The government were quick to offer business’ financial schemes to help them weather the Coronavirus storm, protecting jobs and the economy however across the hundreds of thousands of applications there have been mixed reviews. Head of Commercial, Andy Elley, explains how they’re working and offers his advice and thoughts on the intricacies of the schemes on offer.
A recent survey by the NACFB (National Association of Commercial Finance Brokers) found that in the first two weeks of April, 25% had businesses had either temporarily closed or had paused trading and another 25% who were still operating saw their turnover halve. Many businesses have taken advantage of some of the government help schemes on offer, with nearly 75% a “furloughing” staff under the Job Retention Scheme.
The three main lifelines the Government has thrown to business during this time are the Coronavirus Interruption Business Loan Scheme (CBILS), Bounce Back Loan Scheme and Job Retention Scheme (JRS). They have also offered businesses deferred VAT payments, 12-month exemption from business rates for the hospitality sector and grants of up to £25,000.
Coronavirus Interruption Business Loan Scheme (CBILS)
This scheme is for SME business with annual turnovers of up to £45m and offers loans of up to £5m. They are guaranteed up to 80% by the government with a maximum six-year repayment term. This scheme also offers overdraft and invoice finance for a shorter term of three-years. To be considered eligible, the business must have been considered viable had it not been for the pandemic and can show that it has been adversely impacted by Coronavirus restrictions (Gov.uk).
Initially, there were quite a few teething problems with this scheme which resulted in an incredibly low application success rate. Banks were charging normal interest rates which meant affordability calculations didn’t work out with just a six-year term. While changes brought in at the beginning of April have made it more accessible, it’s still not without flaws. Banks often do still require Director’s guarantees or supporting security for the 20% not covered by the government, and with such a short repayment term the financial burden going forward simply isn’t viable.
To ensure that these emergency business loans go to the right people, the paperwork required for the applications includes business plans and cash flow forecasts for future income. Forecasting cash flow and income is more difficult for those in industries such as hospitality, so it’s not necessarily a level playing field for all those businesses in need of financial help.
If you are in need of this financial assistance due to the pandemic, we would suggest only applying for the costs you need to cover the damage COVID-19 has caused, and be ready to show that you’ve already taken cost saving steps such as putting employees on the JRS and deferring VAT payments. To strengthen your case, prepare new forecasts that show the damage the pandemic has caused to your business’ finances.
Bounce Back Loans
Bounce Back Loans are available for up to £50,000, and are self-certified loan requests applied for on-line or on your smart phone with apps taking 10 minutes to process. The loans are 100% guaranteed by Government for up to six years and worked out based on your business’ 2019 turnover. The interest rate is manageable 2.5% with no capital or interest payments to be made for the first 12 months.
They are designed to be used to help with cash-flow, paying suppliers, rents and staff salaries (though how this is monitored we’re not entirely sure).
While either the CBILS or Bounce Back Loan facilities are certainly suitable emergency options for many struggling businesses due to the current circumstances, with repayments due in 12 months, it’s possible they will cause cashflow issues further down the line. Furthermore, just as with the Mortgage Payment Holidays, these are designed for those in need, and should not be taken advantage of. You must consider that lenders will ask more questions in the future about how you used these emergency loans, and they will likely not be too pleased if you’ve used it as a deposit for a new property. Mis-use of these facilities now may well have repercussions for your investments in the future. As with any loan, we would highly recommend that you speak to an adviser and consider all your options before committing to either of these loan facilities.
The commercial team here at Mortgages for Business have (many) years of experience and can offer a wealth of advice to help you get the right financial support for your business. If you’d like to discuss your situation, do not hesitate to give us a call on 0345 345 6788 or email firstname.lastname@example.org.
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