Like many industries, commercial lending has found its established rules and processes challenged by the lockdown restrictions. However, lending continues—in these dire economic times, it is more important than ever.
Because of this, the sector is rapidly evolving its processes to make greater use of technology, complete transactions effectively and find new ways to manage risk. In this article, we look at three key examples of how these changes are being handled.
Coronavirus restrictions have created several issues regarding how to sign legal documents while also observing social distancing rules. In the lending world, loan agreements, legal charges, guarantees and debentures are all critical documents that need signing. This has raised the question as to whether methods like emails, jpeg signatures and electronic signatures can be used to execute these documents legally.
In 2019, the Law Commission published a report confirming the validity of e-signatures in executing documents; both the Lord Chancellor and Secretary of State for Justice endorsed the report’s conclusions.
The position is less straightforward regarding the signing of deeds. The current legal requirement is that a deed must be signed in the presence of a witness—this is still the case when using electronic means of signature. Therefore, a signature witnessed via video link might be insufficient.
Recent case law has provided little definitive certainty so the current best practice is to ensure a witness is present when signing a deed. In the current circumstances, family members may be able to replace an independent witness as long as they’re not party to the document (legal advice should be sought on this point).
In many cases it’s hard to value property without being physically present. Restrictions on entering properties set by individual companies, governments or even occupants are making this increasingly difficult. However, agents are still able to attend site to conduct a valuation if this fits in with social distancing guidelines for both the agent and the client.
Lenders still need to lend—now more than ever—so the only option is to conduct valuations remotely and caveat the subsequent reports.
In response to the current situation, the Royal Institute of Chartered Surveyors (RICS) has issued special guidelines.
They state that during the COVID-19 crisis members have to decide if a remote valuation presents ‘material valuations uncertainty’ and if so, this should be stated in their report. They should also advise clients to treat the valuation with a higher degree of caution and keep the value of the property under frequent review.
Traditional lending criteria used by lenders isn’t well suited to business environments during a pandemic.
For example, pre-lockdown business performance is now much less likely to indicate future success. Capital reserves, adverse financial events and profitability all have some relevance, but a business plan for navigating the pandemic is now equally as important.
This should cover factors relating to the pandemic and any future recession, such as business structure, industry conditions and exposure to risk. The key business plan features which lenders will be looking out for include:
Planning: A realistic plan that explains how a business will navigate the different challenges it will face.
Scenario Planning: No one knows how detrimental the pandemic will be for the economy. It’s therefore essential to understand how a business will remain viable—especially in the worst-case scenario.
Risk Analysis: Lenders need to understand the top three threats which apply to a company, with each weighted in terms of likelihood.
Contingency planning: Lenders need to see a precise analysis of a worst-case scenario and a plan to manage that situation.
Helping You Access Capital
At Reparo, we’re always looking for new solutions for customers to access the finance they need— and the current circumstances are no exception. Our team is always available to discuss your application and we offer a rapid and flexible service. To discuss a loan of between £25,000 and £1m, please contact us at firstname.lastname@example.org or on 0161 451 5710.