Is it the end of the ‘new normal’?

by Graeme Harrison

As we begin to emerge from what is hopefully our last national lockdown, and see the light at the end of this pandemic tunnel, will the funding world be going back to ‘normal’ as we knew it?

It’s been just over a year now since the word ‘normal’ became the most fluid in the English dictionary. During this time we’ve all had to adjust to several new ‘norms’, not only in our day to day lives, but also in our professional ones. The world of funding was no exception, with the government announcing schemes such as Bounce Back (BBLS) and the Coronavirus Business Interruption Loan (CBILS), as well as making words like ‘furlough’, previously new to most of us, seem very familiar and, well, normal.

Although the government’s furlough scheme has been (and continues to be) a lifeline to many businesses, it’s BBLS, and in particular CBILS, which have played a key role in the funding landscape throughout this pandemic.

Initially, the mainstream banks were given the unenviable task to deliver these loans without notice, and it must be said, worked hard to do what they could in very difficult circumstances. Following this, the independent market was able to gain accreditation, and CBILS backed lending started to appear in a multitude of shapes and sizes. Taking the form of asset finance, term loans, invoice finance or facility top-ups, CBILs helped maintain liquidity in the market and became a ‘normal’ way to structure a facility.

CBILS, however, has now come to an end and been replaced with the government’s new Recovery Loan. While the 80% guarantee from the government is still present in the new scheme, the key benefit of one years interest covered by the Business Interruption Payment (BIP), and in most cases a years capital repayment holiday is no longer a feature. And therefore, the debt is fully serviceable from drawdown. The Recovery Loan scheme will no doubt be a key component of the funding landscape over the coming months. But without the repayment holiday, could it also signify a return to traditional funding? Or in the context of this article, will we return to the old normal or continue down fresh, new, innovative paths? To help answer that, we need only look at the changing face of the funding landscape in recent months. We’ve seen banks jettison their smaller factoring books and others exit the invoice finance market all together, some lenders have restructured themselves in order to ‘rightsize’ the business and established lenders have tried to compete in the unsecured market only to fail. In and amongst all of this noise and repositioning, we’ve also seen the emergence of new funders break into the mainstream with products which offer quick, flexible funding solutions based solely on the strength of the people, project, or security. We’ve seen a growing appetite in the unsecured growth funding space whilst some of the traditional funders have broadened their offering as they look to gain a competitive edge in the market. Add into the mix the growing number of FinTechs which are now an ever-present disrupting force, whom will in all probability come out of the pandemic stronger than when they went in.

With all of this movement it may be fair to say that, in a funding context at least, ‘normal’ could be a thing of the past. Although there will always be a place for traditional forms of funding and the institutions which provide them, the market in general seems to be changing at a rate of knots. This is certainly not bad news for businesses, whom will have more options than ever as funders strive to provide innovative solutions in this space. However, they will likely require more guidance when exploring funding options to help navigate an ever-evolving market.

It will be interesting to see how the funding market, which for the last 12 months has arguably been over reliant on CBILS, will adjust and react as the country emerges from lockdown. Further, what part the aforementioned Recovery Loan will play in this adjustment? I suspect we may be hearing quite a bit about it in the coming months.