CBILs replacement. What I do know

When I say “know” it’s more a case of what Ive been told. Remarkably, given that CBILs grinds to a halt tomorrow night, the details of the replacement scheme still haven’t been officially released.

It might be worth taking the following with a pinch of salt but this is some of what I have understood

1. The number of lenders will be scaled back. There has apparently been some anger at HMG level that certain lenders (I could cite names) have not treated the lending in the spirit intended, that is to support businesses genuinely affected by CBILS. As an aside, I know of one lender that actively refused to take any applications of any merit from the sector most affected by CBILs, hospitality.
2. The new loan will not have a period free of interest
3. Fees will be applicable
4. Repayments will have to start immediately
5. The criteria for lending will be more flexible. It will be more forward looking towards business expansion and investment rather than crisis management
6. The HMG guarantee will be less than the present 80%

In many ways this will be replicating the seriously under utilised EFG scheme. The EFG failed because the banks virtually refused to assist or promote simply because they saw little immediate benefit to themselves as well as being fairly cumbersome. We will have to see whether this will address those issues.

Cameron and invoice financing. What a mess

Its not often that invoice financing hits the national headlines. If there is any exposure in the press, its usually in the business pages and with a negative slant too. Sadly often justified too

David Cameron’s involvement with Greensil has rightly been heavily criticised and I would urge anyone to read the excellent Sunday Times investigation. Thats not free online but the FT covers well here too

The lobbying is clearly significant and will run and run but I think the bigger issue predates that.

Supply chain Finance managed by Greensil, was being promoted by Cameron and associates to fund NHS and MOD debts. In effect, Greensil would be greatly profiting from delayed payments by HMG and Cameron with his share options, would clearly benefit. This is serious

Under Gordon Browns leadership, government institutions were instructed to pay suppliers within a very short period of time (14 days I seem to recall). Naturally enough Civil Servants pushed back at Cameron stating why should a private lender be profiting where a simple government directive to its departments would suffice?

This is not going to go away.

Citigroup CEO ordains Zoom-free Fridays to ease ‘relentless’ pandemic workday

What an excellent idea

With the recent focus on employees working 100 hour weeks at Goldman Sachs, here’s a welcome reminder that if you want intelligent committed and most importantly, well rounded staff, then you treat them like human beings.

As is so often the case, its a female CEO who takes the smart staff orientated initiative and what better way to attract quality staff especially in relation to these strange times which have made many evaluate their work/ life balances.

Zoom calls are draining and no substitute for genuine human interaction with that indefinable but essential chemistry. The quicker we get back to normal the better

Those who consider video conferencing as the “new normal” are frankly as dysfunctional and simply strange as those who relish bullying their staff into 100 hour weeks

CBILs. Abused by lenders?

Last year I applied for a CBILs for a River Cruising business which had clearly been affected by Covid. All the independent lenders rejected the application but Barclays came in a backed it to the full.

Barclays were lending in the spirit of the CBILs scheme. Credit to them

A week or so ago, I applied on behalf of another client in what may be deemed the “hospitality” sector. It was immediately rejected.

The lender is clearly and openly rejecting all applications from the sector most affected by CBILs. I am sure they are not the only one but frankly the British Business Bank should have a grip on this.

To my mind the CBILs scheme was rushed out and has been too scattergun in its approach. Leading banks have often handled it particularly badly and independent lenders have too often treated it as another product for their benefit, but not the economy’s. Im not generally in favour of state run direct lending but in future I believe that the mechanics should be in place for a wholly independent lending scheme which serves the purpose for which it was intended

Greensill More on the collapse and Camerons embarrassing intervention

Very good article here and here are some highlights

There is so much in the Greensill-Gupta scandal that is familiar. Gullible politicians including former prime minister David Cameron and Scottish First Minister Nicola Sturgeon were naively drawn towards business hooligans without carrying out proper due diligence on the people or enterprises with whom they were doing deals. 

Cameron misused the status of the great office he once held to curry favour from civil servants and Chancellor Rishi Sunak.

By some accounts, David Cameron was repeatedly texting Rishi Sunak almost begging for funds. The texts were ignored as Sunak held firm on the basis that any lending had to meet correct criteria. Quite right too but how embarrassing for an ex prime minister to be haggling for HMG cash to bail out a seedy failed enterprise

Admirers of Lex Greensill, founder of Greensill Capital, believed the Australian financier had broken the mould with a techversion of invoice financing otherwise known as factoring.

How many times have we heard that? The hopelessly naive view that there is some new form of credit assessment which ignores the fundamentals?

A recurring name in the saga is Grant Thornton, which is running the Greensill insolvency but also happens to be audit adviser to several Gupta enterprises. Grant Thornton is not a clean skin when it comes to audit debacles

It is an embarrassing example of regulatory culpability. The concern must be that enforcers chose to give the debacle a wide berth because of friends Lex Greensill and Sanjeev Gupta had in high places. It is only due to the diligence of the Financial Times, The Sunday Times and the Mail titles that the disgrace has not been allowed to rest. 

