Covid loan farces uncovered. See todays Times

Rishi Sunak’s reputation has taken quite a knock recently and its fair to suggest that this has largely been attributable to his nativity surrounding certain issues personal and political. He’s undoubtably capable but as many of us realised, the accessibility of the “Bounceback” loans was going to lead to widespread abuse.

The Times has today given extensive coverage to many abuses which were frankly farcical and surely the tip of the iceberg. The article is probably behind a paywall but I would urge anyone interested to pick up the paper today

Do we need an “extra” bank holiday?

There does appear to be some considerable momentum behind the idea with the proposal to retain this years extra day retained. I must confess I had only just realised that we were due a two day holiday at the beginning of June instead of the usual end of May and that is part of the problem

The problem is that the happily self employed such as myself do not take enough complete “switch off” days. Yes we can manage those if so desired but enjoying the work and the nature of the frequent immediacy of demands means that this is not handled as well as it could be. Im quite relaxed with days of mixed work and pleasure but the clear diary knowing that no one will disturb, does have a a dynamic of its own

So yes, I believe we should have this extra day and I would also suggest another one on top. Maybe the first week of school summer holidays or the early autumn? As a country we have less bank holidays than just about any other state and its time we caught up a little.

RLS to be “permanent”

According to the FT, the current Business Recovery Loan Scheme is going to be become a permanent fixture. This is good news for businesses but less so for asset finance lenders and should also be tempered by how much appetite there will be within the banks to lend through the scheme

Currently i’m finding many lenders have “lent up to their limits” or have seemingly suddenly found the criteria “difficult”. the fact is that any lender can find any reason not to lend and i’ve had pretty cast iron cases rejected on grounds that could almost be described as comical.

There is a whiff of the previous government backed EFG loan scheme here. That was designed to fulfil the same objectives but lenders simply weren’t interested (with a couple of notable exceptions). Lenders do prefer to deliver asset based lending and it is often assumed that is simply down to greater profitability. In fact that is pretty debatable. The RLS scheme can charge up to 14.99% apr which would work out be considerably more expensive than the majority of invoice finance facilities. The lenders real motivation is security and also flexibility for the client. Invoice finance facilities can grow as business grows. An RLS is of course set in stone

How will Invoice Financiers react to the economy?

Whilst we shouldn’t be anticipating a return to the 1930s, things are going to be volatile over the coming months. Certainly a better parallel would be the early 1970s and the unwelcome spectre of ‘stagflation’ where there is a unhealthy mix of negative growth and inflation driven by commodity prices. It is not an appealing scenario and thats especially true for lenders.

Sentiment is almost certainly already suppressing demand and we can expect discretionary spending to be hardest hit. Which sectors that will impact is still open to question because the tail of the pandemic must surely have left a legacy of pent up demand for travel and hospitality whereas retail elements such as jewellery (which I referenced in my previous piece) must surely be exposed?

There are some indications that certain lenders are releasing accounts that they find unappealing. Im not going to name names and no doubt the lenders in question are claiming that they’ve “never been busier!” (my advice is always to not to take a blind bit of notice of lenders puff pieces on LinkedIn and elsewhere) and whilst in some cases the propaganda would even embarrass the Kremlin, it is understandable that a certain public profile has too be maintained. It is the Kremlinologists, such as myself, that are employed to dig beneath the surface.

My prediction is that lending will tighten as the year progresses. I also believe that certain lenders may exit what is a crowded market but admittedly that does run contrary to my knowledge of certain new planned entrants.

