How businesses can increase their chance of CBILS success
Challenger banks will look to pick up local businesses aghast at their treatment by the UK’s big lending banks, according to Chand Chudasama of Price Bailey.
Speaking at an open meeting of the Cambridgeshire Chambers of Commerce on Zoom last week, he said the slow rate of approval for the government’s Coronavirus Business Interruption Loan Scheme (CBILS) was opening up options for boutique banks. A number of them have now been approved as CBILS lenders.
“I wouldn’t be surprised if attitudes start to change and challenger banks start approaching those who were rejected elsewhere,” Mr Chudasama,a partner at the firm, told a packed virtual house of Chamber members. “That wouldn’t resolve the problem for all but for a few it will.”
“As long as it doesn’t become Wonga loans,” interjected the event’s moderator Emerson Patton, director of Bright Business Advice.
UK banks have imposed standard risk assessment practice for the loans, which start at £10,000 and go up to £5m. This week the government agreed to 100 per cent backing for ‘bounce-back’ loans up to £50,000. Beyond that, up to the £5m top relief figure, loans are 80 per cent backed by the government, and 20 per cent by the banks. The average CBILS loan is £171,000.
Mr Chudasama said the Chamber had established “a repository of feedback” that applicants can use to their advantage. He gave the group five tips on making a CBILS application:
1 Have a simple forecast ready for the relationship manager but be ready with a more detailed assessment if required from the credit team.
“The CBILS process is keen to be shown lost revenue but we’ve found most banks are taking three to four weeks to deploy the money so more detailed forecasts are needed at the credit level, not just monthly forecasts but weekly too. Knowing that at the beginning can be very powerful.
“They will also need to know if the debt is serviceable – that’s important because the CBILS loan scheme is designed to support businesses that would be sustainable if it wasn’t for Covid-19,” said Mr Chudasama
“Also, banks sometimes struggle to see beyond the numbers and figures – so give them the background story to your business narrative.”
2 Know what type of debt you are asking for and why.
“It could be an overdraft, or invoice financing, or asset finance – it’s very important to know which one you want because not all banks do them all.
“Three of the banks are only doing CBILS-backed overdrafts and, while more are being designed, it’s very important you know which type of debt you want so you’re not a few weeks into the process when you realise what you want is not available.”
3 Bank managers stress that a CBILS loan is the last port of call.
“You will need to demonstrate that you have already taken lots of measures for managing cash flow, ie the benefits of deferring VAT payments, the job retention scheme and furloughing. You’ll need to show you’ve had conversations and a relationship with HMRC, which is important for staged payments. Plus shareholder reinvestment – why haven’t shareholders put money back into the company? That’s relevant for the Future Fund.”
The Future Fund is the government scheme which will issue convertible loans between £125,000 to £5million to innovative companies and start-ups from May 1.
“I’ve heard of CBILS loans being rejected after an initial conversation with the bank manager because the forecast doesn’t show enough potential,” added MrChudasama. “CBILS is the last port of call.”
4 You have to show that you can service the debt.
“The interest will be four to six per cent above base usually, and you’ll have to demonstrate that the business is serviceable for future scenarios. Servicing debt has to work at both the company and at the personal level.”
5 Be ready for the bank to have many different answers.
“For instance,” said Mr Chudasama, “one bank has given three different answers to one question, so staying calm and not getting angry is very important.” It’s always worth getting a second opinion from your bank, stressed Mr Chudasama.
Just £2.8bn of CBILS loans have been received so far by UK companies – less than one per cent of the £330bn of loans and £20bn of grants and tax relief announced by Chancellor Rishi Sunak last month.
In the US, 1.5 million loans have been approved at a value of $32billion. In Switzerland the application is a one-page form and the money is delivered within 24 hours – and has been to 98,000 companies in Switzerland, six times more loans than the UK (with one-eighth of the population). They have been able to do this because governments in the US, Germany and Switzerland guarantee 100 per cent of the loan, leaving businesses puzzled as to why this was not the obvious option for the UK. Mr Chudasama, however, was quick to avoid blaming the banks for the debacle taking place in the UK.
“The tricky bit is that sometimes the banks are getting new information today, or week-by-week, or day-by-day,” Mr Chudasama said. “Some regions are quicker than others at getting the information through.”
Cambridgeshire Chambers of Commerce chief executive John Bridge said: “There are many challenges and lots of banks are finding their loan applications are being refused for various different reasons.
“The rules are going against the interests of businesses in distress and we have asked the government to guarantee 100 per cent of the loans, not 80 per cent of the loan. They still seem to be very much thinking in terms of state aid but that’s not so in the European Union, where they’re not worried about state aid rules at all.
“But the UK government is reluctant to increase the level of guarantees which could save time because the 20 per cent guaranteed by the banks means going through the whole credit assessment risk scenario.”
The Confederation of British Industry is also urging the government to increase the guarantee from 80 per cent to 100 per cent for all CBILS loans.
More by this authorMike Scialom