Lender Pulse: Latest from the Lenders
Rangewell are business finance specialists who work with SMEs and their advisors to help them find, compare and apply for business finance. As market leaders, Rangewell work with the widest range of lenders (we transacted with 87 lenders in the last twelve months)
We’ve been asked by a number of our partners to keep them updated on changes to lender appetite - hence our new and rolling Lender Pulse update on lender reactions to the ongoing economic effects of the Coronavirus.
We anticipate updating Lender Pulse every few days, so please check back regularly.
Friday 27th March
The focus for most borrowers is how effective and efficient the Coronavirus Business Interruption Loan Scheme will be. All lenders are throwing huge resources and effort into getting their schemes up and running as quickly as possible, but the complexities are truly staggering.
Our full list of Coronavirus Business Interruption Loan Scheme providers which highlights how each lender is dealing with applications is available for those considering applying to the scheme.
We are also updating our Lender Support page with details of how Lenders are dealing with Payment Holiday requests from current borrowers on a regular basis.
With so much focus on how the Coronavirus Business Interruption Loan Scheme (CNILS) is being implemented, Rangewell are asking those applying to the scheme to complete a survey HERE to ensure problems and issues are quickly identified and highlighted.
Changes to Credit Appetite
As predicted Property Lending has been heavily impacted:
- Together Finance - one of the biggest lenders in the market has paused new loan applications, but are continuing to pay out on loans that were commenced prior to the 23rd March. This has led to a high volume of borrowers contact us looking for alternative lending arrangements
- Many lenders are focusing on more vanilla products and reducing their LTV’s - on average by 10%
- We suspect that many lenders who say they are still lending may not actually be completing on many deals - over the next few months the “proof will be in the pudding”
- Private lenders are starting to become more active - in the last recession, those who were able to “look at a story” and were hands-on, often with specific sector expertise, were often a lifeline to borrowers who were failed by more mainstream lenders. Private lenders should contact email@example.com.
Two of the largest platform lenders, although still very active, have reduced the length of time that offers remain valid for.
- Funding Circle - Offers are now only valid for 14 days and all Retail and Hospitality offers that had been made will be re-reviewed
- Iwoca - Offers are only valid for 7 days and any offers made prior to 23rd March are being manually reviewed. Iwoca have also informed us that, as a temporary measure, they will not be lending to any business that has had to close due to the Government’s “Social Distancing” measures
Straws in the wind
We are starting to hear from a number of lenders who have back offices in India that their response times are being impacted by the Lockdown there.
With all valuers now ceasing operations, it is proving difficult for lenders to get properties valued.
- We suspect some lenders are using this as a reason to pull out of a market they’d rather not be in
- However, we understand that larger, better-capitalised lenders such as Shawbrook who are continuing to lend, are creating systems to allow drive-by valuations and desk-top valuations to be carried out.
Tuesday 24th March
Following the latest announcements from the government, we've been compiling a list of questions businesses have on the changes and schemes coming into play. Here's the latest on CBILS
Does the business remain liable for the full amount borrowed?
Yes - both the Scheme’s details and individual lenders have been clear that “The borrower always remains 100% liable for the debt”.
As things stand currently - from a legal point of view, lenders would not be able to claim any recompense from the government unless they had made every effort to reclaim the money from the business - possibly to the extent of pushing businesses into liquidation or seeking bankruptcy orders against directors.
However, Rangewell are calling on the Government to give more clarity on this immediately. Business owners are already facing unprecedented levels of stress and anxiety as they fight to save their businesses without having to worry about being made bankrupt at some point in the future.
What security will lenders be looking for?
The scheme allows lenders to offer unsecured lending up to a maximum of £250,000. In reality, we expect many lenders to seek Personal Guarantees and / or security if it is available.
- Rangewell believes that the level and types of security required by lenders will be one of the main differentiators between different lenders and borrowers should pay close attention to what is being requested.
How will lenders consider that proposals are viable and are eligible for lending?
The rule of thumb that we’re seeing so far is lenders asking “would we have lent to this customer last year?”
- This will not always bode well for borrowers in sectors that have never been popular with lenders (eg. retail and hospitality) or those cash-based businesses that may have “under-declared” profits.
Who will the bank prioritise?
Rangewell are seeing clear signs from lenders that they will be focusing on their current business borrowers who need support. This is to be expected given the level of demand that they are seeing.
How quickly can the banks act?
The banks are working as quickly as they can to understand and administer this complex new guidance from the government - every lender we have spoken to have had large teams working on this throughout the weekend.
