Brokers and COVID-19: emerging from the pandemic

Brokers have been hugely instrumental in supporting businesses during the COVID-19 pandemic. Andy Bishop, UK Director, Commercial Broker Development at Lloyds Banking Group, looks at the role they continue to play and at what the future may hold.

Article published date- 28/05/2020

The word ‘unprecedented’ is overused. But I don’t think any of us have ever experienced anything quite like the last three months or so. It has been a truly unique experience and one that has been challenging for brokers, as many businesses have paused their original plans for 2020, and potentially their longer-term plans, while they work through the impact of COVID-19 on their businesses and on themselves personally.

The role of brokers

So, what has been happening to brokers during this period? What we have seen is businesses using broker services to support them in accessing government schemes that have been put in place to support business, and SMEs in particular.

Brokers have found themselves playing a crucial role – not just in terms of providing guidance around the financial schemes, but also in supporting SMEs in accessing the wider range of COVID-19 support, for example, around furloughing staff, VAT, tax deferment and rent relief, and signposting people to capital repayment holidays on personal mortgages.

The National Association of Commercial Finance Brokers has also done an amazing job, both in terms of getting high-quality guidance out to their broker members, and also by corralling the activities of the wider funding market, so brokers have been fully informed all the way along in terms of availability and types of finance out there.

However, it has been a tough period for many brokers because the type of business they have been transacting has changed markedly. And at the same time, they have seen a reduction in lead flow.

A transition period

At the start of the pandemic measures, we were in the response phase where we were reacting to events over which we had little control. We are now entering the recovery phase. It is important to recognise that this will come at different speeds for different businesses and will be more challenging for some than others. While many businesses have now been back at work for a couple of weeks, there are still a huge number, particularly in the hospitality, leisure and retail sectors, who have not had the opportunity to restart.  

However, brokers now have a real opportunity in terms of supporting their clients to make the right financial decisions as we go into 2021 and beyond.

There will be immediate opportunity for some strong business now, and equally, there will be opportunity for brokers in the next six to 12 months as businesses seek to reorganise and restructure their finances as they come out of the transition relief provided by the various government schemes, such as the Coronavirus Business Interruption Loan Scheme (CBILS), as well as Bounce Back Loans.

There will be different timetables for different businesses, but the majority will need to be in a place where they can start thinking about repayment in six or 12 months’ time.

Refinancing and restructuring

In this transition period, everybody is looking carefully at options for the future in terms of how active certain sectors are going to be. It may be that some have changed in popularity or demand in recent weeks. For brokers, in particular those who actively manage their client relationships, the coming months will provide them with a great deal of opportunity as we support those businesses when they come through transition reliefs.

This will give brokers an opportunity for refinancing and restructuring. Some businesses may find themselves cash constrained because of their repayment commitment and, in order to take advantages of opportunities to expand, may want to seek refinance to create surplus cash flow.

As businesses recover from COVID-19, they will also have a need to review their working capital requirements. Many businesses may not have borrowed historically and may have supported themselves through their credit balances over the last three months or so. And in three or six months’ time, as they start to recover and trade again, they may need to have a deeper look at their working capital requirement. So again, that will create opportunities for brokers to be able to recommend and support working capital facilities for regrowth.

Also important is making sure businesses have sustainable, long-term finance structures in place.  Many businesses will have borrowed on a very short-term basis and over time, they will need to think about creating a sustainable long-term structure of borrowing.

Learning curve

We will all have missed something if we do not take some learnings from this three-month period.

Like all of us, brokers have done a great job in terms of transitioning to working from home and dealing with people much more digitally. While this has been challenging in that some of the profiling and face-to-face activity that historically we would have done has disappeared over the last 12 weeks or so, it has also been hugely successful.

So I think the first piece to take away from this is the ability to ensure a good work/life balance. The ability to be agile has also come out of this period. The market has shown incredible ability to adapt quickly to rapidly changing circumstances. This is very healthy and something we will all take advantage of.

We now understand much better just how challenged we can be even with a relatively short period of significant disruption. This will inform learning for the future in terms of businesses and their contingency planning; that is, contingency planning in the widest sense, from ‘can we work from home?’ to ‘what reserves does a business have if the trading situation worsens quickly?’

Looking forward

We have started to see the flow of new business opportunities begin to come back – not to pre-COVID levels but there is definitely more activity in the marketplace as businesses who haven’t been COVID-impacted look to take advantage of opportunities. Equally, other businesses are potentially looking to restructure financing to put them on a more solid footing for the months ahead.

However, we are cautious, because I do not think we will transition back to – at least in the short term – what we would have known as business as usual. I avoid the phrase ‘new normal’ because it implies something defined and linear, and if there is another spike or another outbreak, this would not be the case. We are all going to need to be able to operate in the coming weeks, months and probably years, on a much more agile basis. So I would rather talk about a more agile normal, both from the personal perspective of being able to respond to external changes but also from a business perspective, to be able to overcome any challenges that might be thrown at us through the economy over the next six to 12 months.

For brokers, the first point is to maintain contact with clients. Frequency and recency of contact will always attract client loyalty. Brokers should also make sure they understand, not only the short-term needs of that particular client, but also what their long-term objectives for their businesses are.

As our eyes turn towards the future in an agile environment where we're all going to need to be very adaptable, I genuinely believe that the opportunity for brokers will be huge, in terms of restructuring and refinancing, but also supporting businesses to both create and capture growth opportunities at some point over the coming months.

We will be there to fund the future. We remain committed to working with brokers as we have done in the past and recognise the value that they bring to their clients. Equally we recognise that they have been through a difficult period, but that there is wider opportunity out there. It is a new path, and we are all feeling our way.

For more information go to lloydsbank.com/businessintermediaries

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