
Chris Mitchell of LendingCrowd explains how clients can access support from lenders when dealing with difficulties in meeting their loan repayments.
As the UK begins to emerge from COVID-19 lockdown restrictions and thoughts turn to growth and revival, there is no escaping the fact that many businesses have suffered severe disruption to their cashflow over the past year.
Chancellor Rishi Sunak acknowledged in his Budget speech on 3 March that the damage to the UK economy has been “acute”, with more than 700,000 people losing their jobs and public borrowing at its highest level outside of wartime.
Mr Sunak repeated his pledge to do “whatever it takes” to safeguard businesses, jobs and families. Likewise, throughout the pandemic, non-bank lenders have demonstrated a willingness to provide borrowers with forbearance and work with them to ensure businesses can emerge from this crisis on as strong a financial footing as possible.
Open and honest
For those businesses that have existing debt facilities, it is essential that they maintain an open and honest dialogue with lenders if they are experiencing any difficulty in meeting their repayments. Burying your head in the sand is never the correct course of action.
For example, LendingCrowd, the Edinburgh-based fintech lending platform, had never before offered repayment holidays. When the scale and potential impact of the pandemic became clear, it contacted each of its borrowers to find out how their business was faring and to establish whether they needed any specific help. The LendingCrowd team took just two weeks to implement a process for eligible borrowers to apply for a three-month break in their repayments.
Forbearance measures such as this can give borrowers vital breathing space and enable them to focus on the long-term wellbeing of their business as the economy begins to reopen.
Other options offered by lenders can include interest-only periods and the opportunity to restructure facilities, for example, to reduce monthly repayments by increasing the term of a loan. These measures have been developed and introduced by LendingCrowd specifically to assist borrowers facing disruption caused by the pandemic.
The UK Government moved swiftly to introduce loan schemes, delivered through the British Business Bank, to help businesses through these unprecedented times.
As of 25 February 2021, almost £73bn of these loans had been delivered. The bulk of the funding has been through the Bounce Back Loan Scheme (BBLS), with a total of £45.6bn lent across more than 1.5m facilities that are 100% guaranteed by the UK Government. A further 92,449 Coronavirus Business Interruption Loan Scheme (CBILS) facilities, totalling £22bn, have been approved. CBILS loans are 80% guaranteed by the UK Government.
With a BBLS or CBILS loan, there are no upfront fees for the borrower, and the UK Government will cover the first 12 months of interest payments. Please note: when taking out a BBLS or CBILS loan, the borrower remains fully liable for the debt.
Refinancing with a CBILS loan means the borrower would not have to make any interest repayments for the first 12 months, as these – along with any lender-levied fees – are paid for by the Government. Many lenders will not require capital repayments during the first 12 months of the loan. In addition, no personal guarantees are required for facilities below £250,000.
BBLS and CBILS will be replaced on 6 April by the Recovery Loan Scheme. Under this scheme, which is due to run until the end of 2021, a network of accredited lenders will offer term loans from £25,001 to £10m to businesses that are trading in the UK and have been affected by the pandemic.
Tackling late payments
It is important to remember that your clients may not be the only businesses experiencing issues with their cashflow – their customers are likely to be under pressure too. This can exacerbate the perennial problem of late payments. According to the Federation of Small Businesses, some 50,000 businesses close every year due to late payments, damaging the wider economy and threatening livelihoods across the country.
However, help may be at hand in the form of the Small Business Commissioner (SBC), a free and independent service set up the UK Government to tackle late payment and unfavourable payment practices. The SBC seeks to provide advice and resolve disputes when payments are overdue.
Earlier this year, the Government said that £23.4bn of late invoices were owed to businesses across Britain as it announced moves to strengthen the existing Prompt Payment Code. From 1 July 2021, signatories to the Code will be required to pay 95% of invoices from small businesses (those with fewer than 50 employees) within 30 days – half the time outlined in the current Code.
Business Secretary Kwasi Kwarteng also said he was “determined to bolster the role of the Small Business Commissioner with powers to issue legally binding payment orders, launch investigations and levy fines if needs be”.
ICAS and LendingCrowd are delivering an Ask ICAS webinar on 8 April. Join the panel of experts as they discuss the availability and accessibility of different funding options to help business choose the most appropriate finance for it and its stakeholders.
LendingCrowd, the trading name of Edinburgh Alternative Finance Limited, was founded to help SMEs thrive by giving them access to non-bank lending. Headquartered in Scotland, it is proud to have been accredited by the British Business Bank to provide CBILS loans during these unprecedented times.
To find out more about LendingCrowd, call 0345 564 1600.