The commercial lending market faced a turbulent time during the pandemic, with lenders departing and entering the market whilst changing their lending criteria on what seemed like an almost daily basis. We saw new government lending products, such as the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS), which offered some of the most attractive rates and terms the UK lending market has ever seen. These schemes have since been replaced by the Recovery Loan Scheme (RLS), which has been designed to help businesses accelerate their post-pandemic trading activity.

To gain some first-hand insights into this ever-changing industry, we asked Alex Kourti, Director at Dynamic Funding, some questions:

Why do businesses use commercial finance?

In an ideal world, SMEs would never require external funding, but of course in reality, companies of all sizes often come up against cash flow pressure and frequently find themselves in need of financing.

Businesses use finance for a variety of reasons. Often it is to bridge cashflow gaps, other times it is to fund large orders or allow them to take on projects which can facilitate longer term business expansion.

Typically, as a company grows, more costs become associated with running the business, resulting in higher liabilities and increased cashflow pressure. Businesses without access to external funding sources are more likely to miss out on market opportunities, which can limit growth.

How does the Recovery Loan Scheme compare to CBILS and BBLS?

The key differences are that with BBLS and CBILS business loans, the UK government would pay the first year’s interest on the loan and most lenders would also offer 12 months of no capital payments, whereas these benefits are not present on RLS.

On a more positive note, businesses can still benefit from no personal guarantees on RLS. Many lenders are also now offering interest only payments for the first year in an attempt to help businesses strengthen their cashflow position, whilst still adapting to the new market conditions.

What type of businesses are being approved for RLS Loans?

The lending criteria we have been experiencing recently has been fairly stringent; non-bank lenders will typically only lend to profitable businesses with a positive balance sheet and healthy income on their recent bank statements. Many of these lenders will also only accept applications from businesses where the applying director is a UK homeowner.

The banks have however been slightly more flexibility on this, but usually require much more supporting information and have considerably longer application processing times than the non-bank lenders.

What are the alternative financing options?

There are many other lenders and products which could be a better fit for your business. Business loan lenders that are not part of RLS can be very competitive and offer flexible products, which can be used to fill a short-term cash flow gap or as a longer term funding solution to grow your business.

Alternatively, there’s a plethora of other products available such as invoice and trade finance, asset finance, credit lines and more structured products, to name a few.

Each lender and product will have different application requirements which is why it is important to speak to a financial broker who will ensure that you are getting the most competitive and effective form of funding available to meet your needs.

What options are available for loss making businesses?

Many successful businesses spend long periods of time in a loss-making position before turning the corner to profitability or being bought out by investors; this is something that lenders recognise and account for.

Products such as invoice finance are often a good solution for loss-making businesses, as the lender is more concerned with the strength of a contract rather than the financials.

There are unsecured loan providers who will provide finance to loss-making businesses, but their rates do tend to be higher. Any additional security that can be provided will help to improve the rate and lending terms of the loan.

What new products are fintech lenders bringing to the market?

The fintech ecosystem is loaded with disruptive lenders; so much so that even high street banks are partnering with them and adopting their technologies. Although alternative lenders may be slightly higher in cost than the banks, they normally offer much quicker decisioning times, have a wider risk appetite and often require less security.

Selective invoice finance facilities are available, where you only pay for what you use with the lender not needing to take a personal guarantee or debenture on the business.

Additionally, there are lenders offering an overdraft style facility backed up against your debtor book, which can be a simpler way of funding than a traditional invoice finance facility. There are also innovation breakthroughs in the business loan market with some lenders offering same day decisions and massively reducing information requirements to get a decision, allowing company owners to focus their time on growing their business.

Alex Kourti has worked at a number of lenders before setting up Dynamic Funding and has access to the whole of the UK commercial lending market, working with new start-up businesses right up to companies with £100m+ turnover. If you have any questions or would like explore options for your business, email alex@dynamicfunding.co.uk or call 020 3916 0092.

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