Coronavirus Business Interruption Loan Scheme (CBILS) was launched just last Monday, but it feels more like a month ago. I can’t remember a week like that before.
From what we hear, the CBILS lenders have been inundated with applications. There are 40 accredited funders but not all of them can provide cash flow loans and overdraft facilities. Some funders are only approved for asset finance but there aren’t many businesses buying new assets. I am aware that some of these asset finance companies are lobbying for the British Business Bank to include asset refinance. This would make a lot of sense as many businesses have cash tied up in their vehicles, machinery, plant and equipment.
One of the hot topics of the week, apart from the tidal wave of enquiries, was the issue over personal guarantees (PGs). At the start of the week most banks and other funders were making PGs a condition but following complaints, the government chided the lenders over this practice and by the end of the week it is claimed that banks decided not to ask for PGs for facilities under £250,000. I would be very interested to see how that works in practice as banks do not tend to want to be unsecured, even if it is only for 20% of their debt, bearing in mind they are still exposed for £50,000 on loans of £250,000. Will the banks strengthen their credit criteria? I am sure they will, and this will potentially have the impact of slowing the credit process down and less applications being successful.
The loan application information required
I have seen a few posts on LinkedIn from bank managers describing the information required. It is substantial to say the least. SMEs must be cautious and not assume that funding support will be a given. We spoke to a respected bank manager who described the information required to apply:
Explain how the virus has affected your business.
Explain what steps you have taken to try and safeguard your business (reduced hours, cost cuts, furloughed staff).
Explain what other forms of government help you have applied for or not been able to apply for.
Provide a minimum of 12 months forecasts showing the impact on your business. This will be used to justify the amount of loan you are claiming for and needs to take into account the other measures you have taken, i.e. VAT deferments, loan and asset finance payment holidays, rent breaks, Job Retention Scheme help, new shareholder capital introduced and extra terms from suppliers. To help with this profit and loss (P&L), balance and cash flows are advisable.
Recent trading financials – up to date management figures to show how your business was trading.
The loan must be fully repaid by the end of the term requested, so make sure to apply for a realistic amount and term.
There is a lot of information here for SMEs to put together and this could take some time for them and their accountants to be able to finalise their application and present it to the bank.
What happens if the bank says no?
I am not sure how long it is taking for the banks to currently make decisions but the tidal wave of enquiries, plus the strain on the bank’s resources due to payment holiday requests and remote working, must have impacted negatively. I would say that from successful submission, following the information gathering project, to decision and money being released must now be up to three weeks.
This is a thankless task for both SME businesses and the accredited CBILS lenders. This blog is certainly not intended to disparage the mammoth efforts of the CBILS lenders. It is merely aimed to take stock of the situation and provide useful information to SMEs and their advisors.
What are the alternatives for businesses that need access to funds more quickly or perhaps fall outside of the credit appetite of their bank?
There are a few options for these businesses, including: asset refinance, invoice finance and non CBILS business loans. These can be provided by non CBILS accredited funders who are very much open for business. Timeframes are much shorter and from decision to money being released could take as little as seven working days.
PMD can discuss these alternatives with you. If you would like more information, then call one of our business finance experts now on 0161 633 2548 or email info@pmdbusinessfinance.co.uk.
The Coronavirus Business Interruption Loan Scheme (CBILS) is managed by the British Business Bank on behalf of, and with the financial backing of the Secretary of State for Business, Energy and Industrial Strategy (BEIS). British Business Bank plc is wholly owned by HM Government and is not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). Full details on CBILS and the list of participating CBILS lenders can be found on the British Business Bank website at: www.british-business-bank.co.uk/CBILS