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Speaking with lenders and investors

Working capital problems on the horizon?

When you can see a potential bump in the road ahead, even if there is some uncertainty, the sooner you speak to lenders and investors, the better.

COVID-19 Guidance

Most banks are considering how to extend finance to both private individuals and businesses in light of uncertainty related to COVID-19. The government also released information about deferred payment for some business taxes in the budget on 11th March. For more information, visit HMRC or UK Finance

Before speaking to your bank (or any other lender), you should ensure that you, or your finance team, have carefully reviewed your cash forecasts  and ideally taken action to improve the cash flow position of your business.

If you can, look back at the detailed terms for all external investment or lending before speaking to the provider or investor. Independent corporate finance advice can also help you to fully understand the options available based on your specific business needs.

This section of the Business Finance Guide to uncertainty and cash management contains three sections covering:

  1. Speaking to lenders
  2. Speaking to investors
  3. Credit monitoring
Quotes
"In terms of guidance regarding COVID-19, we urge businesses to contact their finance providers early to discuss how they can support themselves and their clients and customers through the coming weeks.”

Stephen Jones, Chief Executive, UK Finance

Coronavirus business interruption loan schemes and fund Corporate finance advice Preparing a cash flow forecast Standard of lending practices
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1. Speaking to lenders

The Standard of Lending Practices sets out lender (them) and borrower (you) responsibilities.

Amongst those for the lender are:

  • To set out any requirements/conditions related to borrowing in a clear, understandable way
  • To confirm the conditions of the business borrowing in writing and highlight any conditions attached to it
  • They will clearly explain the type and frequency of information they will need from you to monitor your business’ performance
  • If the business experiences difficulties, they will seek to understand the overall circumstances to try and identify suitable and pragmatic solutions
  • Where appropriate, they will provide details of free debt advice

Amongst those required by the borrower are:

  • All information you provide to the lender should be accurate and timely
  • You need to think carefully about whether your business can afford the product applied for and be open when dealing with the lender
  • You must make sure the lender understands the terms and conditions associated with your business’s product
  • You should seek professional advice to confirm that this form of finance is appropriate for the needs of the business
  • You will need to meet any commitments you have to your lender, for example providing information which may reasonably be requested to monitor performance
Quotes
If a business is affected by external factors that it can’t control like COVID-19 for example, then it needs to talk to its customers and make sure they know that is has a problem. Make sure you’re talking to people.

Philip King, Small Business Commissioner

2. Speaking to investors

Seeking further equity investment will generally take longer than debt finance, unless there is a ready and willing investor. You should also consider the impact of giving away a stake in the business to cover normal operating costs, especially in a time of change.

However, your existing investors already have a vested interest in helping your business thrive, so are an invaluable source of not just additional funding but also advice and guidance.

When you approach existing investors who already have a stake in the business, they will want to see that their investment or loan will leave the business with a sustainable capital structure. A corporate finance adviser can also help management assess the impact of any change and help you explore how that will work going forward for the business.

Investors will need to be reassured that any lending repayments, or interest payments to service any lending, are made on time, and that the chance of foreclosure is minimised. Again, a corporate finance adviser will help management assess this ahead of any meeting with an investor and can provide support in any meetings with them.

3. Credit monitoring

The Standards of Lending state that lenders must support business customers with ’measures designed to identify signs of financial stress’.

What this means in practical terms is that lenders will have systems and controls in place to help them identify when and where customers may be showing signs of financial stress.

The bank or other lender should pro-actively engage with the customer to agree an appropriate solution:

  • Make sure that the customer understands what information is needed to allow them to monitor performance, and how and when this information should be provided
  • Provide customers with the ability to opt-out of any unsolicited increase in their borrowing limit(s) – unrequested overdraft or credit card limit increases, for example
  • Ensure that they monitor each customer’s borrowing to help determine if the customer is showing signs of financial stress. Where relevant, the lender should engage with these customers in a sensitive and supportive manner
  • Where appropriate, lenders should initiate a timely review of the customer’s re-financing needs and an assessment of what needs to be in place ahead of any term loan expiry to maximise the prospect of successful re-financing
  • Ensure that relevant customer-facing employees are trained and skilled to help identify and deal with customers who may be showing signs of financial stress
  • Make sure that policies and processes are designed to identify and support customers who are showing signs of financial stress.

Top tip: if your business is under financial stress and you do not feel your lender is offering the support you need, get in touch with them. They are providing a service to you and have obligations to fulfil as per the Standards of Lending. Never be afraid to ask for help. Whilst the conversations may be challenging, it is in the lender’s interest to help you if they can.

Quotes
"In terms of guidance regarding COVID-19, we urge businesses to contact their finance providers early to discuss how they can support themselves and their clients and customers through the coming weeks.”

Stephen Jones, Chief Executive, UK Finance

If a business is affected by external factors that it can’t control like COVID-19 for example, then it needs to talk to its customers and make sure they know that is has a problem. Make sure you’re talking to people.

Philip King, Small Business Commissioner

We understand that you are worried about cash, about your people, and about your customers.

Emma Jones, Enterprise Nation

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