Expert opinion
Alexei Garan leads our debt advisory function and is a CBILS expert. In this article Alexei provides his top 10 tips for business owners thinking about applying for the Coronavirus Business Interruption Loan Scheme (CBILS).
"We are quickly bottoming out lender requirements."
During these challenging times, our dedicated team is tirelessly engaging with lenders on behalf of clients seeking CBILS emergency funding. We are quickly bottoming out lender requirements across the spectrum of accredited lenders.
If you are considering applying for CBILS funding, I have compiled the following tips which are our “lessons from the front-line”.
Lenders are quickly becoming clogged up with applications, so expediency may help ensure your company receives the required funding/flexibility as soon as possible.
Any applicant for CBILS will need to present their filed and management accounts, as well as a cashflow projection covering the journey through current crisis, re-emergence, business ramp up and return to normality. If you need to get these generated or tidied up, either internally or with the help of external advisors or accountants, please act sooner rather than later as accountants will also only get busier with time.
Lenders will need to explore whether you have any available asset security in the first instance (e.g. discountable invoices, unmortgaged/lowly levered property, plant & machinery assets, stock). In the absence of any of those, lenders are likely to seek Personal Guarantees (PGs) from business owners. NB: Principal Private Residences are not permitted as part of eligible security or as part of PGs.
Any CBILS applicant should prepare a concise written summary of how it has maximised all other reliefs available as part of the Government’s emergency measures, e.g. Job Retention Scheme, VAT etc. The same goes for seeking payment holidays from landlords, asset-based lenders etc.
Please think hard about the amount of money you are seeking. Unfortunately, there is currently no guidance as to how long firms should assume Covid-19 continues to interrupt normal life. The Chancellors extension of CBILS interest free period from 6 months to 12 months serves as an implicit indication of lockdown period, followed by a slow re-emergence period, followed by business activity ramping back up, before normal debt affordability returns.
Most mainstream High Street Banks are clear in their understandable intention to focus on existing clients first. Capacity allowing, they might consider other lenders’ customers. However, the recent cuts in the Relationship Manager population across the UK may make this a mere aspiration. We are summarising the support measures the high street banks are offering here.
Notwithstanding point 6 above, getting a ‘no’ from a high street lender does not mean all is lost. The list of accredited CBILS lenders is over 40-strong, with alternative, challenger, regional and speciality finance lenders also included. Whilst the product offering, capability and risk appetite of these lenders may be narrower than at a High Street Bank, we fully expect this part of the list to be more open to opportunities of gaining new clients.
Many SMEs seethe CBILS overdraft as a critical lifeline to secure now, when it’s relatively early in the crisis, versus when the business becomes desperate not only for money, but also potentially lacking personnel resources to carefully handle a tricky funding application process. With no lender fees or interest to pay for 12 months, the overdraft provides the necessary flexibility for the business, so it can focus on staying open or surviving. We would not advocate unnecessary funding applications to clog up the system, but we have seen examples of businesses seeking CBILS facilities to prevent critical business interruption.
Applying for funding in the most buoyant of times is no doddle and it is best to set your expectations of an emergency funding process to not being a cakewalk either. It is too early to point to any kind of a ‘gold standard’ application process, but to guide clients, we imagine a swamped bank Relationship Manager looking at a new application. The more it looks like funding a strong and stable business that, were it not for Covid-19, would demonstrate a solid debt affordability story, the likelier a positive outcome would be. Such a case file would be made up of ideally 3 years’ historical accounts, management accounts and clear forward projections, with any deviations from the “strong and stable” business story, caused by Covid-19 or otherwise, concisely written up.
SMEs are starting to engage with us to secure CBILS funding from their primary or an alternative lender. Business owners are reaching out to us because they are desperately short on resource capacity and are telling us that they want to get the application right first time and with the right lender. Using an advisor will allow you to focus on maximising the use of your own resources as well as reliefs available from other stakeholders and the Government.
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