By: Mohith Sondhi, Senior Director, Debt Finance at OakNorth Bank
Despite the disruption and economic challenges the pandemic and subsequent lockdown caused, the early years sector has remained resilient throughout this year, and continued to find opportunities to grow. In this piece, I’ll look at how this sector has been impacted by COVID-19 including the successes and challenges of lending during the pandemic and where I see the industry going in the future (hint, I think there’s plenty of growth opportunity for the sector!).
Lending amidst COVID-19
Prior to the pandemic, the early years sector was seen as a relatively “safe bet” for lenders. As one of the only recession-proof industries, it’s continued to be an increasingly active sector. According to LaingBuisson’s 16th report on the Childcare sector, the UK day nursery sector has continued to grow in real market value at c.7 per cent per annum. This has largely been driven by socioeconomic trends such as the age of parents giving birth and more women working full-time.
Based on conversations with borrowers and potential prospects in this space, we’re hearing that many are starting to look for less aggressive leverage options and are interested in building long-term partnerships with lenders. This creates a unique opportunity for us.
As a still fairly new lender, COVID-19 is surprisingly not the first unprecedented event we’ve continued lending through. In June 2016, just nine months after our launch, we experienced another unprecedented event – Brexit. Of course, the pandemic is a very different situation, but some of the trends we’ve seen are the same. For example, in the six months following the Brexit vote, our loan book tripled in size to £300m as a result of larger lenders retrenching from the market. We’ve seen a similar trend this time, which is why for several months this year, we saw twice as many new loan applications going to Credit Committee than during the same period the previous year.
We felt it was our duty as a lender to continue supporting businesses through this period. As such, we:
The structural changes that were made throughout the pandemic, will continue to be a driving force for how nurseries are shaped in the future. The way early learning is delivered (i.e. technology-adoption in the form of virtual classrooms) will forever be altered and accelerated. Health and safety standards will continue to be a top priority for parents and teachers, as well as open, outdoor spaces for kids to play and learn in.
While structural changes will have a lasting effect on the sector, I think we’ll also see more consolidation in the market. Sadly, some smaller operators will be forced to shut down and sell to larger players, but this creates opportunities to acquire those nurseries and bring on new talent.
Although the industry has faced numerous challenges throughout the year, we firmly believe there’s still tremendous opportunity in the sector. As a lender, we still think the industry has space to grow and are keen to continue supporting it. If you’re looking to grow your business, please come talk to us.