Business funding in the time of Covid-19
In recent months, accountants have had to become instant experts in emergency finance. Andrea Reynolds from Swoop and Paul Layte from digital.accountant offer some introductory tips to help accountants understand the current funding landscape.
Advising clients on business funding was one of the many fringe trends that moved into mainstream accounting during the coronavirus crisis.
Previously, only a few adventurous practitioners strayed into finding and assessing options for their clients to raise extra finance. Most of their peers would usually encourage the client to talk to their existing bank manager, or perhaps give them a name of a regulated financial adviser to pick up the specialist workload.
The arrival of the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans (BBLS) changed all that. Suddenly hundreds of clients were lining up for cashflow forecasts and seeking advice on the best options to meet their particular funding crises.
Overnight, many accountants needed to pick up new skills and insights to identify the pros and cons of different funding offers.
This challenge prompted Swoop CEO and founder Andrea Reynolds to join Accounting Excellence Award winner Paul Layte in an AccountingWEB Live webinar to discuss Business funding through Covid-19 and beyond.
The Covid-19 effect
Swoop is an online funding marketplace that works with a wide range of partners to present all sorts of financing packages to potential business borrowers. When the lockdown took effect and Rishi Sunak announced the first CBILS initiative, Reynolds said, “It was like musical chairs depending on what the government announced. For us, that was a full-time job to keep up with. In one day we had 900+ changes to make on lender criteria. Things have calmed down a bit since.”
The initial CBILS rush ran into trouble around the requirement to seek loans on commercial terms first and the onerous conditions applied by the 40 designated CBILS lenders, some of whom were demanding personal guarantees before they would hand out a 100% government-backed loan. When the BBLS appeared, Reynolds said 80% of borrowers rushed to get the string-free £50,000 loans instead.
“We’ve seen a big decline in BBLS since then,” Reynolds continued. Bounce Back loans from businesses’ primary banks put out the fires, but now those banks don’t have the appetite to increase their risk further.
“We’re doing a lot of BBLS refinancing to CBILS. The market now has a significant number of accredited lenders, so those frustrations at the beginning of the scheme no longer apply.”
The adviser’s role
One of the reasons Reynolds started Swoop was to collect all the necessary information and contact points in one place. “It’s not an adviser's job to continually call lenders to ask if they have an appetite, where they are in their cycle, and what their criteria are,” she explained.
“As an adviser, you should be working with the client to build out the cashflow forecast so they can be a responsible borrower.”
Paul Layte has been playing an active role advising clients on finance role since he swapped a listed company finance role for a life in practice.
“I always think business finance needs to be layered correctly. You want a lot of long term equity at the bottom of the pyramid and more short-term tactical funding towards the top... Don’t just get a loan from the bank. It’s more nuanced these days with fintech platforms giving so many more options. You’re going to have a pick and mix approach for the client – and always making sure it’s sustainable and matched to what they’re trying to do.”
Layte set out a detailed framework to assess the different options currently available to help steer clients to the most appropriate sources, based on how much they’re looking for and how long.
While CBILS rates are currently very good and you get a year where you don't have to make payments, some business owners may be worried about signing guarantees for larger loans, or be looking for more than the £250,000 maximum.
The long game
Both Layte and Reynolds spoke of playing a longer game in finance advisory than just pinning down this year’s crop of interest-free virus support loans. There are other sources of finance besides loans, he added, including grants and equity investments.
“The grant landscape is very Covid-related at the moment,” said Reynolds. But for manufacturing clients, there are interesting grants available such as industrial partnerships. It’s about surfacing all opportunities for your client.”
For Layte, the foundation of his financing pyramid will often come from equity investors.
“A lot of businesses don’t know they’re highly investable. [Part of the conversation] is trying to open up minds that it’s not all about debt,” he said.
Having an online platform like Swoop is useful in this context because it acts as a matchmaking service between equity investors and businesses. “When you go for equity, you want as many people involved as possible – to hit 5-10 people all at once to get a good smattering of applications with one process,” Layte said.
Typically, investors will want to see a slimmed down “pitch deck”, which the accountant adviser can help them prepare. “Gone are the days of the 30-page business plan for investors. It’s now a 15-slide deck maximum,” he said.
To find out more about Swoop and the finance options available to your clients, contact their dedicated advisor team to book a free consultation.