As people may be aware, the CBILS initiative put forward by Government has up to now failed to be the source of emergency funding that the Chancellor trumpeted it would be.

The overriding reason for this has been Government’s instruction to banks that they must look at whether normal commercial bank funding can fund any emergency need before they will grant loans under CBILS. Essentially, if you have existing unused facilities, assets available to help secure applications for new loans or perhaps cash surplus sitting outside your business that an owner could use, then emergency funding through CBILS would not be available to you until these alternatives were exhausted.

There has been considerable pressure for Government to remove these conditions and allow emergency funding to flow more easily. Recently this resulted in the main four banks announcing they would grant loans of up to £250,000 without the requirement for a personal guarantee to support the loan. This has been lauded as a big step forward for companies which have no unused facilities and who want to borrow less than £250,000.  Not such good news for larger companies.

On the back of continued pressure, press comment is now circulating that the requirement for banks to ascertain whether companies are able to access other lending forms first is to be removed. If true, this is a massive step forward and will significantly help SMEs and ease the considerable pressure the owners and directors of these companies are under. No doubt the fact that many companies will be unable to meet their furlough obligations at the end of April has also stirred up the pot as one can only imagine the impact of a vast number of employees not being paid.

We now await an update from the Chancellor later this week to confirm the situation.

Applying for CBILS Loans 

1. The majority of loans will be granted by the big four banks. Most applications will be handed by the dreaded “call centre“ or for larger companies by the banks (severely overworked) corporate account managers. Getting properly presented applications in early is of paramount importance as these under-resourced channels will rapidly become clogged.
2. Ensure you meet the qualifying conditions. Your presentation must readily identify:
   • you were financially viable and solvent before Covid-19 (e.g. up-to-date management accounts)
   • you have incurred losses due to Covid-19 (e.g. perhaps before and after Covid-19 budgets information)
   • you clearly identify how much funding you will need. Whilst you can apply more than once, well presented and complete cash flow forecasts and profit projections are a must both for the Company itself and the bank credit process.

3. Remember that any deferral of VAT, PAYE or rates etc. are simply that and have to be paid back before the end of the year. Time to pay arrangements will no doubt apply but it must be preferable to pay back these amounts out of a properly structured CBILS loan rather than via an uncertain time to pay agreement with HMRC.
4. Ultimately, cash flow will revert back to normal once the business cycle recommences and any cashflow loans should ultimately be capable of repayment by profitable companies. However, this is not so where real losses have been incurred in the Covid period. Depending on the amounts involved, these losses will need longer term and more permanent funding as the cash lost has gone forever. CBILS loan applications need to include such losses and spread their cash impact over a much longer period.

The above are just a few short prompts to consider when making applications.

Please note that the team at Barnes Roffe are available to help you in all aspects of your loan application either at review level or on a more detailed modelling level.

M Parkinson

2nd April 2020