There will also be a tightening of credit. A supplier to a retail chain (especially one founded on the discretionary spending market) may find that the allowed limits on the debtor are squeezed and there may also be pressure for credit insurance. That could restrict borrowing but borrowers must remember that it is a very competitive market. A lender will often claim that a limit on Bloggs Retail ltd is restricted “throughout the market”. This is not necessarily true with up to a dozen credit insurers all prone to take differing views, which is where I come in of course

There may well also be demands to keep credit control under control. It is such an easy area to neglect and a couple of new clients of mine are having to resolve this very issue both in terms of collections and past credit misjudgements

Volatile times ahead and the guidance of a credit management specialist and finance broker is of course more essential than ever

Be wary of brokers promises

A client of mine has been seeking to purchase a number of jewellery retails premises by raising the finance on the jewellery stock. This is problematical

Stock finance is always very difficult. It is very rarely offered in isolation and when it is, the rates are astronomical. The stock has to be of a certain nature and very tightly controlled. Despite the rates and security required, this did not in itself prevent the collapse of one speciality lender I can recall offering this facility

The simple reason is that recoverability in the event of default is extremely difficult. There is of course aspects to the actual ownership of items of stock too but whilst few of us are naturally inclined to be sympathetic to banks points of view, you can understand that chasing around to recover stock from a failed business is, to put it mildly, and unwelcome and unenviable task. And what could be more ‘moveable’ than jewellery?

Sadly any asset based finance on this basis is not going to be available but my client was perplexed. He stated that other “brokers” had offered this availability. Of course one may ask why was he now talking to me, but I sensed a problem. I happen to know that at least one broker inhabiting the same network as this prospective buyer routinely asks for upfront fees

I mailed my client in forceful terms stating that he must under no circumstances pay any fees upfront.

I did not get a reply

A bad or good time to buy or sell businesses?

There have been some loud voices on Linkedin proclaiming that now is not a good time to buy a business. One of these voices is a prominent rather controversial figure who appears to get himself into on-going spats. Thats not some thing I have any interest and its not my nature to name names or pint the finger, but the sweeping statements are simply incorrect on a number of counts

Firstly this is actually a very good time to buy or sell a business and a significant reason is that an active market drives up opportunities and competition. It may well be asked why is it a particularly “active market”? The answer is to simply look back over the past two years. Not only were many plans put on hold but the pandemic led to many reconsidering their own lifestyles and desires. This has of course been reflected in the surge in numbers leaving the workforce and it’s replicated in the number of business owners wishing to take the same path. The other side of the coin is that the market is active with those who have ditched unsatisfactory careers to live the dream of running their own enterprise. I am acting on behalf of a couple of very highly able and qualified clients seeking just that and are now closing in on good strong businesses, with my assistance of course.

More fundamentally, pricing is key. I cannot understand why there are solely “good” or “bad” times to engage in certain transactions when the climate as well as supply/demand would be reflected in price. If the economic outlook is deemed to be pessimistic then naturally prices should be discounted as owners seek an escape from the gloom that may not actually come to pass and the converse is also true. How many businesses have been under or over priced due to excessive takes on the markets they perform in? Which also leads us to sector. In any economy, different sectors behave differently at different times and it’s quite odd to claim that the market is a homogenous whole.

Lastly there is the availability of funding. The Business Recovery loan has assisted towards many transactions but whilst it is scheduled to expire at the end of June, there is a possibility of extension or a replacement scheme. Even without that accessibility, it is certainly possible to purchase businesses purely on the basis of lending. This does require the availability of fundable assets (primarily debtors), cash in business, pricing and maybe deferred consideration to align ideally but contrary to claims made online, this is far from impossible as I can verify from recent experience.

And it is experience that is key which in itself also teaches us to ignore sweeping statements

The myth of the Brexit “city exodus” but was Brexit still the right choice?

I have a belief that many predictions by so called experts are little more than signposts for what they they wish for and are little more than a reflection of their beliefs and prejudices. This piece by Howard Davis, the high profile ex head of the CBI, isn’t ageing well especially given the facts reported in this piece from last week

My view on Brexit wasn’t particularly strong either way and events do take over. Certainly the disturbing drop in exports to the EU over the last year has to be noted and there has to be some doubt as to whether “new trading relationships” will ever properly fill the gap? Perhaps more importantly, the west does need to be seen as more united than ever with events in the Ukraine and its shouldn’t be forgotten that Putin’s Russia certainly promoted Brexit. Also shouldn’t be forgotten that those hostile to the EU such as most prominently Farage but also Corbyn, were very sympathetic towards Russia. And probably still are, regardless of the events in the Ukraine.