CBILS or not CBILS? Practical thoughts on financing after lockdown

Introduction to the Coronavirus Business Interruption Loan Scheme (CBILS) family

The government-backed loan schemes are now a family of five, which grew over the first eight weeks of the crisis as the government reacted to comments on each iteration. The most relevant to the mid-market companies will be the Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) and Bounce Back Loans.
CBILS are loans of up to £5m for companies with turnover of up to £45m. Key features are no upfront fee and the government pays the first year’s interest, but there is a full credit application process needed.

Bounce Back loans are up to £50k and are aimed at small businesses. They have a simplified online application process and cash is received rapidly thereafter, typically under a week. They have a fixed interest rate of 2.5 per cent over six years.

CLBILS are CBILS for larger businesses – up to £200m for companies with turnover of over £45m. Slightly less generous terms than the CBILS – there is no interest free year and some restrictions on dividends and directors’ pay at the larger end.

What have we seen lenders do?

Generally, lenders have looked favourably on smaller loans. Even before Bounce Back came out CBILS below £250k were easier to get through the system. For larger loans though, a proper business plan and forecasts are generally required by lenders, even though officially they’re not supposed to need them. We know that most lenders prefer to have one and borrowers will have more success with forecasts than without.

Lenders are also requiring companies to demonstrate a ‘need’ for CBILS, based on their coronavirus downside forecasts. This can put companies in a difficult position as they may need to show the lender forecasts that are weaker than they are comfortable with in order to obtain funding.

Often lenders prefer to do non-CBILS/CLBILS lending, and they can sometimes present loans on this basis as being more attractive for borrowers – borrowers will need to choose carefully between the options.

What are we seeing companies do?

Three categories of company are now emerging. From the original round of applications in March and April, there are the haves and have nots:

  • those that received CBILS easily as they had a strong bank relationship and good forecasts; and
  • those experiencing a delay / knock-back in their application, who may need further assistance to get the funding that they need.

The third category is those companies who have now started looking at CBILS for the first time. Often, this is because they hadn’t seen the immediate need and were consuming their own cash instead. 

With a recession now looming, most are now thinking about borrowing now ahead of time, whilst the schemes (which end in September and October) are still available.

What to do? Plan and scan and be cautiously optimistic

Our overall advice to companies can be summed up by the idea of ‘plan and scan’.

Plan

Think carefully about your forecasts now that lockdown is ending – they are likely to be different from forecasts made in early April, with a longer recovery period. Consider what downsides may need to be financed.

Scan

Look around the market for sources of funding. Start close to home, with CBILS/CLBILS from your existing lender. Consider what you would do if you don’t get that – would it be another loan from the existing lender, another lender, or perhaps speak to shareholders.

A good way of thinking about it is to have Plans A to E, instead of simply Plans A and B.

Plan A

Make organic savings, take advantage of the government schemes.

Plan B

Approach existing lenders, under CBILS/CLBILS or otherwise.

Plan C

Consider approaching other lenders as part of a competitive process.

Plan D

Think about where you might get equity from, perhaps the existing owner or a new investor 

Plan E

Consider whether the company might need to be restructured in some way to attract the investment it needs.

How to obtain CBILS funding – three practical modules

When we help companies with obtaining CBILS, we look at three practical elements.

Tactics: How to approach the bank(s), what to say and how to present the company’s story. Without a clear ‘ask’, lenders sometimes make offers that are not in line with expectations.

Financial modelling: To quantify funding need, a robust financial model with integrated P&L, balance sheet and cash flow will be needed. 

Lender request document: Companies should provide the lender with all of their required information, presented correctly, succinctly and all in one place.

This is how we recommend to approach it, but of course many companies may not have the time or experience in one or more of these areas – in this case it’s wise to seek advice from a specialist debt adviser, who will be able to advise which of the modules need further work and how best to approach it. 

RSM’s debt advisory practice specialises in raising funding for mid-market companies and is able to assist companies on a modular basis as required.

For further information or any queries, please contact Greg Moreton.