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Coronavirus Business Interruption Loan Scheme – Borrow up to £5m

Coronavirus Business Interruption Loan Scheme – Borrow up to £5m

Monday, 23 March 2020

The Government’s series of measures to support businesses in response to the COVID-19 pandemic is unprecedented. There is recognition that urgent help is needed, and only time will tell whether the initiatives will prove enough, or perhaps even too much, to enable businesses, employment and the economy generally to survive and prosper.

One of the new funding initiatives which really catches the eye is the Coronavirus Business Interruption Loan Scheme, now shortened to CBILS. This scheme involves the Government acting as guarantor for 80% of the value of each loan of up to £5 million being issued by commercial banking institutions.

From 23 March, CBILS is available to any trading business with a turnover of less than £45 million as long as the borrowing proposal, were it not for the COVID-19 pandemic, is considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty. So how will the lenders determine this?

Although lenders will want to make quick decisions, I think it highly likely that, for at least borderline proposals, they will require financial forecasts to be prepared, just as they would for any pre-COVID-19 lending application. And even if the lenders do not require forecasts, why wouldn’t you want to forecast the future to make sure you’re borrowing enough to see you through this period (or even not borrowing more than you need)?

So, if you are preparing forecasts, here are three quick useful tips for you to bear in mind:

  1. Turnover is vanity, profit is sanity, cash flow is reality

Remember that profit is not the same as cash flow, and it is cash flow which lenders will be interested in as this shows whether you can afford the loan repayments. Lenders won’t want to be relying on the government guarantee to recoup their money, particularly as this still leaves them exposed to the balancing 20% gap in security. Therefore, you really should be presenting integrated profit & loss accounts, cash flow statements and balance sheets broken down on a month-by-month basis (or in some cases, a week-by-week basis).

  1. Explain yourself

The financial forecasts are meaningless without supporting written assumptions. Break it down line by line, explaining the rationale for the numbers being used. It’s time consuming, and at times, quite tedious work, but it is absolutely essential.

  1. Crystal ball anyone?!

In the current climate, it’s difficult to predict the next 24 hours let alone the next few weeks and months, so how do you model this sensibly? My suggestion would be to run multiple scenarios. So, build a baseline financial forecast, and then run different scenarios by adjusting key metrics like sales, wages, debtor days, creditor days, etc. This will give you a range of results in order to make your borrowing decisions.

Our Corporate Finance team at MHA Larking Gowen regularly produces forecasts for clients to submit lending applications, and if you need any assistance with this, we would be delighted to help. In the first instance, please reach out to me: james.lay@larking-gowen.co.uk.

For further details of the CBILS scheme, please refer to the British Business Bank website and speak with your bank.

James Lay

 

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