The havoc wrought by coronavirus on the leasing sector offers an opportunity for the industry’s disparate representative bodies to join forces, writes Derek Soper
Many small-to-medium-size businesses will already be considering their future, even survival, alongside the worry of the substantial amounts of cash they will need to get through the next few months. Where will it come from and what will be the constraints around its provision?
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A major complication is the fact that the skills necessary to organise and manage the present situation in banks and many other types of lenders are no longer there.
Once in abundant supply within the banking and financial services community, the lack of one-on-one customer contact applying ‘commercial judgement’ is leaving many lenders struggling to cope.
Whether the banks are looking to lend their own funds or within an overall arrangement with the Bank of England guaranteeing the loan, they still have to make a judgement on the viability of the company requiring the loan.
Sadly, that judgement is lacking as each business has a different range of problems in the current crisis. The ‘one-on-one’ skill set has been replaced by a series of ‘box ticking’ exercises using centralised complex lending algorithms and adopting a ‘pooled’ risk approach, ostensibly to save money.
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By GlobalDataIn so doing much ‘commercial judgement’ has been taken out of the equation. This is evidenced by the lack of experienced bank branch management who were previously in close touch with their customer base and knew the highs and lows of each business customer and how to deal with it.
Knowledge of the customer, his or her business, family motivation, long-term ambitions, production and viability of a sustainable cash flow and the local community support in a long-term viable future of the business are all important – not only the last three years’ balance sheets.
And it certainly needs skill to look past the current crisis to see those with potential to recover and survive and those that won’t. Asking for a cash flow forecast doesn’t quite help in the current world. There will be an emergence of companies offering help and funding as there always is following disasters of this nature.
They will have two huge motivating factors, the deployment of funds at increased rates, followed by the opportunity of taking some of the equity in the event of slow or non-payment of the loans. This is where the ‘equity risk’ really lies – equity in return for survival. The balance of discussions – ‘we can achieve our re-adjusted target numbers’, versus ‘we will only lend on these conditions’ will inevitably be weighted in favour of the opportunistic lenders. As an industry we must help customers wherever possible and try to even out the playing field.
The way things are looking at present it seems we cannot look forward to ‘normal service’ being resumed anytime soon. What we can do as an industry is recognise that our customers need our help and that in turn needs Government to recognise the service that we can deliver, regulated or non-regulated. We have an abundance of highly skilled individuals in the industry and now need to take every opportunity to pull together to maintain the relevance of our industry to future levels of investment.
Perhaps this is also the time to take stock of the many component parts of our industry and ask the question ‘are they all fit-for-purpose in a changing world’, or should we start a process of realignment of those parts; for example, the FLA to widen its remit to include a wider range of members, brokers for example, who are an important component of our industry?
Maybe at the same time merge the FLA, The Leasing Foundation and the AFPA Trust, all of which do sterling work and could, together, hugely increase the standing of the industry.
I believe that now is the time, whilst we have an opportunity, to reflect on what is good about our industry and perhaps what is not so good, to start a process that will enhance our influence, demonstrate our unique position in the investment capabilities of the UK, be seen as ‘more coordinated’ by Government and have clarity about the length and breadth of our industry. It’s certainly a time for togetherness!
Derek Soper is the founder of IAA-Advisory
