Saran Lall is a debt advisory associate director at KPMG in the Midlands. Here she discusses how businesses across the region might be affected by recent challenges to the wider economy, considering the end of government-backed loans and the crucial factors determining the level of lender support:
“Every business that received Government-backed support will be impacted as the various loan and financing schemes come to an end.
“The effects will not be confined to any specific sector or business model, and there has yet to be any concrete announcements on any permanent replacement programs to provide ongoing support.
“This means that there will be a lot of business leaders looking to the debt markets for new finance arrangements in the coming months.
“Now is a critical time for businesses of all sizes to consider their financing strategy.
“The debt market remains well capitalized with significant capacity to lend. But, there are a range of factors that are influencing lending decisions, not least the continued geopolitical uncertainty, upward inflationary pressure, supply chain issues and rising interest rates.
Of course, ESG (Environmental, Social, and Governance) also remains a critical determining factor of lender support.
“As lenders apply increased levels of scrutiny to understand the direct and indirect impact of such factors on the borrower, including their cash flow and credit profile, we’re seeing a flight to quality.
“Many companies are having to take stock of their financing strategy as they wrestle with an incredible range of factors that are impacting lending decisions.
“This demands a consideration for an alternative range of debt solutions that will enable refinancing and fund transactions.
“There is real value in lender engagement, with a clear articulation of a company’s credit story, particularly in terms of macro headwinds such as supply chain and inflationary pressures, as well as running competitive financing processes to maximize appetite, terms, and certainty.
“To put them in the best possible position to get a positive outcome from their conversations with lenders, businesses should ensure that their corporate strategy is clear, well defined, and well-articulated, considering downside risks and the levers in place to provide additional headroom .
“Directionally, a strategy should drive the funding requirement and solution, not the other way around.”