This month Charles Randell, Chair of the FCA, highlighted that over 800,000 businesses have taken debt under government-backed schemes. The FCA doesn’t regulate most business lending, however the Financial Conduct Authority has adjusted its rules so lenders could quickly assist UK SMEs whilst also maintaining essential protections for businesses in distress.
Chairing a virtual roundtable hosted by UK Finance, Mr Randell emphasised that these government-backed schemes are loans, not grants; he noted that “It’s an inescapable fact that some of the debt that businesses have incurred in the crisis will turn out to be unaffordable.” On reading through this, a particular assertion that stood out to me was that, “Lenders and regulators, and the government and the British Business Bank as the authorities standing behind the loans, will need to apply a shared understanding of how to treat borrowers in difficulty. Lenders will need to scale their arrears handling functions quickly”.
I recall in the early stages of lockdown that the high street banks curried favour by allowing interest and capital repayment holidays. Having previously worked for a Bank, it left me to think about how, at the click of a button, the client can easily become an afterthought, from both a client-service perspective, but also (crucially) from a Credit Analysis perspective.
It’s a no brainer that businesses applied in their droves for these. After all, it’s ridiculously cheap borrowing right? Unfortunately no two banks are born equally, and therefore the treatment that clients get can often vary wildly. At its worst, red tape and closed communication lines are the difference between the success and failure for an SME seeking assistance. At best, it can be a painless process to access a mine of endless debt.
Being an alternative debt provider, ArchOver exists to bridge this gap and maintain a balance in light of both Borrower and Lender expectations. It would be foolish to assume that none of ArchOver’s portfolio would face hard times. With projects due for expiry during the past few months, it is clear that open communication amongst all parties is key, as well as working with the various Lenders that perennially occupy an SME’s balance sheet.
Assessing lender appetite for refinancing projects proves equally challenging. However, understanding each borrower’s situation and clearly communicating those challenges with Lenders is gradually proving an effective and fair resolution to projects in the short term.
So what’s my point? It goes back to Mr Randell’s warning, “authorities standing behind the loans will need to apply a shared understanding of how to treat borrowers in difficulty”. Here at ArchOver, our Borrowers and Lenders alike are not just a number. With the ongoing monthly monitoring we carry out, we have a head start on the Banks (and the majority of Lenders) who do not have the luxury of up-to-date monthly financial information and commentary from the management team (who we would have contact with within the last 6 months), invariably on numerous occasions.
At ArchOver, this “shared understanding” has been no more evident than during these unprecedented times. With some form of normality on the horizon, we continue to look forward and keep all parties best interests at the forefront.