In these challenging times, our teams have been receiving a high volume of queries from clients on the timely issue of which financial support schemes are currently available to businesses and how they can be accessed.

To help our clients, Nick Scott, partner in our Corporate team has collated some of his most frequently asked questions from recent weeks on this important matter, with his responses. As a firm, we will continue to keep you updated with the latest developments relating to the law as the picture around Covid-19 shifts and develops but if you have any queries, at any time, please talk to the team for more detailed advice that is specific to you and your particular requirements.

What banking facilities are currently available to businesses?

Other than the types of funding that you can get from the usual sources, there has, of course, been widespread publicity around various government backed loan schemes since the start of the initial lockdown in March.

Perhaps the most talked about for owner managed businesses are those that come under the Coronavirus Business Interruption Loan Scheme (CBILS). Initially, these were set to only be on offer for six months with the deadline for applications being 30 September. That has now been extended (twice) and, as the situation currently stands, CBILS loans should be available until 31 January 2021. These are loans that are provided by various banks who receive a guarantee from the government for a proportion of the loan and so it has been easier for banks to lend under this scheme than in pre-Covid times. The borrower also applies for a Business Interruption Payment, under which the government will effectively cover fees and the first 12 months of interest on those loans.

It’s important to note that there are other schemes in place, too. The Bounce Back Loan Scheme was announced after CBILS and allows smaller businesses to apply for a loan from a bank, which receives a 100% guarantee from the government, but those loans are limited to a maximum of £50,000. Like the CBILS loans there won’t be any fees or interest in the first 12 months. This scheme has also been extended to 31 January 2021. Given how easy these are to apply for, and against the backdrop of increasingly frequent media coverage on the potential abuse of this, it will be interesting to see just how many are never repaid.

There is also the Coronavirus Large Business Interruption Loan Scheme, which has also been extended to 31 January 2021 and the Covid Corporate Financing Facility, which is a different kind of facility, and which is available until 31 December 2020. Both of these are aimed at larger businesses.

So, as we can see from these schemes, the government has certainly tried to help get money to businesses through a variety of loan mechanisms. Businesses must remember, though, that all of those schemes are loans not grants, so however ‘cheap’ they may appear, they do still need repaying in the future. The borrower is still liable for 100% of the debt (and future interest) in any event.

In what circumstances have you seen clients able to obtain CBILS loans?

It’s important to note that all of these loan arrangements are not simply to be used because they appear to be inexpensive and easily available. There has to be a business need, essentially arising as a result of the Covid-19 pandemic, which means that a business genuinely requires the the extra funding.

It was certainly the case, originally, that we had seen some instances where businesses hadn’t really needed any extra funding but applied for one of these loans ‘just in case’. Additionally, it used to be the case that only businesses that could show a direct, detrimental impact of Covid-19 would be viewed as eligible for a loan by banks. If a detriment couldn’t be clearly demonstrated then it seemed to be the case that banks would take a dim view and could be unwilling to proceed with the application. Also, if customers attempted to take the opportunity to refinance their existing borrowings on to one of these government backed loans, in order to take advantage of the 12-month interest-free period, banks also seemed unwilling to facilitate that course of action. Having said that, as time has moved on from the earliest days of the pandemic, certain banks seem to be more open to lending where the impact of Covid-19 on businesses has been less than substantial. In fact, there has been the suggestion that, due to government pressure to get money flowing more freely through the economy to support recovery, banks have been relaxing requirements somewhat.

Banks have, in the past, also carefully considered how much borrowing is actually required. If you applied for £5m, for example, the bank might respond with an offer of £3m, if that’s what they determine is sufficient from their review of your application.

The key point here as we see it is that, for CBILS loans, banks are still going through a full credit approval process for them. It isn’t by any means ‘easy money’ that gets waived through due to the nature of the pandemic and businesses still need to take great care with the borrowing decisions they make for their business. However, whilst there still should be a demonstrable need for those extra funds, essentially arising as a result of the pandemic, arguably it is easier to obtain them now than at the schemes’ inception.

Can I get such a loan and what legal implications might there be?

If you are considering taking such finance then you should look at your options as soon as you can as obviously such schemes could be key to safeguarding the commercial security of your business, and potentially its survival, but they won’t be available for ever. There is no guarantee that they will be extended again.

You can approach your current bank for such assistance, and, from a purely practical perspective, that is likely to be your best approach – particularly as they will know your business and have an existing relationship with you. As the outbreak hit the UK, banks were heavily focused on looking after their current customers as a priority, rather than looking for new ones, though in recent months that appears to be changing.

Also, the legal and banking process of refinancing the whole of your borrowing with another lender is much more involved than that required to take out a new Covid loan from your current provider. Even if you keep your funding from your existing bank and try to obtain an additional loan from another bank, there will be more legal documents to agree and put into place, such as the question of which lender takes priority security over your assets.

Whether you can get a Bounce Back Loan or a CBILS loan will depend upon a number of factors. There are various criteria that need to be satisfied for each, though generally the Bounce Back Loan scheme is much simpler to apply for (but is, of course, limited in value). The quickest and simplest way to fully understand the criteria is either to speak to your current bank or financial advisors or look at the British Business Bank website, which lists a lot of the detail and criteria.

Can I defer repayments of my existing bank loans?

At the beginning of the Covid-19 crisis, many personal customers took advantage of mortgage holidays and many may still have such an arrangement in place. As far as we are aware, there are no such ‘blanket’ schemes of this kind in place for business customers. If you are experiencing difficulties repaying your loans, then you should either speak to your creditors about it or talk to one of our specialist insolvency and restructuring team who will work with you to help you find a way through your difficulties.

What else can I do?

Aside from bank borrowings there are of course a number of other methods of support you can, and probably already are, taking advantage of, such as the Coronavirus Job Retention Scheme (more information here), the ability to defer VAT payments, the ability to defer income tax payments, business rate grants etc. All of these have been discussed in previous articles during the pandemic but, again, if you are going to take advantage of these things then it’s important to take swift action.

Aside from government backed loans, there are still lenders out there lending to companies who do not qualify for a CBILS loan, so all is not lost if you cannot get such a loan. In fact, it is a requirement of some of the government backed loans that you should have exhausted your ability to borrow on a more ‘normal’ basis before being able to apply for a Covid-19 loan although, again, it is unclear how far that principle is being followed in practice by certain banks.

With any of these schemes it is vitally important that you factor in the need to repay loans, and any deferred taxes etc, when they are due. Otherwise you may run the risk of pushing challenges and issues down the road rather than addressing them. For this reason, sound cash flow planning is key, as well as having a full and clear perspective on the financial health and needs of your business.

Our team is on hand to help you, your business and your family however we can, so please get in touch with us on 01482 325242 or email enquiries@andrewjackson.co.uk

Correct as of 5pm 24.11.2020