Following our last update, a large number of our business clients are asking us the same question – “how can we be in the strongest position to make an application under the Coronavirus Business Interruption Loan Scheme?”
The landscape is fast-changing, with the Government just announcing on Friday an extension of the interest-free period on this loan from 6 to 12 months. Now the scheme is live, helpful clarification has been provided on the British Business Bank website
Below are the key pieces of advice we are giving to clients to ensure that their business is on the front-foot for the CBILS loan applications. Our key message is fully prepare now, as the demand will be high. Get your application in early to make sure you are first in the queue.
- Choose which lender/ provider you will use, and contact them now to confirm that your business is eligible for the funding. The British Business Bank website has a published a list of over 40 accredited lenders. The value of a strong and open relationship with your bank is essential more than ever, so if your existing lender is on the list - speak to them, as a track record could be valuable. Confirm your eligibility, as some businesses are excluded – however, eligibility criteria may change and flex as the current situation develops.
- As with any loan application, make sure that you have a sound borrowing proposal. Whilst the 80% Government backed guarantee will undoubtedly assist your application, it will not guarantee that the total level of funding you are seeking will be available. Banks will continue to back viable businesses with sound borrowing proposals. We expect that each application will still be scrutinised applying usual criteria such as business viability and debt serviceability (although there will hopefully be some relaxation on usual guidelines – this has not yet been confirmed and we would expect this will vary from lender to lender).
- What will assist my borrowing proposal? We recommend that you have considered each of the following, and prepare now:-
- Management financial information – ensure your management information is up to date - financial performance, P&L, balance sheet. Check with your chosen lender that this is sufficient for them. That will make it easier for the lender to approve your application, and will prevent a list of questions coming back which might delay your application.
- Liquidity - cash, cash, cash – focus on your cash position. Your cashflow projections will be a key document, and should have clear assumptions. As above, without these assumptions, it could lead to further questions and slow down the approval process. We appreciate this may be a difficult task in the middle of this uncertainty, but do all that you can, and be conservative on receipts, and be prudent with cost projections.
- Costs – to some extent these will remain certain, whilst income will not. Look to demonstrate that you have taken steps to reduce costs where possible to demonstrate your contribution. Whilst Friday’s welcome announcements from the Government on VAT deferral, and employment support will assist, you should look to agree terms with other creditors where you can (can you extend terms, switch to interest only, have a capital holiday)? Ensure you have implemented back-to-basics financial disciplines on costs.
- What can hurt your business? each business will differ, but demonstrate that you have considered what can hurt your business most (supply lines, sales and collection of debts), and that you have put steps in place to safeguard against each.
- Security - at the discretion of the lender, the CBILS scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack or absence of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.
- Loan serviceability – whilst the precise terms of each loan will differ (e.g. capital repayment terms, interest rates), banks will still expect the loans to be repaid. Be prepared to demonstrate that your business can service the future debt. Prepare projections for your P&L and balance sheet the best you can to demonstrate debt serviceability.
- Can your business adapt – can you find alternative income streams now and in the future? There are several examples of businesses diversifying into new areas – the best example being a gin distillery now producing hand-sanitiser.
If you do intend to make a CBILS application, your accountants will be able to assist with the borrowing proposals, and importantly, assist you to determine the size of CBILS loan that you require. If you haven’t already spoken to them, we recommend that you do this now in order to eliminate questions from the lenders.
Take legal advice on employment law, company law and contractual responsibilities. Mistakes made now could prove costly in the long run.
Burnetts will continue to regularly update you on further developments.
In the meantime, if you need any advice please do contact in the first instance:
They will provide advice, signpost you to the relevant adviser in Burnetts, or direct you to funders or other business support organisations.
Burnetts - we are here to support Businesses
At a glance reminder of other measures introduced to support businesses:
- a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans.
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief;
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000;
- a statutory sick pay relief package for SMEs;
- The Coronavirus Job Retention Scheme – Furloughed Workers – See Burnetts update on this topic 23 March 2020.
- a 12-month business rates holiday for all retail, hospitality and leisure businesses in England;
- VAT and Income Tax deferral;
- the HMRC Time To Pay Scheme.