Late payment has hindered businesses for as long as can be remembered, with large organisations often the worst culprits.
Companies invoice for their work and should expect payment according to the terms quoted; every day payment is not received erodes the suppliers margin and every day that passes also heightens the concern that payment may not be received at all.
Late payment and the impact it has on cash has historically been one of the principal causes of business failure.
Many large businesses use the shabby tactic of delaying payment in the full knowledge they are potentially causing serious problems to suppliers; its almost a machismo trait that is not at all edifying and is, in effect, nothing more than a sharp practice of which those that use the tactic ought to be ashamed.
Technology means there really is no excuse for not adhering to terms, in previous times businesses could use tired stories of cheques in post, payment runs, signatory needed and so on with none of these applicable any more.
Covid-19 offers a new excuse to those habitual late payers; a recent survey by Bibby Financial Services suggests over half of UK SME’s are being paid later as a result of the pandemic.
Whilst the pandemic has brought understandable cash flow issues there remain, cash generative and cash rich businesses who are abusing their position to squeeze suppliers even further.
Familiar with the issues brought about by late payment, we can and do help businesses, both with appropriate cash flow advice and with assistance, if needed, with collection work.
Today, 7th October 2020, the National Audit Office issued a report into the Bounce Back Loan Scheme, whereby Government guarantees of 100% of loan value were given to accredited lenders who provided loans from £2k to £50k to businesses.
Anecdotally there have been stories doing the rounds of businesses applying for loans either fraudulently or with such weak financials they would never normally pass any form of credit process; so it was always likely fraud and delinquency levels would be materially higher than those to be expected in a non-Covid environment.
The preliminary central estimate in the NAO’s report is that 35% to 60% of borrowers may default but does qualify this remark adding that the estimate is ‘highly uncertain’.
If the actual figure is anywhere close to this estimate then its deeply troubling for two reasons, firstly it will add to the overall economic impact of the virus and secondly, from a human behaviour perspective, it means that a lot of people have deliberately and maliciously set out to exploit this pandemic to satisfy their own avarice.
Incredibly there are now over 90 lenders accredited by The British Business Bank to offer loans under the CoronaVirus Business Interruption Loan Scheme (CBILS); a full list is accessible here.
There are far fewer accredited lenders offering support under the Bounce Back Loan Scheme, with only 27 listed today, 19th August 2020
Statistics are not published (or at least I cannot find them) that reveal how much each lender has lent under the various schemes but the aggregate now stands at over £52Billion, with over 1.23million businesses supported.
The schemes may close in the Autumn although there’s a certain amount of ambiguity in dates quoted; what’s for sure is that the schemes will have to end after which SME’s in need of finance will have to revert to conventional sources.
Its at this point that good, reputable lenders will have a crucial role to play, structuring appropriate facilities, suitably secured, enabling UK SME’s to survive and thrive a (hopefully) post Covid-19 environment.
If a post Covid-19 business environment is likened to a post recession then alternative financiers will be busy and experienced brokers have a profoundly important part to play.
There may be trouble ahead. I take a keen interest in the P2P sector having worked closely with two of the platforms.
I use assorted research tools including those that enable me to search businesses by secured lender. The results from a few P2P platforms are troubling given the apparent deterioration of their books with some of their borrowers looking to be in deep financial trouble.
Almost by definition those businesses that borrow over P2P platforms will not be the strongest financially. They will be paying higher rates than available via conventional sources, not only to give those that are lending a good return but also to feed the platform itself, and their costs are not insignificant.
If borrowers, in numbers, start to fall into some kind of insolvency process or disappear completely then the sector will struggle to survive and a lot of investors will lose capital.
As a broker, talking to businesses looking to borrow, P2P borrowing would be a long way down the recommendation list. Were anyone to ask about the merits of lending across a platform, then extreme caution needs to be exercised. Funds are not covered by the Financial Services Compensation Scheme so never has the phrase ‘Capital at Risk’ been more appropriate.
New figures from the British Business Bank released on 4/8/20 reveal that the level of support given to British businesses is now over £50Billion
The largest element of funding has come via Bounce Back Loans (£2k to £50k), with the cumulative value of approved facilities totalling £34.34Billion and with over 1.1m businesses approved an average loan size of just over £30k is evident
£13Billion has been approved under CBILS (up to £5m) across just short of 59k businesses suggesting an average loan size of just over £220k.
