Many businesses are on the path to recovery with growth back on the agenda: but is it a given that your existing lender will have the appetite to “go again”?
As the head of Quantuma's Northern Financial Advisory practice I am often asked about the nature of work keeping me busy and more pertinently, what market trends I am observing.
My immediate response is that there is ample liquidity in the SME market and appetite to lend from high street banks to alternative lenders. The number of unsolicited introductory contact I receive on what feels like a daily basis from lenders of all description looking to swell their potential borrower pipeline bears this out.
Notwithstanding the lender appetite out there, businesses should be aware that increasing scrutiny is being paid by lenders not just to the “forward looking “exciting narrative of recovering demand and pipeline, but equally, to the “back story” of how the pandemic has affected the key aspects of the business.
This is creating an interesting dynamic especially where you have cautious incumbent lenders being asked to increase existing facilities to fund growth working capital by understandably impatient management teams keen to capitalise on returning demand, rather than focusing on providing visibility of the full impact of the pandemic on the business.
This tension is in certain instances resulting in a break-down in the borrower / lender relationship which will ultimately hold businesses back especially if they are unable to refinance through a new lender because the incumbent lender is unwilling to take a “hair cut” on its existing debt.
I have recently been engaged by a combination of lenders and corporate boards to undertake pre-lend reviews or oversee a refinance away from an incumbent to a new lender willing to provide increased facilities to fund recovery growth. The common denominator giving rise to my engagement in these cases is either an inability or lack of willingness by management to prioritise providing lenders with timely good quality information about the true state of the business post-COVID as all of their focus is devoted to the excitement of “pipeline” “order book” “sales growth” etc.
As I alluded to at the outset of this article, lenders are keen to put capital to work and lend. That is after all how they make their money, however, lenders are also treading on the side of caution given the far reaching and damaging impact of the pandemic on many sectors. Lender credit committees are taking loan applications through increased scrutiny and where management information is inadequate in clearly articulating the true financial position and prospects of the business over a minimum three-year period, your lender may instruct an external advisor to prepare an independent pre-lend review to provide this visibility or decline to increase the borrowers' existing facilities.
Businesses should therefore ensure that as they embark on a welcome recovery and look forward to renewed growth, they provide their lenders with the ammunition to “go again” with them.
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