As part of a recent Zoom meeting for practice owners hosted by Leonard Curtis Business Solutions Group and attended by Metro Mayor of Greater Manchester, Andy Burnham, a number of the most common issues to arise from the Covid-19 outbreak were discussed, and advice shared on how to navigate them most effectively.
Here we catch up with two of the panel speakers, Gary Cain from Reach Commercial Finance, the bespoke brokerage division of Leonard Curtis, and Richard Lamb, Manager at Virgin Money.
Between them, they spoke about the funding challenges that are being faced under the Coronavirus Business Interruption Loan Scheme (CBILS) and within the wider alternative finance sector.
A bank’s view
Richard Lamb said of his experience managing the CBILS applications since the scheme launched on 23rd March.
“We’re inundated with applications at the moment and the process is being slowed down because many are being made without the necessary amount of prep work. There a few simple steps accountants can help with to make things easier for their clients.
- Provision of historic financial information. As a given, this must include a couple of years of statutory accounts, P&L and balance sheets along with latest management accounts, which banks should already have, but they don’t always
- Prepare a cashflow forecast including key assumptions – while this requirement has been widely criticised, and has now been relaxed (the top 7 UK lenders are no longer requiring it), it is a good discipline for any business – how can you request a bank loan if you don’t know how much you need? We have no idea what the future is going to look like – none of us do – but all we ask is that you make some assumptions based on your best guess now and provide those details alongside the forecasts. If relevant, make sure you consider things like what will happen to salary costs if the furlough period ends and whether a lack of activity on an invoice finance facility during lockdown may affect the availability of draw-downs from future invoicing
- Details of what actions have been taken to try to mitigate some of the causes and issues caused by Coronavirus. Have you furloughed staff and, if so, how many and why? Have you come to any agreements on rent with landlords? Have you – or are you intending – to apply for any additional HMRC funds and VAT deferments? Have any cuts been made to directors’ renumeration? What’s been done about creditor stretch? It’s this level of information that we need to process CBILS applications.
“Banks then have to look at two key criteria. Firstly, we must draw down on all of this information to establish if the loan request amount is correct. And secondly, as is sometimes omitted from government rhetoric, do we think that the business is viable and able to repay that debt?
“We have to look closely at trading performance pre-Coronavirus to determine what cash generative situation the business was in. If the numbers were weak, chances are repayment would be problematic and there are probably bigger issues that need to be discussed.
“Banks have sanctioned the vast majority of CBILS applications however some have been declined because the underlying core business couldn’t service the level of debt it needs to get it through this current crisis. If you need £500,000 to see you through and we don’t think that repayments will be affordable over the next five years when we’re out the other side, then the application simply won’t be sanctioned.”
Alternative finance
Reach Commercial Finance Director, Gary Cain, added his views to the discussion looking at what he is seeing within the world of alternative finance.
“To set the scene, in March – before the pandemic hit – we had deals that were on the verge of approval – we’d gone through credit and were literally just waiting for someone to sign off the cheque – and then everything stopped. Obviously, there was a lot of distress and confusion for clients and then the first phase of the CBILS was launched.
“Since then we’ve been firefighting, working as hard as we can to get our current pipeline up to speed and over the line, whilst answering finance-related questions from existing clients and from accountants. As the scheme settles, fortunately we’re now seeing much more appetite for exploring other avenues.
“I believe that when the CBILS was launched, lots of SME businesses saw it as ‘free money,’ and I think a lot has gone out under the scheme to businesses that probably don’t really need it. But we’re recommending to clients and their accountants, first and foremost, to try their bank.
“CBILS options being very limited pose a big challenge for everyone. There’s no point saying there are 50+ people on the accredited panel. About 30 are banks and currently you can only speak to your own, which wipes out half of your options. Then there are a dozen or so invoice finance providers, but if they’re not relevant to your business, discount them as well.
“So, you end up left with ten or so, and each of those are the regional funds. Your options are, in fact, your bank and one or two others in your region.
“The CBILS has created an awful lot of demand and this trigger point has created this increase in activity.
“When the CBILS applications are declined, clients are then forced to explore alternative options, which is actually a really sensible approach. It means that everyone has to take a step back to consider other types of funding. We at Reach are doing our bit and signposting the banks for CBILS and Bounce Back as recommended both by the British Business Bank (BBB) and our trade association NACFB, but I do think that the BBB need to reciprocate and support NACFB and the intermediary community, by signposting us guys for the route out of the bank if it is declined.
“We’re asking people whether they have considered releasing some equity on commercial property for example and evaluating other options – be it invoice finance or asset finance or whatever. If not, then you may well be stuck when you’re waiting for the bank in four or five weeks’ time and you either get declined or don’t receive a response.
“We’re also seeing more challenging cases where some of our clients have experienced a bad debt in the business, which was corrected straight away by the director, and yet the bank declined the loan because of the loss on the filed accounts.
“I think that if there is a genuine story like this to be told, clients should have the opportunity to tell it and each case should be assessed in line with it. We have a number of clients whose applications have been thrown out, but in terms of serviceability, the business is in good shape.
“Whilst the loan scheme evolves, it’s business as usual for us at Reach. We’re trying to do our bread and butter as best we possibly can in these unprecedented times. We’ve just signed off a £1.5milion finance line deal for a £12million turnover security business in the South East and a number of others have been approved.
“It will be interesting to see what happens now that peer‐to‐peer lender Funding Circle has just started to approve CIBLS and hopefully a few more recently added will be ready to lend in the coming days and weeks.
“I’m looking forward to seeing what the Fintechs start to do, because their platforms can probably handle a better volume. You could argue that their credit appetite is going to be a little bit more aggressive than the banks, but fundamentally, if you don’t fit the criteria, you don’t fit it.
“I believe we’ll be busier again in May and June as companies may have had money in April from what they did in March and February. Going forward, however, they will struggle from what they’ve not done in April and the end of March. But there are alternative finance options available to them and we will certainly try our best to support them above and beyond what the Bounce Back and CBILS can offer.
Further information on Leonard Curtis Business Solutions Group can be found here.