Opinion: Saran Lall of KPMG says the state’s Covid support, which is ending now, could be a critical time for refinancing

Saran Lall is associate director of debt counseling at KPMG in the Midlands. Here, she discusses how companies across the region may be affected by the recent challenges to the wider economy, given the cessation of government-subsidized loans and the crucial factors that determine the level of lender support:

“Any business that received State aid will be affected as the various lending and financing arrangements end.

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

“This means that there will be a lot of business leaders looking at the debt markets for new financing schemes in the coming months.

“Now is a critical time for companies of all sizes to consider their financing strategy.

“The debt market remains well-capitalized with significant lending capacity. But there are a number of factors influencing lending decisions, not least the continuing geopolitical uncertainty, upward inflationary pressures, supply chain problems and rising interest rates.

“Of course, ESG (Environmental, Social, and Governance) also remains a crucial deciding factor for lender support.

“As lenders apply increased control to understand the direct and indirect impact of such factors on the borrower, including their cash flow and credit profile, we see an escape to quality.

“Many companies have to take stock of their financing strategy as they struggle with an incredible array of factors that influence lending decisions.

“This requires consideration of 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 history, especially in the form of macro headwinds such as supply chain and inflationary pressures, as well as running competitive financing processes to maximize appetite, terms and security.

“In order to put them in the best possible position to get a positive outcome of their conversations with lenders, companies should ensure that their corporate strategy is clear, well-defined and well-articulated, taking into account downside risks and the handles that are in place to give extra free space.

“Directionally, a strategy should drive the need for funding and the solution, not the other way around.”

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