The Coronavirus epidemic is a worldwide health emergency and this will ultimately result in economic challenges for many businesses.
Given the above, businesses will undoubtedly want to further understand the cash flow support that is currently available. Most businesses, in times of cash flow constraints, turn to their bank. Not surprisingly, there is a lot of attention being given to the Coronavirus Business Interruption Loan Scheme (“CBILS”) and the below provides the latest on this, whilst also highlighting further support that might be available that we absolutely should not lose sight of.
The CBILS
Whilst details are still emerging it is important to note this is a loan, not a hand-out, and therefore the approach to the bank needs to be in that vein. Banks will currently be inundated with enquiries, so yours needs to be structured and well thought out in advance to give it the best chance of a successful outcome.
Pertinent points to consider in your proposal include:
Your trading before the pandemic hit;
The impact the pandemic has had on your business;
The proactive actions you have taken on both the operational and financial fronts;
What further planning you have undertaken and actions you can take if needed; and
The recovery of your market place once the current crisis has abated and remember, it will.
None of us have a crystal ball but you can be clear on your assumptions and these will need to stand up to scrutiny as best they can. Financial information will be necessary to include short term cash flows, up-to-date management information and financial forecasts.
How the banks will assess credit risk in respect of the CBILS remains to be seen, but based on our experience in difficult times the following are a number of questions they will likely consider:
Would the bank have lent to the business in advance of the current crisis?
What impact might the pandemic have on the sector in the longer term?
Is the proposal credible, do the assumptions on which the financials (short term and longer term) are based stand up to scrutiny and do they incorporate headroom for stress testing?
The strength of the management team in situ. Remember the importance of the key people in the business – the bank need to buy into the team.
The situation we find ourselves in is unprecedented and we need to recognise that, albeit your approach needs to be considered and presented in a calm and professional manner.
Don’t let the CBILS prove to be a distraction
Yes we need to understand the CBILS as one option but remember it is that – one option!
Liquidity issues can further be addressed with your bank in other ways, so open up dialogue early and speak to your bank on the following also:
Capital repayment holidays and interest roll-up on your existing loans and HP;
Increased credit card facilities;
Increasing or temporarily going over your agreed overdraft limit. The key is to proactively open up dialogue and demonstrate how this will be addressed going forward;
Relaxing limits on working capital facilities or similar and waiving covenants on loans;
Releasing some security – the bank might have some security over an asset it isn’t necessarily reliant upon and releasing that security might open the door to a further facility elsewhere.
Make friends and influence people – approach your relationship manager with empathy. These are challenging times for us all and, with a degree of understanding, the challenges the banks will currently be facing also can only help build rapport and thus their willingness to support.
It will likely prove a frustrating conversation. Your expectations from the announcements of the CBILS might not prove to actually be the case and, of course, this is frustrating but save your grumbles for your colleagues or for us at Armstrong Watson (we will gladly listen) as airing your frustrations to the bank will not help.
Other lenders
High street banks will undoubtedly be under huge strain and thus there is the temptation to look elsewhere regardless of the likely increased cost – needs must. There are a large number of alternative lenders to choose from, albeit you can waste some time looking for the right partner.
This is where our experts, such as our Corporate Finance Manager Steve Dinsmore, can add real value to the process due to his experience in dealing with the alternative finance market.
External support
We get that every penny counts in the current climate, and there is an inevitable temptation to avoid professional fees, but please do lean on us as we are experienced at presenting propositions in good times and in more challenging times. Don’t let this prove to be a distraction from your business- where you attention is undoubtedly needed.
Further Support
Whilst this piece covers off the CBILS and the banks it would be remiss not to allude to the further support the UK Government has announced. This includes (but is not limited to) the Job Retention Scheme, the self-employment income support scheme, the deferment of certain taxes, support for business rates and support for those businesses paying sick pay.
For further funding advice, please get in touch with Chris Wright, Corporate Finance Director at covid19help@armstrongwatson.co.uk.
