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Covid-19: Top Questions 19.6.2020

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 this week, with his responses, in the hope that this information is useful to you. Each week, we publish an article with a new set of questions 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 at the moment?

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 over the past few months.

Perhaps the most talked about for owner managed businesses are those that come under the Coronavirus Business Interruption Loan Scheme (CBILS). These are loans that are provided by various banks who receive a guarantee from the government for 80% of the loan and so it should be easier for banks to lend under this scheme than it might otherwise have been. 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 more recently introduced Bounce Back Loan Scheme allows smaller businesses to apply for a loan from a bank, which receives a 100% guarantee from the government, but those loans limited to a maximum of £50,000. Like the CBILS loans there won’t be any fees or interest in the first 12 months.

There are also the Coronavirus Large Business Interruption Loan Scheme and the Covid Corporate Financing Facility which 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 ‘cheap’ and easily available. There has to be a business need, essentially arising as a result of the Covid-19 pandemic, that means that a business needs the extra funding.

What we have seen are some instances where businesses haven’t really needed any extra funding but have applied for these schemes ‘just in case’. If that is ‘just in case’ but they can show that their business has been affected by Covid-19 then it’s possible that banks could see the merit of the loan. If a detriment can’t be clearly demonstrated banks aren’t likely to be satisfied that the loan is required and could be unwilling to proceed with the application. Also, if customers try 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, then banks are unlikely to facilitate that either.

Banks are also carefully considering how much is actually required. If you apply for £5m, for example, the bank might well come back and say you only need £3m if that’s what they determine from their review of your application.

I think the key point here 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 given these circumstances and businesses need to take care with the borrowing decisions they make for their business. First and foremost, there has to be a demonstrable need, essentially arising as a result of the pandemic.

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 ASAP as obviously such schemes could be key to your business, and potentially its survival, but they won’t be available for ever.

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. I also get the impression that, certainly as the outbreak hit the UK, banks were prioritising looking after their current customers, rather than looking for new ones.

Also, the legal and banking process of refinancing the whole of your borrowing with another lender is much more involved than that involved in taking 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 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 for applying for all of such loans.

Can I defer repayments of my existing bank loans?

You might have heard that personal customers have been taking advantage of mortgage holidays over the last few months and further help for consumers has been announced today. As far as I am aware there are no such ‘blanket’ schemes of this kind in place for business customers. If you are in 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, the ability to defer VAT payments, the ability to defer income tax payments, business rate grants etc. All of these have been discussed in other articles during this crisis but, again, if you are going to take advantage of these things then you need to do so now (in fact the Job Retention scheme has already closed to new entrants).

Aside from government backed loans, there are still lenders out there lending to companies who do not qualify for a CBILS loans, so all is not lost if for whatever reason 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.

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 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 12pm 19.6.2020

 

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