Partner at law firm TLT Douglas Gourlay shares his thoughts on how the debt finance market has changed since the last economic downturn ... and what developments and trends lie ahead in the near future
IN regards to the diversification of the market, traditional banks continue to have a tight grip on business and corporate lending in Scotland, with most businesses taking a one bank approach.
Challenges from alternative lenders have been limited as that market develops, but it is growing and there are instances of increasing diversification.
It’s likely that borrower attitudes will begin to change and there will be a greater openness to multi-lender / multi-product finance options across a range of platforms chosen to suit specific business needs.
This outcome depends on the banks re-imagining and delivering on inclusivity, ESG and long-term goals which will build strong customer trust. And, on the alternative lender side, that they continue to invest in Scotland with more teams on the ground and a broader spectrum of credit appetite.
ESG at the core of the lending ecosystem
GREEN and sustainability-linked loans still tend to be the preserve of high value corporate grade lending and there are barriers to overcome before green finance can be considered mainstream.
However, it is a fast-moving market and in the relatively near future it’s likely all finance in Scotland will have an eco-friendly element to it.
This is being driven by the wider ESG agenda and as more businesses set related targets – for example, on greenhouse gas emissions, renewable energy, employee diversity or business ethics – over the next ten years demand for green finance will continue to grow.
One of the blockers to the growth of green finance in Scotland is the ability for mid-market corporates to appoint qualified experts to help shape strategy and drive plans forward.
On the lender side, qualified experts in green finance are in short supply and high demand, but as financial institutions continue to work on building a strong proposition in green finance, it will be crucial to have a strong, influential voice at the top of the business, and that this filters down to customer-facing teams.
An efficient transactional lending landscape
THE Scottish government is taking steps towards reforming secured lending, with plans to introduce a new form of fixed security and modernise the antiquated system of assignations and pledges.
These options have always been cumbersome and often commercially unviable. While a lender may also (and often does) accept floating security over moveable assets, this comes with its own shortcomings.
The impending changes will be of particular interest to lenders and asset finance providers who cannot currently take fixed security over moveable property in Scotland and put the Scottish market on a more equal footing with England.
It is anticipated that the final form of the Moveable Transactions (Scotland) Bill will be agreed and come into effect during the course of 2023.
These proposals present a huge opportunity for lenders to take additional fixed security over assets of corporate borrowers and begin taking security over moveable assets owned by individuals, where a floating charge is not possible.
The future market
We are at an opportune moment where following investment in new technologies and development of our security law we can re-imagine our systems and processes and at least match if not move ahead of other UK jurisdictions.
Where we take full advantage of our position as one of the fastest growing technology and fintech hubs and combine this with targeted investment and additional resources, we can have a streamlined, modern transactional lending eco-system. We remain optimistic for the future of the financial services sector in Scotland, as do our clients.
With investment in and development of modern processes, an acceleration of development in key facets of the law to reflect modern practice and a focus and refinement of ESG policies, the financial services landscape can continue to develop and provide us with much-needed edge in a competitive marketplace.
tlt.com
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