THE NEW OPPORTUNITY…
By Brian Rubins, Executive Chairman
As it is said, “one man’s meat is another man’s poison” and similarly, sad that it is, one man’s problem is another man’s opportunity.
With the high street banks unwillingly committed to supporting the Government’s Covid-19 loans, those businesses that do not qualify, and there are many, are out in the cold.
Cancelled events and closures in the hospitality and entertainment sector, retail businesses shuttered because of Government restrictions, combined with slower sales on the high street, cancelled or delayed orders for manufacturers due to C-19 and Brexit, all drive the urgent need for additional working capital. But with high street banks having less than half of an appetite for supporting small to medium size borrowers, where will the business community and property industry go for new working capital?
The problems faced by the banks presents an opportunity for bridging loan lenders. However, before shouting whoopee and jumping on the band wagon, let’s take a deep breath and measure the risks as well as the opportunities. After that we can march forward with confidence.
First, no one knows how long businesses will be affected by C-19. But it is clear that the new normal will not start until after everyone is vaccinated, so we are looking at next year. Secondly, some businesses will bounce back quickly due to unsatisfied demand but others will take longer for normal conditions to return.
Assuming a 12-month lead time for the new normal to commence, a bridging loan for one year will not solve the problem as it will expire just when the capital is most needed. Also, if the exit is refinance, borrowers will need to demonstrate that they have returned to profitability and can service a long-term loan. It is probable that lenders will be sympathetic and will look at the pre-Covid trading results as well as those more recent. However, it is clear that a minimum period of two years will be necessary before the refinance can occur.
Some of the funds will be needed immediately, to clear accrued liabilities, but a significant proportion will be to finance future overheads, and so not all of the loan will be required on day one and a standard bridging loan will not be suitable. Bridging lenders that can offer a reasonably priced alternative to an overdraft, with the ability to drawdown on multiple occasions, and only charge interest on the balance outstanding, will best satisfy this demand.
And satisfying demand has already started. Two recent examples of such facilities advanced by Alternative Bridging Corporation include a loan of £1,600,000 for a successful catering company experiencing a downturn in trade due to Covid restrictions, and £500,000 working capital for a musical instruments supplier, secured by a second charge on the proprietor’s substantial country house.
These are just two examples out of many and it is certain that this demand will grow. Working closely with those lenders that have the skills and resources to satisfy it, will significantly help both introducers and their clients.
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Click here to read the article in the February issue of Mortgage Introducer.
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