Peer-to-peer lenders can benefit from a predicted surge in restructuring and refinancing activity, as the government-backed lending schemes finally come to an end.
According to Sorca McGeown (pictured), partner at BTG Advisory in London, the alternative lending community has “massively stepped up to the plate” since the start of the pandemic and alternative lenders are set to play a major role in the post-pandemic recovery as banks seek to restructure billions of pounds in business debt.
Since April 2020, there has been an unprecedented national effort to provide emergency funding to businesses across the UK. McGeown says that the coronavirus business interruption loan scheme and bounce back loan scheme have been hugely successful in this sense. However, as these government-backed lending schemes have begun to be wound down, new financing opportunities have emerged.
“The recovery loan scheme (RLS) was launched in April 2021, with the key aim of providing financial support to borrowers as they recover from the impact of Covid and enabling lenders to provide better terms to borrowers,” she explains.
“At the end of December, the scheme changes, and therefore it is key to ensure any restructures that will be impacted by the changes are currently being assessed.”
Ahead of the end-of-year deadline, lenders are speaking to their borrowers to assess the viability of their business and to discuss whether restructuring options are required. However, after more than two years of economic instability and uncertainty, this is no easy task.
“Due to these challenges, many lenders are engaging us to work with their borrowers, assess, stress test and evaluate the financial projections and debt serviceability.
“In certain scenarios we assist management in the preparation of their financial forecasts and forward planning particularly where businesses have recently lost qualified financial staff. This gives the lender comfort with regards to the viability of the business post-Covid, and often supports a medium to longer term debt restructure, thereby giving the business the financial support and assurance it needs to recover and grow,” McGeown says.
These financial assessments can be complex, as they must consider the state of the business pre-Covid, during Covid, and project up to the next five years.
“In our review, we also highlight operational issues and shortcomings including recruitment needs, as in many cases the current staff level is not sufficient to support the growth plans due to essential redundancies made during Covid, particularly business development roles,” says McGeown.
“Whilst this may lead to a Catch-22 scenario as growth requires investment which many businesses are not able to support financially, our review will help businesses make informed decisions and develop strategies to address these scenarios. This includes parachuting staff in at short notice whilst longer-term staff are recruited. This scenario also represents an opportunity for lenders who are able to advance additional funding to businesses to financially support their growth plans.”
When proposing restructuring solutions, McGeown believes that P2P lenders can be more flexible than traditional lenders and are often able to make decisions quicker. She is confident that the alternative lending community will have an important role to play in the Covid recovery era.