Following narrative last week that nearly a fifth of SMEs are likely to fail, in part because they cannot access the loans (or at least not quickly enough) promised by the UK government. This, together with some high profile business failures, resulted in the government putting more pressure on banks, easing the loan criteria, whilst also introducing a loan scheme for larger businesses.

These measures should ease the lending processes and prevent some businesses reaching the brink; however, demand is high and queues are forming so it pays to provide the lender exactly what they need to make their job easier and quicker, as to ensure your loan is available in time.

Reassuringly, we have clients that have used our support and have already accessed vital funding support from various banks.

As is often the case, our recommendation is to plan ahead and act early, providing the funder with, amongst other things, information on pre-Covid performance, measures implemented to preserve cash and jobs, and a forecast showing how the business can trade out of the crisis whilst servicing the existing and new debt burden.

Our views on the CBILS process are set out below, albeit there are variations between funders, and between claimants – depending on business’ viability, their business plan, management and the amount of funding required:

Loan application process for loans less than £250,000

  • Relationship manager focused.
  • Since the government update last week, lenders cannot demand any personal guarantee.
  • Our experience so far is that the application process is generally fast – we have obtained funding within 24hrs of starting the process.
  • Application form to be completed, plus ancillary processes.
  • It’s necessary to demonstrate that loan is required because of Covid-19, and therefore to:
    – Illustrate earnings before Covid-19;
    – Highlight the impact Covid-19 has had on the business;
    – Estimate how the business may come through its trading difficulties, particularly in the event of a prolonged lock-down, and that business can survive with the amount of funding requested.

Since late last week, it is no longer necessary for lenders to consider if they can lend to a business on normal credit terms, without resorting to the CBILS scheme.

The process doesn’t always require onerous levels of information – to illustrate, we recently submitted a successful application which included only a few lines on the impact of COVID-19.

Loan application process for loans greater than £250,000

  • Relationship manager focused.
  • Banks’ requirements for personal guarantees varies, but was lessened by the government’s update late last week. Now, although personal guarantees may still be required, recoveries under these are capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied. In addition, it’s been confirmed that a principal private residence cannot be taken as security to support a personal guarantee or as security for a CBIL backed facility.
  • The process is considerably more detailed than for smaller (under £250k) loans, being not dissimilar to a loan process pre-Covid, with the banks applying fairly high rigour.
  • We are assisting a number of clients in this process, all of which are still ongoing. Some clients are obtaining funding very quickly, but more complicated situations could take in the region of 4-6 weeks. If it takes this long, in our experience it’s possible to obtain a temporary extension to overdraft facilities to bridge the gap. We also think the process will, (and indeed has to) become faster if the scheme is to be effective.
  • It will be necessary to:
    – Illustrate earnings before Covid-19;
    – Highlight the impact Covid-19 has had on the business;
    – Estimate how the business will come through its trading difficulties, particularly in the event of a prolonged lock-down, and that business can service the enlarged debt burden;
    – Defer tax liabilities;
    – Furlough staff that are not being utilised; and
    – Maximise and conserve cash balance.
  • It is worth noting that forecasting will necessitate educated ‘guesswork’ on the assumptions around the timing and speed of trading resumption; these assumptions will doubtless be sensitised by the lender to stress-test the business’ robustness.
  • In our experience, the loan application often goes hand in hand with a request to reschedule existing debt, say, a capital repayment holiday for example.
  • Since late last week, it is no longer necessary for lenders to consider if they can lend to a business on normal credit terms, without resorting to the CBILS scheme.

Loans for businesses with turnover in excess of £45m

Late last week the government reacted to criticism that larger businesses with sales between £45m and £500m fell in a “no-man’s land”, being ineligible for both the CBILS and also the Covid Corporate Financing Facility available to large businesses; it announced its plans to launch the Coronavirus Large Business Interruption Scheme (CLBILS), which will offer loans of up to £25m.

The scheme details will be announced later this month but it is thought likely to be administered by banks, and have similar benefits such as 80% government backing, capital repayment holidays, no interest for the first 12 months and no arrangement fees, etc.

Whatever the scenario, you need to demonstrate you are in control of all aspects within your influence, and that you are taking all possible action to take up all available reliefs and grants, and minimise cash leakage.

How we can help with funding

Smith Cooper is uniquely placed in the market having supported both funders and clients since our inception. Specific work we can support you with includes:

  • Handling bank negotiations and the application process;
  • Providing analysis and reporting on pre-CV19 performance – the best guide available to gauge the viability and debt-servicing capability of your business as it returns to some semblance of normality;
  • Assisting you in building credible forecasts (integrated P&L, balance sheet and cashflows) and/or challenging the underpinning assumptions and sensitivities for reasonableness;
  • Reviewing any liabilities likely to ramp-up during the crisis, and crisis, and the critical appraisal of cash-flows (including the underlying assumptions);
  • Assessing whether your business is maximising the reliefs and grants available and taking all possible measures to preserve cash
  • Looking at Plan B options, such as more draconian cost-reduction “escape routes”, open to you should the crisis deepen or continue for longer than anticipated.

Smith Cooper Corporate Finance has developed a model for accessing funding covering the whole spectrum of funds (e.g private equity, mezzanine finance, high street bank, specialist debt funds, asset funders etc).

We are here to help businesses to survive this current crisis. If you need support, please get in touch with one of our advisors, or click here to access our COVID-19 support hub.