It’s been a dramatic year, hasn’t it? But one thing that’s stood out is the way people have looked out for each other – in society and in the business community.
A big challenge has been the imposition of lockdowns, with many businesses thrown into sudden periods of uncertainty. We recognised that our clients would need additional support – and one less thing to worry about – when the Covid-19 restrictions hit. Payment holidays were the obvious and immediate solution. It was just the right thing to do when we knew many of our clients would be looking hard at their cash flows.
In normal times, rescheduling payments is something we might consider – on a case-by-case basis. This year, the conditions affected most of our clients. That meant our standard approach was impractical. In tough times problems mount up when you lose the initiative, so we knew we had to be proactive.
The solution was simple: for clients with exposure under a certain threshold, we gave our Relationship Managers full discretion to grant a payment holiday. That meant we could act fast, and help our clients without delay.
Above that threshold, we needed a little more detail. We developed a straightforward checklist to enable us to create a narrative around each case and new processes to ensure our decision-making was as speedy as possible.
That’s not altruism – it was good business sense. Having considered the challenges our clients were facing we didn’t want to create any additional stress for them when we could help instead.
Managing upside risk
Payment holidays were only half the picture. Plenty of companies also needed to invest in equipment this year, too – businesses with existing clients to service or, in some cases, new contract wins. Even for these firms managing to ride the worst of the pandemic, however, having cash reserves has been extremely important. They need to invest; but also to maintain a liquidity buffer as insurance against ongoing uncertainty. How could we, as their financial wingman, resolve the dilemma?
Our message has been a simple one – we’re here to open up the space for our clients, not just to survive, but to succeed. If an existing, or new client, has a need to bring in new vehicles or equipment, we take that as a positive sign. It gives us confidence to arrange leasing solutions that give them the power to bring in equipment when they need it, but without the cash outlay.
A great example is the recent package we put together for Mick George, whose 450-strong fleet of trucks, diggers, skips, waste transporters, concrete layers and delivery vehicles has stayed busy despite the pandemic. We structured a £5m HP deal to ensure minimal deposits on new vehicles and allow for a VAT deferral – creating space for the management team to manage their cash flow even better. And while existing clients have benefited from payment holidays, with new clients like Mick George, we’ve been able to structure payment free introductory periods to really help open up that space for them.
Medium- to long-term plans
Giving clients an extra boost by helping them to preserve cash flow while they grow or nurture their own clients has been a great way to support them with their strategy. It also helps us to achieve our aim of building a lifelong client relationship.
Over the back end of the summer, requests for payment holidays have tailed off – businesses seem to be adapting to the ‘new normal’. They’ve taken a look at their strategy, their cost base, and the government support schemes on offer, and they’re planning their way through.
Sustainability is now the key. Although a vaccine looks set for general release by spring 2021, there’s still a lot of uncertainty around local lockdowns and the national picture is far from clear. But even with economic conditions in the balance, we’re seeing businesses that have adapted and have their own sense of what to do next. More businesses are focused on forecasting, and where there’s a pipeline of work, they’re taking investment decisions.
Our lease portfolio is targeted on a size and make-up of businesses that tend to be strong enough to make those kinds of plans. We’re not just talking big corporates here – typically we’re structuring leases on equipment and vehicles for mid-market companies and those deals have continued even through lockdown.
It's been encouraging to see construction come back, for example. Even with local lockdowns, work is typically able to continue. And prominent government support for infrastructure projects is a very positive sign. Contract hire, rental and transport are other areas where we are seeing demand. Like Mick George, many businesses in these sectors need to be able to invest in vehicles and equipment to meet their demand while maintaining optionality and financial ‘dry powder’.
Years ago, the rationale for leasing was more mixed. There were benefits to off-balance sheet financing and bigger tax advantages. Those have declined somewhat, but the benefits to cash flow remain compelling, especially when times are uncertain. That’s why we’re seeing many businesses that traditionally preferred outright purchase come to us now.
The other big driver is that although there is more money in the system – thanks to government schemes and other wholesale finance measures – it’s actually not that easy for mid-market businesses to get great terms on lending right now. Banks are looking for security or covenants, and while the blue-chip corporates can issue debt very cheaply, that’s just not an option for most companies. With leasing, we take security in the asset – and while the ability to meet lease payments is still very much a factor, leasing allows clients to quickly get the equipment they need to support their growth strategy.
Into 2021: more of the same?
Three factors are driving us forward into 2021: clients that have a clear use for business critical assets; using our expertise to evaluate both clients and assets so we can lend safely; and willingness to adapt to our client’s needs. We know that some sectors are still facing tough times, and that many mid-market businesses will be sensibly micro-managing cash flow for some time.
But there is much to be optimistic about – such as vaccines, European governments’ commitment to ‘build back better’, and the release of pent-up social and spending activity after a year in lockdown.
With a clear plan and a willingness to seize realistic opportunities, we can all adapt to the uncertainties in 2021 and position our businesses for growth, not just survival.
We also know from clients that some sources of funding are likely to remain less open to them in 2021, especially for new business. That might be frustrating when they need to refresh vehicles or equipment to get work done. As their ‘financial wingman’ we’re ready to open up space for them whenever they need it.
The role isn’t one we undertake lightly, and it’s not a short-term one, either. If there’s one lesson we’ve taken out of 2020 – one many businesses will share – it’s that having more varied and flexible forms of finance is a great way to ride through uncertain times.
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