Commercial lending & spreadsheets – Capitalism’s dirty little secret


Before 2021, commercial lending found itself sitting in grey areas when it came to regulation by the Financial Conduct Authority.

But as Michael May, CEO, Secure Lending Audit explains now, the pandemic has created a black hole of commercial products being churned out in order to support businesses in the hope to remain as close to ‘Business as Usual’.

With the fast-moving environment of application processing – inclusive of auditing and validating approvals – where is the layer of infrastructure to guarantee that companies are offered the right deals at the right rates, and for the right amount of time?

Furthermore, where is the assurance that there is a fair and balanced system in place to ensure businesses are offered the correct products? Lastly, who is monitoring all these transactions and safeguarding these companies from errors that could end up costing them thousands in penalties and overpayments?

Small Error – Big Mistake

Egregious errors are hardly uncommon in the world of commercial lending, and spreadsheets are fallible, thanks to human error.
Last year, the UK Government stumbled into its own spreadsheet nightmare when it admitted contact-tracing efforts were stymied by a simple data processing mistake.

A Canadian marijuana grower Canopy Growth had to correct its quarterly earnings after incorrectly posting a £40 million loss — the real figure was £88m, miscalculated by a formula error. The company’s stock fell two per cent. Boeing leaked employees’ personal data in a hidden spreadsheet column. An investment bank’s analysis of Tesla’s purchase of SolarCity undervalued the company by $400m after double counting its debt in a spreadsheet.

The biggest in history since Enron has to be when Barclays Capital unintentionally purchased 179 contracts from a bankrupt Lehman Brother’s as cells containing the unwanted contracts were hidden (vs. being deleted) in a spreadsheet with nearly 1000 rows and 24,000 cells. When the spreadsheet was converted into a PDF to be posted to the bankruptcy court’s website, the cells appeared again. Barclays Capital filed a legal relief motion, but in the end had to swallow the losses, for an undisclosed sum – but it was probably billions.

These are not the first to fall victim to the curse of Excel – and they won’t be the last either.

Therefore, it’s vital to have technology protocols and companies in place where spreadsheets do not become a curse to commercial business lending – especially as 99.9% of UK companies are SMEs, of which 95% are microbusinesses (0 – 9 employees).

Imagine a small error such as 2.89% being entered as 2.98% at a time like this. That 0.09% is unlikely to be noticed within a monthly payment, but over years – and taking into account the compound interest – this could total up to be thousands of pounds of overpaid interest with no single person checking that the loan has been processed with diligence and care.

Smart Auditing – Using the High-Touch Approach

There are some tools in place now where automation has superseded the spreadsheet, but in order for data to be transferred from one system into another, spreadsheets are still used.

When live loans are in place, this type of data transfer causes massive mistakes. There is also no form of auditing the loan against the agreement as it is not digitized and is extremely time consuming. And given this process is not FCA regulated for either the lender or consumer, these errors can be catastrophic. In fact, 90% of spreadsheets have errors because the models used by (mainly large) companies are rarely tested/checked.

The good news is that businesses can check loan agreements via auditing companies who take a high-touch approach when analysing the terms. This means that companies with concerns over live loans or even ones that have been paid off within the last six years, have the reassurance of speaking with a deeply qualified human who fully understands the black hole of commercial lending, and will act as the buffer between the business and the lender.

The need for these commercial auditing companies has grown in importance, especially as the overpayment and compounded interest generated can be repurposed back into the business. Furthermore, as money is inextricably linked with stress and the FCA has found that there has been a rise of more than 20% of people being less financially resilient (that’s almost 12 million
people) since the pandemic; this means the need to qualify the validity of loan mismanagement becomes paramount.

The FCA needs to start regulating commercial lending, but until this happens companies must be aware of the services available to them to avoid fraud and overpayments.