2020 has been a challenging year for so many. Whilst we look forward to 2021 filled with the promise of vaccines, treatments and recovery, we would like to take a moment to look back at 2020. The pandemic brought us together and showed the best in humanity. However, it also claimed many victims and caused enormous destruction. We did our bit to fight the crisis by standing by our SMEs throughout the entire pandemic and granting interest payment holidays and new loans. Whilst a number of lenders shut their doors, our employees did an extraordinary job to maintain an efficient lending operation and our institutional investors showed their strong commitment and humane engagement by continuing to advance funds. Our company continued to grow in 2020 both in terms of number of employees and loan book. We were honoured to become accredited by the British Business Bank as a lender in the UK government’s Coronavirus Business Interruption Loan Scheme. In our tradition of making festive fun, our Jane Bond captures some of the zeitgeist in our end-of-2020 holiday film.
Fiduciam, the institutionally funded short-term lender to SMEs and entrepreneurs, has just completed a £1.18million loan to finance a popular hotel in Cornwall. The loan which falls under the Coronavirus Business Interruption Loan Scheme (CBILS), will enable the hotel to continue operating and investing until the end of 2022.
2020 has been a year of contrasts at Hustyns Hotel and Spa in Wadebridge. After closing for three months during the lockdown, it reopened in July to experience its highest demand for rooms in recent years, only to be affected once more by this second national lockdown.
Fiduciam’s loan provides Hustyns Hotel and Spa with secure commercial funding for 24 months. Financing costs have been reduced thanks to CBILS, and the absence of early repayment charges gives the borrower added flexibility.
Ravi Gupta of Hustyns Hotel and Spa, comments, “Covid-19 has posed unique challenges to the hospitality industry – it’s been a real year of volatility. 2020 was expected to be a significant year as we had invested in the hotel with a refurbished restaurant and a new ‘glamping’ offering coming on stream.
“We know that we have a good business model and strong demand, but after strong revenue and profit growth in 2019, the lockdown meant we experienced a difficult spring and early summer 2020 when we couldn’t let out rooms or lodges. Once the lockdown was lifted, we had to immediately scale up operations and staff levels for full occupancy. The loan from Fiduciam means that we cannot only weather this latest lockdown, but we can make the investments we want into our resort and know that our business’s future is secure for the next two years.”
Marc Morris, Underwriter at Fiduciam, says, “Hustyns is the perfect fit for our CBILS offering. Pre-COVID the hotel was performing well. The CBILS loan provides 12 months of space for Hustyns to maintain resilience and rebuild its accounts before the borrower returns to servicing interest. In the medium term, the borrower plans to refinance onto a term product.”
Fiduciam has been accredited by the British Business Bank to offer loans under the CBILS. Delivered through British Business Bank accredited lenders, CBILS is designed to support the continued provision of finance to UK smaller businesses during the Covid-19 outbreak. The scheme enables lenders to provide facilities of up to £5m to smaller businesses across the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow. All economic downturns cause significant economic scarring in addition to any structural change. Short-term liquidity problems faced by even the best placed firms can quickly become solvency concerns, particularly as the result of an asymmetric shock such as a pandemic. Within this setting, Fiduciam continues to see pro-active businesses seek robust provision for their liquidity requirements over a 12 to 24-month time horizon.
Fiduciam, the institutionally funded short-term lender, has just completed a Coronavirus Business Interruption Loan Scheme (CBILS) loan for £840,000. The loan was to a children’s nursery in Leytonstone, in North East London, called Harvey House.
The CBILS was designed to support the continued provision of finance to smaller UK businesses (SMEs) that have been impacted by the COVID-19 pandemic. The loans are delivered through lenders accredited by the British Business Bank (BBB).
CBILS has been playing an important role in supporting local business and communities throughout the Covid-19 crisis, as the case of Harvey House demonstrates well. Navneet Bansal, who has been a child carer for many years, took the initiative to open up her own children’s nursery, addressing a shortage of childcare in Leytonstone. It was a proud moment when Harvey House opened in December 2019, but only four months later it was forced to close because of Covid-19.
This hit the owners hard as they had to make debt service payments of £113,000 per annum, which quickly became unsustainable as the nursery waited months to hear when children could return to nursery care.
Fiduciam provided a two-year CBILS loan which decreases the debt servicing cost by 64% for the next two years. This puts the nursery on a stable financial footing, also allowing it to deal with potential future Covid-19 hurdles.
The nursery qualified for the CBILS loan because it met the requirement of being a viable business before the outbreak of the pandemic and one that is expected to do very well in a more normal trading environment. The nursery employs 17 staff to provide a high-quality childcare service, which is reflected in its 9.5/10 rating on daynurseries.co.uk.
Despite such rapid success and Navneet having an excellent personal history in the childcare sector, the high street banks were unable to provide a CBILS loan as the nursery businesses did not yet have a track record for the required length of time.
For Fiduciam, as an alternative lender, this was not an obstacle. The lender got to know the owner, Navneet, and inspected the nursery in operation. Having witnessed the professionalism and passion of the staff and owner, it was clear that such a nursery was very much in need in Leytonstone and therefore offered a very strong proposition.
The Fiduciam CBILS loan now allows the nursery to establish a track record the next two years so that it can then refinance with a cheap high street bank loan.
Johan Groothaert, CEO of Fiduciam commented, “As a start-up SME, it is difficult to get finance in the best of times. Thanks to CBILS we have been able to lower the financing costs for such SMEs. Harvey House is run very professionally by experienced and passionate staff – we love to lend to such enterprises.
“It is thanks to the brave step of Navneet, setting up their own children’s nursery that Leytonstone’s shortage of high-quality children nursery places is being addressed. We are confident that Harvey House will be very successful and provide an excellent early learning experience for hundreds of children in the coming years.”
