Effective cashflow management is crucial if your business finds itself in a financial crisis. But what do you do if your company needs to secure urgent additional funding? Dan Morgan, Managing Partner of Haines Watts Esher has some tips.
Business interruption loans were brought in by the Government to help SMEs continue operating through the pandemic. But despite the deadline for loans being extended, many SMEs are still struggling to secure funding. So, what can business owners do to increase their chances of securing cash they urgently need?
If your business is in financial difficulty, you may well be looking at funding options for the first time and this can be bewildering. As well as paperwork, there is interest and repayment dates to think about. There’s also the ‘what happens if’ scenario of worsening short-term cash flow, fees and requests for personal guarantees.
Coronavirus Business Interruption Loan Scheme (CBILS) gives a government backed guarantee of 80% of the loan to the lender, and any fees or interest are covered by them for the first 12 months. This is to encourage lending but also means that high street banks are being inundated by demand as the first port of call.
You will need to demonstrate that your business can support a loan, but is also a viable business. Each accredited lender has its own loan application process and criteria. And while it makes sense to approach your usual lender first, we have had clients come to us after being turned down for a CBILS by their normal lender, and sought an alternate lender who has then been willing to providing the CBILS funding.
Your application will need to include 1) the amount that you’d like to borrow and what that money will be used for 2) The period of time over which you will make the re-payments (this can now be over ten years rather than six to make re-payments easier) 3) documentation of your accounts, assets and your business plan.
However, if you do not have all of this supporting information then CBILS can still be an option.
Before putting pen to paper on the application for a business interruption loan, you need to have a clear understanding of your cash position and how the pandemic might impact cashflow in a year’s time for example.
Any application process can be frustrating, but while cashflow forecasting isn’t a must-have for the CBILS, you do need to understand how changes in your cash position may affect your ability to repay loans in the future.
Monthly management reporting packs
We recently put together a monthly management reporting pack for a client in the entertainment sector during the crisis which proved invaluable to them. It meant that we could prepare forecasting in a timely manner to enable them to get a CBILS loan from their usual bank.
For a high street bank, it can take up to three months for a business to see the cash in their account once approved. However, in emergency situations there are ways it can be fast-tracked to two to four weeks.
Always recheck your application
Get your application right first time. If there are mistakes or gaps in the information you provide, your application could be delayed or worse-case scenario, rejected. We can help you check your documents to enable you the best chance of successfully securing a loan.
Time ticking to apply for a Government loan
We’ve recently seen more companies looking to secure loans that didn’t apply during the first lockdown, but are now looking to get one, so it’s wise to speak to us sooner rather than later if you plan to apply.
Businesses can seek to benefit from the Government loan schemes, including the Coronavirus Business Interruption Loan Scheme and the Future Fund until the end of January.
More than 1.3m UK firms have already taken out around £40.2bn worth of Bounce Back Loans (BBL) since they were launched in May and they can top up existing BBLs if they need to, up to a maximum of 25 per cent of turnover (capped at £50,000).
You really need to strike the balance between showing that your business was a sound and viable proposition before Covid-19 struck and that you definitely need a loan. You’ll also need to explain what you’re going to be using it for.
We had a number of clients who applied for a CBILS loan initially, and after being giving a no from their usual banking relationship, or perhaps not wanting to go through the lengthy application process then opted for a BBL £50k loan to release emergency funds.
It is worth noting that a BBL can still be upgraded to a CBILS, with the CBILS loan repaying the BBL when drawn down. We have also had instances where a CBILS has been used to re-finance existing pre-Covid debt facilities, which can help with cash flow, removing these existing monthly payments for the 12-month payment free and interest free period.
If existing debt has personal guarantees, the CBILS funds then used to repay this existing debt can remove these. This is particularly relevant where a CBILS is £250k and less, as they do not carry personal guarantees at this level.