The financial landscape has changed an awful lot since the announcement of the Coronavirus Business Interruption Loan scheme was made by Rishi Sunak on 23rd March 2020.
With changes of terms, personal guarantee cut off points, lenders exiting and new ones coming into the market.
One of the biggest changes to the financial landscape happened on 4th May with the announcement of 100% government back loans in the form of the Bounce Back Loans scheme.
Key question for businesses now is, which do you apply for;
a) CBILS or b) BBLs?
And really that comes down to how much cash you need to get you through this period. And also what is the most effective way of raising this finance from within the business for both the current and future business situations.
Because under CBILS there are a number of additional products such as Overdrafts, Invoice Finance and Asset Finance that may be more beneficial to the business than a standard loan.
We suggest that all businesses approach their business banks initially to explore funding options before looking to access CBILS or BBLs funding elsewhere. But we are always happy to have a quick chat and provide our thoughts on the best way forward.
In addition, there are LEP-run Growth Hubs in each of the 38 English Regions and they are on hand and available to give support to SMEs. You find their closest Growth Hubs using an interactive map found on the Government website – Gov.UK
So successful CBILS loan applications…
Whether your business is intending to apply for CBILS or BBLS it is prudent to have an understanding of;
· The current financial situation of your business
· The impact of Covid-19 on your cashflow
This will help you to assess the amount of finance that you require to sustain your business throughout this period. This will help you to decide which route to go down from a finance perspective as a business cannot apply for both a CBILS loan and a BBLS loan. So, you must establish whether the cashflow gap within the business is below £50k (BBLS) or if it exceeds that amount then a CBILS application is the right route for your business.
The supporting documents that will help you and the lender to assess your application include:
· The last set of accounts filed
· Up to date management accounts – including profit and loss, balance sheet and cash flow statements.
· Last 6 months business bank statements
· A cash flow forecast for at least 12 months is beneficial to highlight the financial position of the business before, during and after coronavirus. For larger loan amounts,
· Schedules of existing debt, hire purchase or other third-party finance commitments with current balances, repayment commitment details and expiry dates
· A statement that includes the impact that Coronavirus has had on the business. This could include things like:
o Actions already taken, or those you are considering, to mitigate the impact including the extent to which you have explored other funding options or government support (eg furloughing of employees, VAT deferred payment, rates relief etc).
o A summary of the amount that the business needs to borrow, how such funds will be utilised and the period over which repayments will be made. (2 – 6 years)
o We have a template for this if anyone would like to utilise it. You can access it here.
Much of this relates to the larger lends and many of the more recently accredited funders who are lending amounts under £250k have done away with the need for forward looking financial forecasts as part of the application process.
It is important to remember that each lender will have their own individual application process and form in addition to the businesses supporting documents.
Better position to apply if you have these things to hand and they will help you answer any potential questions that may arise throughout the applications process.
What do you need to consider when applying…
When compiling an application remember that all lenders are looking to assess the application for:
I will explore each of these individually.
Impact – I already covered. And can provide a template if required.
Viability – This is a word I have heard a lot of over the last 7 weeks. When it comes to assessing the ‘VIABILITY’ of the business the criteria that is used to assess this for CBILS is to check whether or not the applicant was a “Business in Difficulty” as at 31st December 2019.
The British Business Bank has a definition of a “business in difficulty” but loosely it is one that, as at 31 December 2019, had trading losses.
Some of the judgement on this comes down to the credit and underwriting teams at the individual lenders.
Affordability – Each lender that is accredited to offer CBILS as a facility will still adhere to their own individual credit and risk policies when assessing the affordability of applicants for a loan.
There is a difference between the assessment of risk and affordability from banks and that of lenders that operate in the alternative finance space. Whilst both institutions offer CBILS the process and the assessment of applications can vary greatly.
This is also reflected in the cost of the borrowing post the initial 12 month interest free period. Bank lending will offer the lower reversion interest rates on the market but may be subject to a more rigorous application and affordability testing.
For example, we know that in some instances a bank may be looking for 2 X EBITDA when looking at the debt servicing ratio in an assessment of affordability.
However, because the CBILS can be offered by different lenders and each with their own lending criteria if one lender turns you down, you can still approach other lenders within the scheme that have different lending criteria.
Timelines for response and for receiving the funds
It is hard to give an exact timescale for CBILS at present we have seen a varying degree of timescales throughout our client base.
To give you an example we have one customer still awaiting an answer on a CBILS application submitted week commencing 30th March and another application submitted Monday last week and accepted on Thursday.
Factors affecting this can be which lenders have been approached and the amount that is being applied for.
BBLS has been widely publicised as doing what it said on the tin, simple 1 pager form and funds received within 48 hours.
So, to recap on the key points you need to consider when preparing for a successful CBILS loan application;
1. Gather as much documentation as you can
2. Assess the Impact, Viability and Affordability of the loan amount you require
3. Decide whether you want to apply to your bank or an alternative lender
4. Ask for help if you need it.
We can provide a pack of templates that can allow you to review your business information, just send an email to email@example.com. You can also access the Covid-19 Business Impact Assessment form here.