Shaw & Co recently held a free webinar to provide the business community with expert analysis regarding all aspects of both the geopolitical and UK inflationary crises, their impact on UK SMEs, and how companies can still obtain the funding necessary to grow their businesses in such extraordinary times.

Following is a video of the complete webinar as well as an overview of the discussion which featured Colin Burns, Director – Business Funding, Shaw & Co; Phil Shaw, Chief Economist, Investec Bank PLC; Lauren Couch, Managing Director, Growth Lending; and James Stirling, Head of Hybrid Capital, Westbrooke Alternative Asset Management.

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Section 1: The Current Macroenvironment

Phil Shaw, Chief Economist, Investec Bank PLC:

“- GDP: Although the economy is not in recession, it is certainly not growing quickly. UK GDP is still roughly at pre-pandemic levels and around 4% below where it would have been had growth not been interrupted by Covid.

- Inflation: Core figures suggest that inflation is certainly here to stay with central banks having to aggressively raise interest rates in response. Without the government’s programme of energy price support, inflation would likely have hit 13.5%. However, this is now more likely to be around 10.5%. Inflation will come down but there is a fear that rises in wages etc will prolong the problem.

- Interest Rates: Could hit over 5% early next year.

- Government Policy: Obviously there has been a certain degree of chaos and the Government has not painted the full picture. There will actually be a massive £75bn fiscal expansion (around 4% of GDP) when you take into account the energy support programmes for homes and business.

- Sterling: The pound has obviously plummeted since the summer despite interest rate support from the Bank of England.

- Overall: It is unclear whether the government’s plan can work and recession is certainly on the way in some form. However, there won’t be another 2008-style financial crisis.”

Section 2: Funding Challenges Facing SMEs

James Stirling, Head of Hybrid Capital, Westbrooke Alternative Asset Management: “Things are going to get harder. Look at credit fundamentals – asset valuations are not where they were six months ago or, indeed, six weeks ago. Lenders will also have distractions now – they will be analysing their portfolios and see whether the decisions made 18 months still stand up.

“As a result, they will have much less time for new funding applications. One reason to be cheerful is that, in 2008 there was such a small tranche of lenders. However, there has now been a huge proliferation of alternative funders so there are options out there. Of course, having a good corporate finance advisor will also be vital if you are to navigate through the options.”

Colin Burns, Director – Business Funding, Shaw & Co: “I’d agree that thankfully there are a huge range of alternative lenders out there. Also, when you are looking at investment plans you really need to consider what is affordable both now and in the future. It is also a good time to really look at your own business, use technology etc to improve efficiencies for when the tougher times hit.”

Lauren Couch, Managing Director, Growth Lending: “Firstly, prices are changing overnight for everything from goods and services to SME borrowing costs. Therefore, contingency funding will be key. Secondly, there has been a real increase in bad debt so SMEs must be prepared for this and the impact it can have, not only for the loss itself but also the future impact on revenues. Finally, we have definitely seen delays in funding from lenders as they become more cautious so businesses need to have plan A, B and C.”

Section 3: What Funding Options Are Available to SMEs in This Environment?

Lauren Couch, Managing Director, Growth Lending: “There are almost too many options! Historically, the first point of call would be the traditional banks but credit appetite has understandably tightened so other lenders are filling that gap. The key is to speak to advisors and really understand the market around you and explain the key drivers for your business - maybe you need money quickly, maybe you are willing to give away a % to private equity etc which will drive what solution works for you. Alternative lenders are also being very innovative with their products at the moment so it is worth having an open mind as to what the solution is and speaking to someone who knows what is out there.”

Colin Burns, Director – Business Funding, Shaw & Co: “Traditional banks have less of an appetite for risk but there is a vibrant alternative market out there. It is also constantly evolving.”

James Stirling, Head of Hybrid Capital, Westbrooke Alternative Asset Management: “I agree that there is a wide spectrum of options out there. However, it is worth noting that the US market is far ahead of us in terms of the funding options they provide for SMEs. In the UK it’s simply either been asset-based lending or cashflow lending. The US, on the other hand, has led the way in blending the two so these sorts of products will start to become more popular in the UK market.”

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