As we approach the anniversary of the first time the entire country was placed into lockdown, Praetura Asset Finance’s Commercial Director, Ric Simmons, reflects on what we’ve learnt over the past year and how he sees the asset finance industry evolving over the next 12 months.
Looking back at 2020
Without doubt, it was a year unlike any of us have ever faced before, but it was a year where we learnt many things as we faced a multitude of challenges.
We have learnt that alternative ways of working can be equally effective. To some extent it could be argued that we have been forced to do some things in ways we possibly should have been doing in the first place: not overly relying on seeing bums on seats in offices, but appreciating that allowing greater degrees of flexibility can have a positive effect on productivity. We have learnt that we don’t need everyone to be in the office all the time for the business to be able to run both efficiently and effectively and we now know that we can do more with our working days if we utilise the technology we have available to us, rather than relying on face-to-face ‘in person’ meetings.
There have been encouraging surprises along the way too: we have been able to change policies and procedures quicker than we would have thought possible historically. I also believe it’s given many members of our team the opportunity to shine. Often in the face of adversity you see a truer picture and I could not be prouder of the team we have assembled at PAF.
Looking forward to the months ahead
We are still living in uncertain times as none of us know the full extent of what the ongoing impact on this country’s SMEs is going to be.
We do now know when the Government-backed Bounce Back and Coronavirus Business Interruption Loan Schemes will end, but we don’t as yet know the full details of what the new ‘Recovery Loan Scheme’ will be. Nor do we know when Finance House forbearance will end and whether the extension of the Furlough Scheme until the end of September will be the last one. This means it’s not possible to comprehensively plan for ‘what happens next’ just yet. But we do know that many companies are going to have more debt to deal with and the financial strain they will face is reflective of the financial strain on the country as a whole.
There are going to be more challenges for businesses to face and unfortunately it is inevitable that there will be some insolvencies. However, the asset finance industry and especially those working in partnership with a funder with an expertise in structured refinance will hopefully be able to provide vital funding resources to restrict those numbers.
As an example, asset refinance facilities with PAF will be able to help some companies consolidate their existing finance agreements to ensure they are able to start repaying their CBILS and BBLS loans without severely impacting the month-by-month cashflow of the business. Dependent on equity levels in a company’s assets, substantial amounts of equity could be unlocked to provide an additional injection of working capital too.
One thing I am happy to say with a degree of certainty, is that I fully expect the role of the asset finance industry and the funding we provide, to grow over the coming months.
At Praetura Asset Finance, the year has already begun in a very positive way, with us recording our most successful January and February lending levels, which is a trend we expect to continue.
Cash reserves for many businesses have been decimated, so where previously they would have paid for new vehicles and equipment outright, we expect more to choose the option of preserving those cash reserves and acquiring those assets via hire purchase or lease agreements instead.
Attitudes to debt over the past year for many firms will have altered considerably. Those who haven’t needed or wanted to take on additional debt, will now be looking at the cashflow, budgeting and tax efficiency benefits of asset finance in a different light. There will be others that will not have been aware of the full range of business funding options available to them, but due to the circumstances of the past year, know more about them and are more likely to consider them.
Other businesses who have diversified their offerings due to enforced circumstances will need the assistance our industry can offer, to help them maximise the new opportunities available to them. Not forgetting the companies who are experiencing record growth, who will need our support to enable that expansion to continue.
There could also be a greater need for businesses to have a wider range of funding partners. Some companies previously classified as ‘Tier 1’ may no longer meet that criteria, so they will need to look at other funding avenues. High Street lenders could well have a different attitude to funding levels and credit limits. In all of these cases, independent funders, such as PAF, will be on-hand to provide alternative options.
As we move into the second quarter of this year, I have no doubt that asset refinance will be used by an increasing number of SMEs as a vital funding tool.
Being able to utilise the value of the equity in the vehicles and equipment a company owns (without hindering their usability) could solve a whole host of issues; it will be a resource that could provide an alternative to insolvency, it could provide vital working capital to help businesses face increasing costs – whether these be from needing to continue to adapt to working in new environments or when interest on Bounce Back Loans or CBILS facilities are no longer paid by the Government from ‘month 13’.
Asset refinance in essence, will provide either additional cashflow or a reduction of existing monthly finance repayments, so overall outgoings won’t increase when the repayments of Government-backed facilities start needing to be paid (or both).
Being able to specifically structure asset refinance funding facilities to the individual requirements of each business will be imperative. Working with a funder with a reputation for specialising in this field (such as Praetura Asset Finance), will be key to providing the best outcomes for SMEs throughout the UK.
Reasons to be optimistic
As a businesses and as an industry we have learnt a great deal over the past 12 months.
We have learnt that we are adaptable and resilient.
We have learnt that we work with great people.
We have learnt that there are different ways to do things and many of these will stay with us.
We still don’t know exactly what lies ahead and what new obstacles we will have to overcome, but we know we will adapt to the ever-changing environment and continue to support the UK’s army of SMEs.
A greater degree of understanding of the circumstances of each business will be absolutely necessary to provide the best service and most suitable funding options possible. Working with a consultant lender who takes the time to look at the whole picture to fully comprehend what funding is needed and how it can best help, will become increasingly important.
Our team of experts are here to help, with the funding available to enable asset finance brokers, business finance advisers and their SME clients do more. Should you have any questions or queries, or want to find out more about working in partnership with a consultant lender, please don’t hesitate to get in touch by calling 0333 323 7830 or emailing email@example.com.