Navneet Bansal, owner of the nursery, commented, “We are very glad to have received the Fiduciam CBILS loan. Without it, finance costs would have been overbearing and we did not want to pass on the cost to the parents or cut the quality of our childcare. The Fiduciam CBILS loan puts our nursery on a very stable financial footing and ensures that all children continue to receive the discovery and learning experience they deserve. We were also impressed by the efficiency of the Fiduciam CBILS loan application process.”
Fiduciam is used to dealing with the unexpected, so while Covid-19 has been a particularly unwelcome shock – both for people’s health and for the economy– it is something we have tried to take in our stride as far as possible.
Successful short-term lending is all about being flexible and adapting to circumstances as you find them, so our team has been well placed to react to the challenging situation presented by the coronavirus.
Fiduciam was quick to see the potential of the UK Government’s Coronavirus Business Interruption Loan Scheme (CBILS). The scheme is designed precisely to help businesses whose plans and finances have been hit by the coronavirus outbreak, and this seemed to us to be an excellent match for the flexible short-term finance options Fiduciam offers. The construction sector has been particularly hard hit, with figures from the Office for National Statistics showing that output fell by around two-fifths at the height of lockdown. The restrictions put in place to prevent the further spread of Covid-19 have derailed a number of development and refurbishment projects. When Fiduciam was accredited for CBILS by the British Business Bank last month, we therefore anticipated strong demand from this sector.
As it turned out, it was not long before we were approached by a housebuilder, who had seen a development project thrown off track by Covid-19. They had taken out an initial loan to purchase two adjacent properties in an up-and-coming town on the south coast of England, with a plan to convert them into a range of residences attractive to both first-time buyers and families. Covid-19 threw these plans off track and they came to Fiduciam aiming to refinance their existing loan and to procure additional funds to complete the conversion project.
From the borrower’s perspective, there are clear advantages to taking out a loan under CBILS. Firstly, the loan allows the housebuilder to resume the construction works immediately which were halted when the lockdown was introduced. Whilst the housebuilder had obtained leverage at the outset of the project, none of the housebuilder’s usual lenders were willing to finance the continuation of the project. Furthermore, under CBILS, the Government pays the fees and interest for the first 12 months. This turned out to be critical to make the loan affordable, in light of the much lower profitability of the project than the pre-Covid projections.
The scheme is also advantageous for lenders, who benefit from a partial guarantee from the Government, enabling us to unlock institutional funding more easily. This also means we are able to offer a lower interest-rate, which also provides an added benefit to our borrowers. Through the CBILS scheme, we were able to offer this housebuilder a £1.1 million topping out at 70% loan-to-value at an interest rate of around 0.8% per month, which is low for higher-risk development loans to small family-run housebuilders.
There are also direct benefits for the Government from the CBILS scheme. As well as helping to keep the economy moving and providing jobs, which is the primary objective of CBILS, this loan also served another Government objective, easing the current housing crisis by tackling the undersupply of residential accommodation. This project will create four new flats and three houses in place of one habitable property and a derelict farmstead.
The loan was not without complications, as the deal requires the transfer of land between the two properties, and the farmstead, although derelict, is also a listed building. However, Fiduciam is accustomed to dealing with all manner of complex lending scenarios and overcoming tricky issues, making us the perfect lender for this situation.
Our experience of CBILS so far has been extremely positive. Over the coming weeks Fiduciam is looking forward to helping many more high-quality businesses across the economy to get back on their feet, and return to growth, as the country gradually recovers from Covid-19.
The phrase ‘know your customer’ (KYC) is bandied about across many industries, but in the financial world it is mostly used in terms of identity verification and money laundering. However, knowing your customer is important for other reasons.
From a lenders’ point of view it is much easier to make decisions if we can really get to know our customers, understand their needs and work together for our mutual benefit. However, with many of life’s necessities available at the click of a button it appears that relationships between providers and their clients are becoming a rarer and rarer. At Fiduciam we believe there is little substitute to knowing our borrowers well and understanding their businesses. Our relationships with our clients and their agents are what make us stand out from the crowd and are a major factor in the amount of repeat business we enjoy. Fostering long term relationships is therefore at the heart of our business, which is ultimately about helping our clients grow theirs.
Over the last few years, we’ve assisted a number of developers to organically upscale their businesses. From a credit risk perspective, we like to see repeat borrowers build a niche of projects and experience. Those who know their market and seek to expand on it.
Growth can come from gradually upscaling the projects taken on and carefully building the capital required to invest as equity. However, as a lender we can also work with developers to accelerate this cycle and increase the number of projects undertaken.
In one recent transaction we helped a client who had originally come to us several years ago for a £200k development loan. Since then he has continued to expand his business, working on bigger projects that require different types of funding. We recently completed a £1.6m loan for a permitted development facility in South London with this client using our ‘Stepping Stone’ loan.
Having just completed a scheme, but not yet sold the available units, he was ready to start a new project. However, without the sale of units he didn’t have the funds to move on. Knowing this client, and his development capabilities, over a period of years meant we were confident in his business and wanted to ensure he was able to move forward and continue to grow.
Using the ‘Stepping Stone’ facility we enabled the borrower to transfer equity from the recently completed development to his new project without the need to wait for sales. This meant the new project could start earlier, and the developer would be able to take on more projects. The borrower therefore grows by simply using the same capital more efficiently.
As COVID-19 slows the sale of completed projects it is also likely to generate attractive opportunities to purchase new sites. The ‘Stepping Stone’ ability to transfer equity from one project to the next is something that could keep projects flowing more easily. Importantly, it starts with really getting to know our customers. That way we are not only providing creative borrowing solutions and mitigating credit risk, but we are helping businesses to grow and cycle forward.