So far, most lenders are telling Rangewell:
- Borrowing requests via the scheme will have to be credit-approved in the normal way with the usual paperwork supplied.
- They are NOT increasing the credit approval limits of individual managers.
Given this, Rangewell would suggest that borrowers should expect the process to take 4 - 6 weeks, although we are sure that lenders will make every effort to expedite urgent cases. On a positive note, we have heard from lenders that they will not always require security changes being fully registered at Land Registry prior to releasing funds.
Tuesday 17th March
Lenders now realise that we are in this for the long run and have accepted their default rates will soar.
All new lending - in effect anything they haven’t paid out on - is being reigned in substantially.
In our opinion and having talked face to face with over 40 lenders in the last 10 days (mainly by video call since Monday):
- Almost all lending goes secured - Property or asset-backed in the first instance and if these are not available, lenders will require strong PGs - the days of low / no / flexible PGs are gone for the foreseeable future
- Whatever they say publicly, lenders without exception will be focused on supporting current borrowers - new lend will very much take a back seat
With so many borrowers approaching HMRC with “Time to Pay” requests, lenders are starting to take a more relaxed view of these.
- What two weeks ago was seen as a sign of incompetence or lack of forward planning is now being seen by many as a prudent forward-thinking approach to conserving cash flow.
Changes to Credit Appetite
- Reading between the lines, the large lenders would rather “poke their eyes out” than lend to any new borrowers at the moment - and who could blame them, they have a fiduciary duty to lend responsibly.
- Large lenders know the politicians and hard-working business owners are watching and waiting for them to “not step up to the plate”
- Lenders hope and expect that the Business Interruption Loan Scheme takes the burden off their hands - and in our opinion, given the unique circumstances of the economic situation lenders and SMEs are facing, it IS for the government to be "lender of last resort" and take responsibility for economic stability.
- Numerous small lenders pausing lending - we sense they are too busy dealing with problems from current borrowers.
- Most lenders have now pulled out of ALL lending to the hospitality, retail and travel sectors unless borrowers have strong and continuing cash flow (very few cases) or have strong security in the background.
- Those lenders who are still lending (and we are in constant contact with those who are) are working with trusted specialist introducers to manage deal flow and quality to ensure they don’t waste time.
- The elephant in the room is the new Business Interruption Loan Scheme from UK Government - during the announcement we were already being contacted by borrowers and advisors asking how the funds could be accessed
- Demand for this scheme will be huge and we suspect it will overwhelm lenders and government alike with the speed that more borrowers will want access to funds.
- The practicalities of lenders having to quickly review tens of thousands of relatively small cash-flow based loans need to be thought through and understood
- Most Business Lending is large-sized, taking months to complete and requiring significant paperwork - the government had just increased volumes tenfold.
- Borrowers need this money within days - timescales have compressed tenfold
- Unless calm heads prevail, this will become a reputational hot potato of epic proportions between lenders and government
- There are reasons that lenders who Rangewell work with take their time during the lending process and carry out significant due diligence - fraudsters' implementation plans for extracting cash from this newly-announced scheme are (if history is any guide) probably three steps ahead of everyone else.
- This is NOT to pour cold water on a much-needed scheme - it is just to highlight to borrowers and lenders that they should expect government and lenders to remain diligent in their lending and to assume that they will continue to ask relevant questions of borrowers - the quicker borrowers can approach lenders with as much relevant information as they have to hand, the more effective and efficient the scheme will be.
Straws in the wind
- We are seeing a number of lenders, both small and medium-sized, having their wholesale funding lines pulled or frozen. This was one of the reasons that lenders failed or stopped lending in the last financial crisis as we discussed last week.
- Borrowers seem to have decided as a group to “pay staff and key suppliers” and delay paying HMRC, landlords and lenders until they are forced to do so - a significant number of borrowers are asking us how they can arrange payment holidays.
Thursday 12th March
The rabbit in the headlight phase has quickly passed for the majority of lenders and they are now focused in sector by sector analysis of the immediate and long-term consequences of the (now official) pandemic.
- We have seen a lot of questions from lenders in the last 48 hours with regard to supply chain vulnerability.
- Many lenders are also taking confidence from the very strong support to SMEs that was a mainstay of the budget yesterday.
- The announcements from Bank of England and HM Treasury yesterday are being absorbed by the High Street Banks and will inevitably lead to increased lending.
