Opinion: KPMG’s Saran Lall says end of state Covid support could be critical moment for refinancing

Saran Lall is Associate Director of Debt Advisory at KPMG in the Midlands. Here she explains how businesses in the region could be affected by recent challenges in the wider economy, given the end of government-backed lending and the crucial factors determining the level of lender support:

“Every business that has received government support will be affected as the various loan and funding programs come to an end.

“The effects will not be limited to any specific sector or business model, and there have not yet been any concrete announcements on permanent replacement programs to provide continued support.

“This means that many business leaders will look to the debt markets for new financing deals in the months ahead.

“Now is the time for companies of all sizes to think about their financing strategy.

“The debt market remains well capitalized with significant lending capacity. But there are a range of factors influencing lending decisions, including continued geopolitical uncertainty, rising inflationary pressure, supply chain issues and rising interest rates.

“Of course, ESG (Environment, Social and Governance) also remains an essential determining factor in supporting lenders.

“As lenders apply increased levels of scrutiny to understand the direct and indirect impact of these factors on the borrower, including their cash flow and credit profile, we are seeing a flight to quality.

“Many businesses need to take stock of their financing strategy as they grapple with an incredible array of factors that influence lending decisions.

“This requires thinking about an alternative range of debt solutions that will enable refinancing and financing transactions.

“There is real value in engaging lenders, with a clear articulation of a company’s credit history, particularly in terms of macro headwinds such as supply chain and inflationary pressures, as well as managing competitive funding processes to maximize appetite, terms and certainty.

“To put them in the best possible position to achieve a positive outcome from their conversations with lenders, companies need to ensure that their business strategy is clear, well-defined and well-articulated, taking into account downside risks and levers in place to provide additional leeway.

“From a directional perspective, a strategy should determine the funding need and the solution, not the other way around.”

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