Why now is the right time to help clients with funding
Caroline Plumb Founder and CEO, Fluidly
From plugging a cashflow gap to financing a new piece of equipment, almost every business needs funding at some point. So, like other cashflow services, helping clients find the right lender or type of finance is a great string to add to your advisory bow.
Funding can simply be a reason to pick up the phone. Sharing quick opportunities, like refinancing an existing loan at a better rate, shows clients that you’re proactive and constantly looking for ways to help their business. And when clients grow, it may well open up conversations about other services
Right now, there are two major factors driving demand for business finance: the impact of the pandemic, whether clients are expanding or struggling, and the potential for Brexit-related supply chain delays.
These challenges will be around for a while yet – and accountants will remain the first line of defence for the businesses trading through these difficult conditions. So there’s still plenty you can do to help. When it comes to funding, here’s what you need to know.
Credit supply and demand in extraordinary times
The lending market hinges on supply and demand. The balance is never perfect, and clearly at the moment there is huge demand. Lenders are cautious too, especially with businesses where trade is severely impacted.
As a result, the sectors that need finance most, like hospitality, travel and construction, are considered higher risk. So it’s important to urge these clients to seek finance before they hit real distress, as the right solution can take time, particularly with lenders taking longer to process applications.
Firms that can demonstrate both healthy pre-pandemic trading and the impact of coronavirus on their business will stand a better chance of getting approved. But if you have clients in these sectors, they will probably need specialist support – which we can provide, alongside help with forecasting, planning for revenue changes and collecting overdue debt.
Finance for stable and growing businesses
On the flip side, there are still many businesses who are doing well in spite of the pandemic. Lenders are currently favouring e-commerce, online services and medical-related businesses, along with logistics, auto garages and cleaning services, which are deemed sturdy, low-risk industries. For businesses like these, a loan could help fund their next step.
Lenders prefer businesses that are still trading in some capacity, and who are able to show they are in a stable position (even if trade has dipped a bit). For businesses in these sectors, your clients might consider taking on finance while there’s decent rates, even if they don’t need it right now.
A cash safety net is a great thing to have in normal times, and right now it can be critical. With the one-of-a-kind terms available through government loans, we’re seeing lots of our partners help clients use these schemes to set aside money for an emergency.
CBILS remains the number one choice
There’s a misconception that all eligible businesses will have already exhausted government funding by now. At Fluidly, we’re still seeing the majority of customers seeking out government-backed loans.
Whether it’s investing in machinery and stock or covering tax bills, the schemes offer both a route to growth and a route out of cashflow difficulty. Plus the terms, like a 12-month repayment holiday and no required Personal Guarantee, means CBILS remains particularly attractive.
Recent research by Reparo Finance revealed that 85% of small businesses that started a CBILS application are still in need of financial support. For some, this is because they didn’t meet the eligibility criteria. And for others, it’s due to a lack of understanding around the application process itself, leading to incomplete applications.
But there’s still a large number of businesses that took out a CBILS loan initially that now find they didn’t borrow enough, particularly as restrictions continue. With the option to take out a second CBILS, as long as businesses haven’t already borrowed more than 25% of their annual turnover, this less well-publicised option is becoming more popular.
We’re also seeing lots of partners help clients that took out Bounce Back Loans refinance to CBILS, so they can borrow more. With the current CBILS deadline at the end of March, now’s the time to check if there’s clients who might need more from the scheme.
In early January, after the border chaos with stacked freight vehicles, the Road Haulage Association warned the real impact of new post-Brexit red tape on businesses was still to come. And we’re certainly anticipating some issues for (and seeing increased demand already from) businesses who rely on a lot of trade from the eurozone.
Business owners are facing a combination of new paperwork and associated costs, additional import-export duties, and confusing new trade rules – all of which will undoubtedly lead to some cash headaches.
With all of the stresses of coronavirus, Brexit became somewhat overshadowed, but it’s still a major concern for many UK small businesses and we’ve got a number of options at Fluidly that could help with the pressure.
Although the combined challenges of Brexit and the pandemic have dealt small businesses a heavy blow, they have also helped them better understand how money moves in and out of their business. As a result, cashflow and funding support have never been more viable as services.