Time to talk about loans – Coronavirus Business Interruption Loan Scheme

When Rishi Sunak stood up and announced the new Coronavirus Business Interruption Loan Scheme (CBILS) and the £330 billion he was putting behind initiatives it sounded as though this was going to be the magic bullet that businesses needed to be confident there was a longer term solution to help them through the economic crisis caused by the Coronavirus.

Not the magic bullet we expected

It was very clear that banks were not prepared for this and have been working extremely hard behind the scenes to catch up. This week we have started to hear more from the clearing banks about their policies and at Nicholsons we have spent time talking to our banking contacts to understand local policies.

The CFN, of which we are a member firm, has assisted to lobby banks to remove the requirement for a Personal Guarantee for loans under £250k and this was confirmed by the main lenders on 26th March. However, for loans higher than this, PGs from any director owning more than 10% of the business, and a debenture from the Company, will be required in most cases. We have also been informed that CBILS is now open to sole traders and partnerships, not just limited companies

We have always worried that the scheme will not be suitable for all SME’s and when it is will take a long time to access. Notwithstanding the pressure local Relationship Managers are under it’s unlikely that valuers are going to visit sites during lockdown and the number of applications will undoubtedly be overwhelming.

Add to this that it is likely that the mainstream banks will only welcome applications from existing customers and the fact that many of the other funders in the list of 40 lenders are not close to having products ready we are encouraging clients to focus on other funding and measures first.

Things to consider

There will come a time when thinking about a bank loan application is right and we thought we’d share a few tips on what to consider before talking to your bank about funding.

Don’t lose focus  

In our cash flow post we outlined other practical steps that you could take aimed at helping you manage cash. This should be a priority as self-help will have immediate results.

  1. Agree rent free periods with your landlords. The Government has included a three month commercial rent moratorium in their measures, which prevents eviction.
  2. Agreeing payment holidays on business loans and other credit payments, such as hire purchase and asset finance.
  3. Explore whether “spot invoice” financing could help top up cash whilst debtors are being a little slower at paying.
  4. Looking at assets that the bank won’t be too interested in losing from their debenture and see if you could raise finance on them, for example stock.

Be prepared

It might be obvious, but we think that well thought through and structured applications will be seen in a more positive light by the bank than general conversations around support.

Banks will assess applications in the same way they always have (because they will use the same process, systems and people) and therefore management accounts, a business plan and forecasts will be essential parts of the application. You might also keep an analysis of creditors, debtors and time to pay arrangements with HM Revenue & Customs (HMRC).

Structure your argument

In your business plan, you should focus on the strength of the business before the crisis, its trading performance and ability to generate cash.

You should also outline the path back to this position making clear the steps you are taking and the time frames you are working to.

In their appraisal of the business plan, banks will want to understand management capability and whether there are any long-term implications of the economic fallout on the business or industry it operates in.

Look towards other funders

There is no doubt that other funders, alternative and second tier, will be looking to fill the gaps left by the banks. We understand that peer-to-peer lenders are trying to be included in the plans announced by the government. Alternative lenders may offer to fund but their fees, terms and interest rates need to be checked carefully.

And finally

Don’t be afraid to ask for advice and support. There is a lot of information out there, some of it confusing and some contradictory, so if you are unsure about anything or just want to sense check your plans please don’t hesitate to call either Richard Hallsworth, Emma Murray, Jo Brown or Richard Grayson on 01522 81 5100.