Toxic Mix of SME Debt – The Here and Now
With the advent of FinTech/ Peer-to-Peer facilities, who brilliantly filled the gap vacated by the Big Four, SME finance structures have rarely been so complex and singular in their nature. Prior to the crash of 2008, company finances were usually simple with all the companies, and very often personal, banking requirements with one high street organisation.
Fast forward to now, and as we come out of lockdown three, we are seeing increasingly complex SME debt structures. A recent enquiry to ourselves saw the client have 23 Peer-to-Peer facilities all with Personal Guarantees. Whilst we were discussing the case with him, he was awarded a £25,000 credit card unbeknown to himself.
This new type of structure causes many more problems as each lender has their own agenda. For example, if a loan goes wrong a Peer-to-Peer lender would look to rely on their Personal Guarantee affecting litigation to secure judgment and then look to secure this judgment and their loan ahead of any other finance providers.
This phenomenon will be a serious issue for SMEs as the Peer-to-Peer industries struggle with the downturn of Covid-19. At the time of writing another Peer-to-Peer platform – ‘The House Crowd’, has gone into Administration.
The number of these platforms and their variety of products is amazing, but the poor levels of due diligence coupled with governance failures will create many issues as we go down the track.
Then we have the ‘old chestnuts’ of HMRC and conventional banks.
Our job at Bell & Company is to keep abreast of all developments with all types of creditors not least the Peer-to-Peer lenders. That enables us to correctly advise potential and existing clients of the changes and developments across the board. THAT’S OUR ROLE AFTER ALL.