Before you apply for CBILS funding or get frustrated that your request for funding has not been approved Hamish Morrison, from BHP, Charted Accountants shares some of their practical tips to accessing CBILS funding.
It covers a number of points we have been discussing with our clients and contacts over the last couple of weeks. Some of them have subsequently accessed the funding without the need for further support and others have asked us to assist. In all cases I am sure they would say our advice has helped immensely.
See it from the bank’s perspective
Maybe not what you want to hear but these are some facts that you should not ignore.
- Your relationship manager and their credit teams, like all of us, have multiple personal challenges they are also having to deal with right now
- Banks have the same number of staff post Covid-19 as they did pre. At the same time they are trying to adjust to the new way of working whilst dealing with an enormous increase in requests for funding
- Bankers get ill too and are not immune to Covid-19, meaning their teams will be stretched even further
- Banks have got a wide range of customers applying for funding and some requests are more urgent than others. They are having to prioritise what they need to immediately focus on
Whilst none of this is your fault, being aware of it is important. By following the steps below you can make their life easier and thus increase your chances of being successful.
Do the basics first
Banks will expect you to have taken steps and already implemented a number of cost and cash saving initiatives prior to applying for any CBILS funding. The kind of areas you may be expected to have considered could include:
- Coronavirus Job Retention Scheme (“furloughing staff and directors”)
- Deferring VAT
- Deferring payroll taxes
- Deferring Corporation tax payments
- Deferring rent
- Deferring rates
- Deferring any staff bonuses
- Reductions in owner and director remuneration, especially if “normal” levels may be viewed as generous
- Review all discretionary expenditure such as marketing costs and training
Finally ask yourself have you taken all reasonable steps to reduce cash outflows in the short term.
The above steps may reduce your borrowing requirement and will also help demonstrate that you are in control, have a plan and are looking for the bank to assist with the challenges you are facing rather than solve them by writing a blank cheque.
Hope needs to be funded by equity not debt
Asking a bank to fund open ended losses is very unlikely to be successful. None of us know how long social distancing will remain in place for and if there might be multiple waves of disruption. Hoping the shut-down will be over in XX weeks is not a plan banks can easily support.
CBILS has been introduced to help banks advance loans to businesses that would otherwise be viable, were it not for Covid-19 and the resultant disruption.
Reducing cash burn in an unquantifiable period of fundamental uncertainty is vital if you are seeking bank support. If this is not possible you may need to consider equity investment to help you rebuild the business.
What is your strategy?
If your revenue has reduced significantly or completely dried up what is your strategy? Does this strategy work if the current restrictions remain in place for longer or if we have further waves of restrictions? If you have reduced costs to minimise your immediate cash burn how are you also ensuring you will have the resources in place to scale back up as business conditions improve? How might what has happened change the market you operate in permanently? Can you take advantage of this in the medium to long term? Do you have a plan B and C if plan A does not work?
Clearly articulating your strategy will be a key part of successful applications. Your bank will need to be confident that you have a sound strategy to return to profitability and cash generation in order for them to be repaid.
Understand your 13 week cashflow forecast and the key sensitivities that may impact it
Having a professional, well-constructed set of short-term forecasts with realistic assumptions and sensitivities for any key uncertainties is essential. This will help you and the bank to understand how urgent your need for funding is and what further support you may require in the coming weeks.
Remember you will also be judged against these forecasts if you have to go back and seek further funding in the future.
You also need integrated P&L, balance sheet and cashflow forecasts for the next 1 to 2 years
Getting through the current period is, for most companies, only part 1 of the challenge. As trading hopefully improves working capital is likely to build back up coupled with a “catch up” of deferred payments (eg VAT, payroll taxes, rent etc) and this will also need to be funded. If staff have been furloughed, then staff costs may also significantly increase, before there is any improvement in profit and more importantly cash.
Understanding this and sharing it with your bank, will help ensure that you are seeking an appropriate level of funding in both the short and the medium term. For many companies this may result in a two stage approach to funding. Stage one being short term survival and stage two being working capital to support the growth. Stage one is inherently more risky as it is far harder to get visibility over and so keeping this to a minimum should be your aim.
It’s not just about you
How are your customers trading? Are they going survive and prosper again? For those that might not how will this impact you both in terms of potential bad debts and future sales? Will your key suppliers also survive? If not do you have an alternative plan?
Other points to include in your proposal
- Evidence your viability through your recent track record of profitable trading and your business plan / forecast pre the disruption. CBILS has been established to support companies that were viable pre Covid-19, not those that were already in difficulty
- Clearly explain the impact of the disruption on your business (based on realistic assumptions of the impact).
- Explain how Covid-19 may change your market in the future and how this will impact you
- Like any period of disruption there will be winners and losers in the medium term and articulating why you are ideally placed to adapt to these changes will be important
Finally remember cash is king in the short term but you also need a plan to pay back any debt you take on.
If you would like to discuss any element of the above, please contact either myself or any of your usual BHP contacts.