Nothing more to add to that

After CBILs? Whats happening?

Does anyone know? We’ve been promised the Business Recovery Scheme but there is no sign of any details and this is supposed to be available from the 1st April, which is a deadline which always looked far too tight

The obvious solution is to extend CBILs for another month or two but again there is silence from the Treasury. We have seen with Sunak a tendency to drag decisions out rather unnecessarily (the Universal Credit is an example). My reading of the proposed scheme is that it will be largely similar to the existing CBILs but much tighter on fees and terms, but again we do not know for certain. The issue of who is and isn’t accredited for the lending is probably being wrangled over with certainly much unease about the use of CBILs lending by certain lenders (I can think of at least one example) to seemingly fund any business so long as it wasn’t affected by Covid.

Either way, we need some clarity asap

Update to the “breaking story”

This will be strongly denied and I suspect that the Irish media may not have heard the last of this

Personally I latterly had my doubts. The sum involved (£30 million) will sound substantial to many people but certainly isn’t to this group of companies, so why take the risk?

Implications of this breaking story?

This is one of those issues that its probably best not to comment on but what two questions arise.

What will be the Irish Governments reaction and what action will they take?

Why on earth did they do this?

It will create an impression of desperation and clearly that will reverberate through to the asset finance market.

An explanation is required and soon.

The current Asset/invoice Finance Market. My observations

Being an independent broker, my observations are from a small slice of the market but I do endeavour to share with lenders I trust to attempt to give some substance to the trends I believe I’m observing. These are some current thoughts

Invoice financiers are generally keen for business but there is a sense that smaller deals have been very adversely affected by the widespread provision of CBILs and more especially Bouncebanks. CBILs are less easy to obtain than commonly supposed but BBLs have been generously available. Many existing borrowers have simply used the loans to ditch invoice financing or shelve even considering that option. The view of lenders is that the market will return once the loans are eaten through. Fair enough but that tends too reflect perhaps an over cynical mindset from the bankers. More businesses than they believe will prudently use HMG lending to close off other forms of financing permanently.

Whilst the relatively cheap HMG lending is available (and many CBIL’s offerings are actually very expensive) many lenders appear too have responded by raising their prices. This has been particularly noticeable at the smaller end of the market but also with some “single invoice lenders”. This does appear to be a somewhat illogical approach

Fintech is surging again with some new players as well as existing lenders tailoring new products. It can be quite a challenge to keep up with all the available options which become more varied and bewildering by the day but there is again quite an emphasis on lending based very much on online assessments and little else. My view will always be that the numbers should only be the starting point in judging the creditworthiness of a business and an proper understanding of the principals as well as their place in. the market are huge factors that simply cannot be ignored. For some of these lenders, it will all end up in tears

Talking of collapses, Greensil’s failure (detailed in my previous post) will reverberate. Supply Chain Finance remains a difficult area.

I do hear that for many brokers and lenders, the past few months have been very flat. Its does take a bit of kremlinology to gauge the truth from Linkedin boasts and press releases and it’s obviously hard to square claims of “best months ever” with redundancies but for me it has been a very busy time with the satisfaction of leads coming from all angles within my network and if that was to be taken as a reliable weathervane, then I would suggest it is shaping up to be a busy year

Collapse of Greensil and the perils of supply chain finance

As widely reported in the financial press, Greensil appear to be on the verge of collapse. Their speciality was Supply Chain Finance which is in effect reverse invoice financing whereby the client offers to effectively settle invoices earlier than stated terms by offering the financing.

Its long been something of a troubled product with both Urica and Platform Black being casualties. To my mind there have always been a couple of difficult issues to overcome. Firstly that it inevitably takes quite a bit of administration to set up with I suspect many potential clients losing the will to see the project through each and every stage. Secondly I wonder how many suppliers really feel comfortable with their clients handling the financing of their invoices? There are no obvious technical or legal reasons why it doesn’t work but it just doesn’t feel right

These are my views of the product but the issues for the provider are better explained in this article from the FT extracted here

accountants, regulators and rating agencies have already raised alarms. Under accounting rules, companies using such facilities do not have to classify them as debt — though money is owed to a bank or finance provider — but can book them in the “accounts payable” line on a balance sheet. That can be used to mask spiralling de facto corporate borrowing.

Indeed, use of such facilities has been a feature in several corporate implosions — including Abengoa, a Spanish clean energy business, and NMC, the healthcare provider, which both used Greensill’s services. Carillion, the building and services group that collapsed in 2018, was not a Greensill client, but was a big user of the UK government-endorsed supply chain finance programme, which Lex Greensill helped to devise as an adviser to the then prime minister David Cameron. MPs investigating Carillion’s collapse said the scheme allowed the outsourcer to “prop up its failing business model”.

Quite what David Cameron’;s advice amounted is perhaps open to question

It is clear that accounting rules need to change. Supplier finance facilities ought to be classified as debt, and greater regulatory oversight is needed both of companies drawing on them