Loan terms

I know that we have said and written this before, but it does bear repeating  Things are still challenging for many businesses seeking to raise funding; however we are seeing the banking landscape continue to gradually improve.  But, in this context, what does improvement look like?  Well firstly it is evidenced by a greater willingness by banks to consider certain funding propositions; those which a bank wishes to support we are seeing signs of better pricing and our discussions as to what would be sensible covenants to attach to the funding are also indicating a sensible approach to what is a meaningful alarm bell for the bank.


No doubt this gradual thawing is due in part to the continued growth of peer to peer / crowdfunding business delivering their services online.  What was initially a product targeted at businesses which had been unable to secure bank funding is now maturing and attracting borrowers who would also be of interest to the established high st banks.  From this vantage point (early December 2014) it seems a safe bet that the growth of these new entrants is only going to continue; which in turn can only be good for businesses which are seeking funding, or will be in 2015.
Where established banks do  still have an advantage over the peer to peer lenders (although perhaps more theoretical than real) is their ability to be a little more flexible on the loan terms they offer.  5 years is the maximum for Funding Circle (currently).  If a bank wants a particular piece of business or a new client it can be more creative with loan terms and, say, bullet / back end loaded repayment profiles.  These terms won’t be available for all applicants.  But it does seem that 2015 may witness a greater willingness by bank funders to discuss 5+year repayment terms.


There is, arguably, an interesting parallel here to the debate over the size of the national debt. As businesses seek longer term debt finance to match longer term investments (which generate longer term returns), so too should the government(of whatever colour) take a longer term view regarding the deficit reduction programme. Let us not forget that a significant element of the government debt is represented by investment in our banks i.e. an investment in the financial infrastructure of the country.
All of which makes the recent announcements by the main political parties on how they plan to bring ‘the deficit’ down if they are elected in May 2015 even more odd.  There is no economic logic which says that ‘the deficit’ needs to be brought to £NIL within 3 years, 5 years or 25 years.  Such pledges ignore that in a globalized economy, it will not entirely be within any country’s gift whether they have sufficient future economic vigour to honour such commitments –  as Harold Macmillan said “Events, dear boy! Events…”. To that end they are arguably a nonsense.


And just to further undermine the contention that there is some kind of unquestionable categorical imperative to “deal with the deficit” within the life of the next parliament – in the last week or so we had the announcement that the remaining element of WW1 debt (yes, from 100 years ago and still outstanding) will be refinanced.


Many economic commentators from all sides of the political spectrum (and those who would plant themselves firmly in the middle) have compared the collapse of 2008 to date as of similar potential magnitude and risk as a war.  If we are recovering from such an existential shock (although as the Prime Minister recently remarked to the G20, we aren’t out of the woods yet) then why do we have to wrap ourselves in some kind of economic hairshirt simply because of our leaders adopting a completely arbitrary time period over which to ‘deal with the deficit’.
As many have observed, there is not a great deal that divides any of the parties on this point.  There is no alternative roadmap of the future being offered to the electorate.  I suspect that, come the general election, those who choose to vote will be motivated less by a firm belief that one or other coloured rosette ‘speaks for them” and rather more by a feeling that they have to decide which of the candidates on the list in front of them represents the least worst alternative.