BER21: The impact of coronavirus on the UK lending market - 2021

RSM Corporate Finance

This blog post was produced for inclusion in the Birmingham Economic Review for 2021.

The annual Birmingham Economic Review is produced by the University of Birmingham’s City-REDI and the Greater Birmingham Chambers of Commerce. It is an in-depth exploration of the economy of England’s second city and a high-quality resource for informing research, policy and investment decisions.

This post is featured in Chapter 2 of the Birmingham Economic Review for 2021, on Industry and Innovation: Pathways to Prosperity

Click here to read the Review.

The debt market has evolved significantly over recent years with asset-based lenders (ABLs), challenger banks and debt funds representing real alternatives to the traditional clearing banks. This represents a huge opportunity for SMEs, but has presented challenges for businesses trying to understand the UK lending market.

Given this increasingly diverse group of funders, in June RSM conducted a survey of over 100 lending professionals across high street clearing banks, specialist banks, ABLs and private debt funds, to assess current lending appetite and how access to debt finance will evolve over the next twelve months for businesses looking to adapt and grow in the current climate.

Winners and Losers

In contrast to prior periods of economic turbulence, access to finance has been a good news story for businesses across the region with lending having increased hugely over the course of the coronavirus pandemic. Clearly this has been driven by the £75bn of coronavirus loans, provided with a government backed guarantee. However, segments of the market have fared very differently.

70 per cent of respondents from clearing banks reported that they had increased lending. However this falls to 25 per cent if you exclude Coronavirus Business Interruption Loans (CBILS).

These loans were extremely attractive to borrowers as they were readily available and comparatively cheap. Their success can be seen particularly clearly when compared to asset-based lenders’ activity where funding is typically provided on working capital assets such as debtors and stock. 65 per cent of respondents who identified as ABLs stated that their lending had reduced, mainly in the face of competition from CBILS.

Funding growth

Despite the increased level of CBILS fuelled company borrowing we have witnessed over the last 12 months, lenders are still expecting high demand for their business. Only 6 per cent of respondents expected less demand for their facilities. The current suppressed demand for asset based lending is expected to reverse as businesses look to recover and grow their ABL facilities along with their turnover.

This demand should be considered positively as 82per cent expected lending in 2021 to be used to fund growth.

Respondents were broadly positive with good news for borrowers looking to fund the right opportunity for growth or acquisition. 72 per cent replied that they did not expect to see a change in credit appetite in respect to debt multiples available on leveraged deals.

A more mixed outlook however arises in respect of the cost of facilities. 65 per cent of debt funds, challenger banks and ABLs felt that no change in pricing of facilities would be likely, whilst 70 per cent of clearing banks are expecting an increase in price. More than ever, it will be critical to consider the whole market when looking to ensure the best value from your facilities.

Getting back on track

Many companies will have seen depressed earnings during the Covid-19 period, and now will be looking to refinance or raise finance for M&A transactions. 


In order to raise funding based on their normal EBITDA (earnings before Interest, Tax, Depreciation and Amortisation), it will be important to demonstrate to lenders that they are “back on track”, with a run-rate EBITDA in recent months that suggests their next full year profitability will be in line with pre-Covid performance.


We asked lenders how many months of good performance they would need before they would lend on a “post-Covid” earnings number.  The answers varied quite significantly between different lenders, with 4-6 months being the most popular answer overall.

Debt funds and challenger banks were typically more willing to “take a view” but with higher priced facilities; clearing banks were cheaper but notably more conservative, with 45per cent saying they would need 7-12 months of performance at the ‘new normal’ in order to lend.

Removing the economic props

Despite the difficulties of the past 18 months, corporate insolvencies remain at a very low level. This is expected to change. 94 per cent of respondents expected a significant increase over the next year.

When these increases will occur remains uncertain due to the continued provision of furlough, the deferral of crown debts and the prohibition of winding up petitions and commercial landlord possession proceedings.

Although almost all lenders who replied are expecting an eventual increase in insolvencies, only 50 per cent think they will see an increase in bad debts when compared to the previous 12 months. This may imply that lenders believe their lending is better structured and controlled than previously or simply point to reliance on government guarantees. Undoubtedly, time will tell whether lenders are truly better placed or whether this is just wishful thinking.

Without a doubt, the ability of businesses and lenders to manage withdrawal of government support will be critical in ensuring continued access to crucial funding for ambitious businesses across the region.

For more details see The impact of coronavirus on the UK lending market | RSM UK

Helen Brocklebank
Mergers & Acquisitions Partner
RSM Corporate Finance