Companies will have to be more agile and resilient to be competitive as industry emerges from the pandemic crisis. Simon Goldie, head of asset finance at the FLA, sets out the organisation’s short, medium and long-term priorities for recovery.
In mid-July, the Finance & Leasing Association published its recovery plan for the economy – Shaping the UK’s future prosperity: recognising the opportunities for recovery. It recommended a phased approach of short, medium and long-term measures that would position the UK to meet the government’s key objectives of achieving a net-zero, low carbon economy by 2050, increasing economic productivity, and creating a diverse and inclusive prosperity by rebalancing the regional economies of the UK.
The short-term imperative is to rebuild consumer and business confidence, without which demand for goods and services will remain low. Confidence is built on the availability of competitively priced funding. But over the last five months, so much assistance has been provided to consumers and business customers in the form of payment deferrals that the availability of new lending to help fund the recovery will be limited.
This applies especially in the case of non-bank lenders which do not have direct access to government funding schemes, and have therefore been supporting consumers and business customers from their own reserves.
Lenders have already had to tighten their lending criteria, but liquidity support from the government would help to maintain the availability of finance at competitive rates. The FLA welcomes the Chancellor’s extension of the CBILS loan guarantee scheme, and we look forward to seeing what the successor scheme for 2021 will look like. We have already proposed a revised version of the Enterprise Finance Guarantee Scheme.
The FLA would also like to see the government provide more funding to the British Business Bank (BBB) so that it can be used by more funders to support more small and medium firms. In particular, we think that the BBB’s “Enable” programme could play an even bigger role than it currently does in providing funds to small independent specialist lenders.
The medium-term focus must prioritise investment for core economic growth. The UK cannot increase productivity in the post Covid-19 period by using the same equipment and practices as it did before the crisis. A fresh perspective is needed – firms of all kinds will have to be more agile in future, whether that involves using the latest equipment to drive efficiency, or the latest software to smooth processes. This will require funding – such as leasing or hire purchase.
The FLA’s asset finance members are based around the UK, which puts them in a unique position to understand the intricacies of funding on a local level, in specialist markets like manufacturing, construction, agriculture, transport and communications. North-west England, for example, is the biggest region for the UK’s manufacturing output, worth £28.5bn (Make UK, 2020), and asset finance plays a major part in making this possible.
Knowledge and expertise are vital, but so is the business relationship between lender and client. In the asset finance market, this is usually close and enduring. Firms tend to return again and again, because being able to speak to a specialist lender or broker to help them find the right finance at the right price allows business owners to get on with the day-to-day running of their organisations. It’s a relationship that works.
In the longer term, the FLA would like to see a new programme of government loan guarantees replace those created during the crisis, but this time with the focus on promoting productivity through better infrastructure, technology and achieving net zero.
There is also an absolute need to update the regulatory regime that underpins the provision of credit in the UK. The Consumer Credit Act (CCA) is central to this regime, but parts of the act contain outdated and bureaucratic requirements: these proved to be a real obstacle to lenders’ efforts to provide quick and effective solutions small business customers as well as consumers in financial difficulty. This needs to change.
The Covid-19 crisis has forced all businesses to reflect on their operating models, and that in itself is an opportunity to develop the smarter, more resilient and adaptable strategies that will be needed to find the competitive edge in a challenging business environment.
The FLA report can be downloaded at www.fla.org.uk/business-information/documents/shaping-the-uks-future-prosperity-recognising-the-opportunities/