With more lenders being added to the list it will be interesting to see where the numbers end and particularly interesting to see what level of delinquency becomes evident over time.
Why some lenders have bothered getting accreditation is a mystery as there are some who simply wont lend still.
More news (July 2020) from the P2P lending sector as Growth Street, a facilitator of loans up to £1m to UK SME’s describe themselves as being in a ‘Resolution Event’ at the conclusion of which it will ‘aim to cease business activities and wind down its operations’
I guess the statement is open to interpretation, and those SME’s currently borrowing from Growth Street (their statistics page suggests 86 current borrowers with an average funds in use just under £150k, suggesting an overall book size of just under £13m) will need to seek funds elsewhere. Of course right now that will present some borrowers a real headache.
The statistics page indicates an expected default rate of 5.04%, so those investors who lent funds across the platform may anticipate some erosion of their capital.
It really reiterates what has been said before, both here and elsewhere, and I suspect will be said again. Peer to Peer business lending is a high risk strategy, be careful.
Today, 14th July 2020, British Business Bank released updated statistics revealing that Government guaranteed loans (both partial and entire) now total £46.3 Billion, of which loans under the Bounce Back Loan scheme total £31.7 Billion
A stunning level of support, it will be fascinating to see, over time, delinquency rates along with fraud figures. Some of the stories doing the rounds on social media, some genuine some probably fabricated, suggest some amazing abuses of the various schemes.
Factoring Partners has assisted with a number of applications but will never charge a fee for so doing.
Figures today, 7th July 2020, from The British Business Bank reveal the extent of the support so far, provided to UK businesses.
Under the Bounce Back Loan scheme (up to £50k) there have been over 1 million facilities approved with £30.93 billion the cumulative value of approved facilities; suggesting an average loan size of just over £30k.
Under the CoronaVirus Business Interruption Loan Scheme (CBILS) 53,546 loan applications have been approved, their cumulative value being £11.49 Billion, indicating an average facility of £214k.
Under the Large Business Interruption Loan Scheme 394 facilities have been approved with a total of £2.58 Billion, an average loan size of just over £6.5m
Spectacular numbers in a bid to help and secure UK businesses.
Just over a year ago, in May 2019, P2P facilitator, Lendy, went into administration. It’s being reported today, across various media outlets, that the founders have had their assets frozen given allegations of misappropriation of funds.
At the time of the administration order there were loans outstanding in the region of £150m, with funding coming from around 9000 retail investors.
Looking at some of the loans facilitated by Lendy to business borrowers (by doing a search on companies where Lendy was security holder) it’s fair to say the book is and will be seriously eroded. I suspect those retail investors who lent their money across the Lendy platform will see minimal (if any) returns on their money.
The point being made, not withstanding any wrongdoing, is that lending across P2P platforms is extraordinarily risky. Platforms will entice retail investors with high to very high (certainly disproportionate) returns and then attempt to offset any concerns by quoting their rigorous credit policy and historic default rates.
Some of the credit decisions made are poor, with businesses in some cases, barely, or poorly, scrutinised prior to approval. I have also seen and heard of instances where historic default rates are manipulated, usually by ambiguous definitions of what is classified as default.
There also seems little comfort from the phrase ‘FCA Authorised & Regulated’. Lendy had all sorts of FCA granted permissions (as did others).
Before ‘investing’ across a P2P platform anyone should ask themselves whether they are prepared to lose not just a proportion of their money but their entire investment.
Sky news are reporting that Metro Bank is in talks to buy the Peer to Peer Lender, Ratesetter.
Its not April 1st so there must be a degree of credibility to the story, but a Bank, ‘beset by problems during a troubled 12 month period’ contemplating buying a P2P lender would be a very courageous move.
During the Covid-19 driven crisis, lenders (investors), across the Ratesetter platform are only receiving 50% of their interest, the balance going into the provision fund, for the benefit of all investors.
Their borrower portfolio, much of which will be fixed rate, will be subject to considerable erosion as a consequence of the pandemic.
It will be interesting to see how this unfolds and I suspect other P2P platforms will be watching closely.