- Importantly, we strongly believe that the HM Treasury “helicopter cash” will be very much a case of feast or famine:
- Quality sectors (Healthcare, Tier 1 Property etc) will benefit from offers of long-term funding at extremely attractive rates.
- Whilst those sectors requiring support the most (Retail, Hospitality, Travel etc) will still not be eligible at all due to concerns over long-term survivability. The High Street and other lenders will only lend if they believe they will get their money back.
Changes to Credit Appetite
- MarketFinance (Previously Market Invoice) have temporarily paused their business loan product to all food, hospitality, travel, transport, supply chain and freight sectors but are still supporting these sectors via their other products (invoice finance, contract finance etc).
- A couple of lenders specialising in hotels and hospitality and retail have informed us that they are willing to continue to credit approval deals - but they will be holding payout of the loan for 30 days.
- A small but well known unsecured lender has stopped lending to travel agents, tour operators and events businesses.
- No new products launched but we’ve already seen a number of borrowers who were in the process of arranging long-term lending (10 years plus) from High Street Banks reviewing their fixed v floating rate options.
- Switched on borrowers with long-term horizons will be reviewing refinancing options - with fixed-term loans for high-quality borrowers in many cases offering significant monthly savings.
Straws in the wind
- We’ve had a number of our partners asking “is Funding Circle still lending” given the recent decline in the share price.
- We can safely say from experience over the last couple of days that they are very much still lending, their systems remain best in class and their credit and support teams were replying to emails as late as 9.32pm last night.
- To date, Funding Circle has been the poster child of the new lenders in terms of dealing with such a fast-changing situation.
- Interestingly Funding Circle has told us that they have picked up business from other lenders who haven’t had the credit knowledge, systems or staffing to deal quickly with loan requests over the last few days.
- A number of lenders have contacted us with news that they are trialling or getting ready for remote working.
- Interestingly, the trendier the lender the more likely they are to be getting ready to work remote. (How they maintain their source of fresh Kombucha and have their beards trimmed remains a moot point).
Tuesday 10th March
Lenders are obviously very nervous about the implications of the Coronavirus outbreak and we are hearing off the record that credit and risk departments at most lenders are seeing this as a bigger and faster moving crisis than the 2008 - 2010 period.
- All High Street Banks have been in contact to confirm they are still fully committed to SME lending - as expected given the political focus on minimising the economic effects of the outbreak - the proof will be in the pudding over the next few weeks.
- One Challenger Bank has cancelled all external meetings and events until further notice and has given notice that their staff may be working from home “in the near future”
- Turnaround times at most lenders have already deteriorated - mainly due to the fact that all deals, whatever stage they are at, are being re-examined. This means that deal flow is already backing up - and those who remember the 2008 - 2010 period know that small knock-on effects like this soon build up.
Changes to Credit Appetite
Difficult to ascertain at this early stage but so far we haven’t seen lender interest rates increase but have seen deals being turned down that we believe would have been approved prior to the outbreak - the first sign that credit sentiment at lenders is declining quite rapidly
- Almost all lenders are revisiting deals that have been approved and are giving them a “Coronavirus review” this is everything from asking for “a paragraph” on how coronavirus will affect their business, right through to full re-underwriting
- One small unsecured lender (backed by US and off-shore funds) pulled a confirmed credit offer just prior to payout due to “criteria changes” but were not able to explain what the changes were - we were told “new credit policies are still being decided”
- We have been referred a number of deals that were expected to get approved at credit with the High Street Banks, however, failed at credit due to “Coronavirus Concerns” - these have predominantly in the leisure and hospitality sectors to date.
- Two lenders approached us last week with new Development Exit products. Their belief is that property sales will decline materially in the next few months and hence are offering a product that allows developers with finished properties to exit expensive development finance into a cheaper alternative.
Straws in the wind
- Some property valuers have indicated that property valuations may be delayed or cancelled - this should not be underestimated. If properties cannot be valued, lenders will not lend and business owners cannot borrow.
- We have been asked to sign our first COVID 19 Health Questionnaire - albeit for a food producer we are visiting next week.
- NatWest pledges £5bn Working Capital Support for SMEs during Coronavirus outbreak - with specific comments on Loan Repayment Holidays
- Tide launched its survey of confidence amongst UK’s smaller businesses which showed that more than 70 per cent of the UK’s small and medium-sized businesses do not expect the country’s economy to grow during the rest of 2020 - Coronavirus concerns (alongside Brexit) were given as the main reasons for the pessimism.