With the nature of the UK’s economic recovery from the pandemic evolving on an almost daily basis, many small business owners are concerned over access to finance.
On this topic, Allica Bank’s head of asset finance, Richard Cameron (pictured above), explains that the real lending expertise provided by brokers is essential to the recovery, and that banks need to give brokers the tools they need to provide this support.
Without doubt, on the economic front, access to finance is going to be a crucial factor of its success, as businesses seek funds to rebuild and drive growth. However, alongside that, access to the expertise needed to ensure that finance is acquired properly is going to be just as important – but is the commercial finance sector ready?
With the introduction of new government support schemes and a swathe of challenges never before faced by small and medium businesses (SMEs) in the UK, the business finance landscape has never been more complex. Couple that with having to stay on top of the changing pandemic restrictions and uncertainty surrounding international trade, and the job of running a business is looking increasingly tricky.
As such, real lending expertise – such as that provided by brokers and advisers – is going to have an indispensable role to play in the UK’s economic revival. On the one hand, business owners cannot be expected to know all the options available to them. From my experience, awareness among the wider business community of asset finance and how it can help is growing, but it could be higher. While, with cash reserves having been as a result of these unprecedented circumstances, many will still be taking on debt for the first time.
SME owners would benefit from some more comprehensive support – whether it’s the difference between hire purchase, finance lease and contract hire agreements, or the complexities around exit penalties, flexibility and forbearance terms. It’s a lot for a business owner to get their head around alongside managing their employees’ safe return to work, or opening up their doors to customers for the first time in six months.
Without expert advice, small and medium-sized businesses exploring asset finance may miss out on finding the product that’s exactly right for their needs. This could open them up to unnecessary fees or locked into unsuitable commitments. Asset finance could be the difference between a business thriving in this recovery or grinding to a halt. So the focus needs to be on helping SMEs get the most from their asset finance solution.
The growing need for expertise
This combination of new lending requirements and the gap in in-house expertise could lead to a surge in demand for asset finance brokers and advisers throughout this recovery. It will be a challenge, but one I am sure the asset finance community is primed for.
And, if past trends can be relied upon, it won’t just be new borrowers creating the demand. Traditional lenders, worried about becoming overconcentrated in certain sectors during a challenging economic period, may end up restricting their lending in some areas. It will result in a growing number of SMEs being unable to secure further funding from their existing providers. Many perfectly creditworthy businesses – often for the first time – will find themselves looking elsewhere for finance, and needing the support of a broker to do so.
At the same time, the Chancellor’s recently announced super-deduction tax incentive and Brexit could present an opportunity for asset finance brokers to add more value. Large businesses may start reconsidering their supply chains and exploring how reshoring their operations could improve efficiencies and reduce their risk. This, in turn, will drive demand for the manufacturing and logistics assets needed to bring it to life, much of which will need financing and could qualify for enhanced tax relief for the next two years.
Brokers that keep themselves well-versed in changes to pandemic restrictions, new tax incentives and Britain’s international trading relationships will be able to provide a huge amount of value in the years to come.
Banks need to empower brokers
Of course, a big responsibility lies with banks to give brokers and businesses the tools they need to provide this support. The sector has a great deal of work to do to improve communication, make products simpler and more transparent, and get finance to the businesses that need it quickly.
Most notably, how banks lend is going to have to change – at least for the short-term. Lockdown restrictions have torn up the playbook of traditional credit assessments. Even a perfectly healthy business could have had its balance sheet battered by the pandemic, making it riskier for a potential lender to use historic credit rating agencies as a way to assess a business’s propensity to repay.
Instead, I believe banks will turn to a more projection-led assessment, looking past the numbers to make forward-looking decisions that consider how a business will fare in a post-pandemic world. As such, lenders need to be ultra-clear about what they expect from brokers and their clients in terms of the financial information. Banks should also be prepared to make efforts to properly understand a business and give them a chance to tell their story before making a decision.
Furthermore, the banks that fare the best will be those that invest in technology to ensure doing business with them is as straightforward as possible for brokers and customers. Be it online applications and real-time trackers, or back-end processes to speed up the decision-making. A quick and clear decision is what brokers and businesses both want and need. And the banks that can provide it will come out on top.
Collaboration will be key
The next few years are not going to be an easy ride, but there are plenty of reasons for optimism. British businesses have shown their resilience time and time again. And, what’s more, there are many banks out there, such as Allica Bank, that want to lend to them.
What matters now is that banks do their bit to give brokers the tools they need to advise SMEs effectively and efficiently. Proper collaboration to achieve this could be the difference between a business not just emerging from this pandemic having survived, but thrived.
In the end, the availability of finance may drive the UK’s economic recovery. But it’s the expertise of brokers that will ensure we power growth and meet the borrowing needs of UK entrepreneurs.