Coronavirus Business Interruption Loan Scheme: The devil is in the detail
By now everyone will be familiar with the Coronavirus Business Interruption Loan Scheme (CBILS) and will be busy fielding calls from clients seeking guidance. However, accountants should realise that the CBIL scheme is complex, was created at very short notice and has many traps for the unwary borrower.
The key things for clients to realise are:
- CBILS offerings differ substantially from lender to lender: it is worth carefully reviewing different offerings and ensuring you’re comparing apples with apples
- All lenders will require borrowers to be responsible for repayment of 100% of the loan facility – not just the 20% that is not guaranteed by the government and, where defaults occur, will follow their “standard commercial recovery processes” – CBILS is by no means a grant or “free money”
- Borrowers will be asked for a lot of financial information and they should engage fully with their accountant as quickly as possible
- A key point that many have missed is that loans via CBILS are limited to
- A maximum of 25% of 2019 turnover or
- Twice the annual wage bill - whichever is greater.
Lenders have had to roll this out to local branches within days. Usually new products are trialled for months and local managers given weeks of training. Not this time.
So it's really important to keep your ear to the ground in terms of what is happening in reality. This is another area you can add value and support clients during these extraordinary times.
What we’re hearing on the ground
We speak to the high street banks and mainstream lenders every day and there are some very clear messages coming out in terms of how the scheme is being rolled out “on the ground”.
The key message we’re hearing from our contacts at lenders is that they are asking themselves “Would I have lent to this business last year?” and if the answer is “No” then they are rejecting the application quickly. Key ways that accountants can help their clients include:
- Ensuring management income and cashflows for 2019 are accurate and reflect the strength of the business
- Providing a clear explanation for any “one-offs” that reduced income or profitability in 2019
- Ensuring the application clearly shows affordability “in a steady-state economy”
You should note that loss-making companies are unlikely to be able to access the scheme given the above and, from our experience to date, lenders are also being extremely careful with seasonal businesses.
We would strongly suggest that borrowers start with their current provider of business finance as all lenders from what we can see to date are prioritising current borrowers – this is a sensible approach given the volume of applications they are seeing, their desire to support current customers and their knowledge of current customers payment behaviour and historic business strength.
Having said that, borrowers should realise that CBILS funds are not the only option out there. In many cases, reviewing other finance alternatives would make economic sense and/or allow funds to be provided more quickly.
Lenders are obviously changing their credit criteria by the hour and we’re keeping an eye on them daily. It’s early days yet but, to date, we’re seeing a roughly 50/50 between borrowers getting CBILS approvals and getting approvals via traditional lending sources.
And finally... The small print
We’ve already been speaking to lenders and submitting CBILS applications. Here's what we’ve seen so far in terms of what lenders are expecting and looking for.
Firstly, lenders are being absolutely inundated with applications. It is in the borrowers best interests to provide a comprehensive pack of information (with their accountant’s help).
In our experience to date, if an application is fully complete and has the required information it will get prioritised and not be subject to as much scrutiny as others – bank managers are only human and are keen to get some CBILS applications over the line – if you make their life easy, it is much more likely to be your client.
Have all the basic information correct and complete:
- Account and reference details if your client is already a business borrower with the bank
- Three years address history for each of the directors/partners applying for funding
- Personal details of all the partners and directors of the business (including their home addresses for the last three years)
- Ideally up-to-date asset and liability forms for each of the partners and directors
- Correct business details including company registration number and registered address
- Last two years filed accounts
- The most up-to-date management information you have
- A full schedule of finance and hire purchase commitments (including current balances, repayment commitment details and expiry dates)
- Ensure your clients know they will have to permit credit checks
If your client has both business and personal accounts with the bank you’re applying to for the loan, ensure that there are no discrepancies between what they state as their income on the CBILS application and what the bank sees coming into their personal account each month. Banks need to continue to be responsible lenders and will carry out “affordability checks” as always.
In terms of explaining the effect of coronavirus on the business we would suggest lenders will want the following:
- A brief update on the performance of the business prior to the onset of coronavirus
- Any internal information that is available showing the 12 months performance of the business prior to the impact of the coronavirus (ie management accounts, audited accounts for 2019)
- A clear explanation of the impact of coronavirus on your business
- A clear explanation as to how you will mitigate the impact of coronavirus on your business – remember the banks are looking to lend to companies that are viable... this is not a grant or free money from the government
- The set of forecasts which you have used to estimate your total cash requirement over the next 12 months and the amount of debt you are seeking
- Any key assumptions or risk factors which may impact the above - lenders will be expecting you to model for a six month period of severe disruption
- The extent to which you’ve explored other areas of funding or government support
Finally, remember that lenders have been given strong guidance from the government that they should be looking to support business that would have been viable if not for the sudden onset of COVID-19. Lenders will be basing their credit views on the forthcoming business performance in 2021 and 2022 on the performance of your client prior to the onset of the coronavirus and how the business is planning on dealing with the longer-term disruption.
Borrowers who work closely with accountants and are able to provide this information to lenders will stand a much higher chance of receiving CBILS funding and will, hopefully, remember the support you provided them when they needed it most.
The business finance experts at Rangewell have all worked at High Street Banks and Mainstream Lenders so they know the questions that lenders will be asking and the answers they want to hear. Accountants who are supporting clients with access to the Coronavirus Business Interruption Loan Scheme (CBILS) should call Rangewell on 0330 808 7611 or click here. Accountants wanting to discuss their own cashflow requirements should call Rangewell on 0330 808 7612 or click here.