The dos and don’ts of coronavirus emergency financing

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Alistair Lee of Argyll Debt Advisory shares advice for businesses applying for emergency funding

Many businesses are looking to the banks to support their funding requirements for survival through the lockdown and into what is being called ‘the new normal’.

Maybe not surprisingly, given the newness of the schemes, banks and borrowers alike are learning through practice.

There is the coronavirus business interruption loan scheme (CBIL, some call it ‘Sybil’) for businesses with revenues up to revenues of £45m per year or the newly launching coronavirus large business interruption loan scheme (CLBIL, some call it ‘Syllables’) for larger businesses.

Businesses may also be applying for support on what might be considered normal commercial terms, where scheme support is not thought necessary.

Whatever the case, there are some common do’s and don’ts that can help retailers succeed with their requirements.

Dos

Do take advantage of all the tools at your disposal to reduce the cash outflows from your business such as:

Deferring payments to the government such as VAT, PAYE
Furloughing staff and claiming under the job retention scheme
Negotiating with landlords (no rent for a quarter, rent cuts, changed payments terms)
Stretching suppliers where possible, asking for discounts
Cutting directors’ salaries
Cash injections from shareholders

Banks will expect you to have done all you can to protect your cash and minimise the call on their loans – and of course, while you want sufficient to survive, you also want to exit the current circumstances with the least debt possible – like a student aiming to leave university with as small a loan millstone around their neck as achievable. Every business will have a limited debt capacity, and if you have used it for this period it may prevent you from doing better things with it in future.

Do approach your current bank, or banks, first. Banks will not be looking to help non-clients for at least another two to three weeks.

That said, once the bow wave of loan applications has cleared it may make sense to look at other banks, and new lenders are being added to the scheme who may offer different options.

Do talk with your relationship manager before making your application. Pick their brains for potential levels of support and work out likely timings.
Do think through the exit of your business from hibernation.

Much of the funding may be required for ‘catch-up’ payments or during the gradual exit to new business levels, which may vary hugely by sector.

Do present numbers that are well thought through and easy to understand, with a clear sense of how profitable your business was pre-lockdown and can be again.

Most banks accept the impossibility of forecasting for the world the other side of coronavirus, but for now, the accepted wisdom seems to be to forecast a three-month lockdown, a return to ‘normal’ revenues thereafter guided by your view of your customers and services, with 2021 based essentially upon a modestly improved 2019.

Don’ts

Don’t borrow more than you need, although do aim to have modest headroom.

Even in the best outcome, you have to pay this back and it could stop you from following other plans for the business, such as future investment, capital expenditure or expansion.

Don’t rush your application unless the funding is time-critical.

Banks are under huge pressure right now and the schemes could well change again. Already with the changes seen to the scheme guidelines, the government has made it clear that banks should retrospectively apply the changed guidelines. From what we have heard, the banks are keeping registers of the outcomes of scheme applications so they can do just that.