COVID CBILS Application
Supporting our Clients through the Corona Crisis
On 23rd March A long-standing local family business in the plumbing sector called and said that 75% of their work had dried up overnight, leaving only scheduled works in commercial properties and emergency calls. With a breakeven point of 90% activity rate, the business would soon struggle to pay all of their outgoings even after utilising the Coronavirus Job Retention Scheme (CVJRS), rent holiday and asset finance holidays.
During the call, we discussed the Coronavirus Business Interruption Loan Scheme (CBILS) and the client asked if we could help them to apply.
You can find out more about a CBILS and other available schemes by visiting the British Business Bank website (click here).
The steps we took to apply for a CBILS
We started by discussing the information that the bank would request as part of this application process. We explained that the bank would want last year’s full accounts, up to date management accounts and a cashflow forecast for at least 12 months.
The bank would use a debt serviceability formula to make sure the company could afford the loan repayment out of profit, the profit figure the bank would be using is what's known as an EBITDA profit, using an average of the last 3 years profit. The bank would want an annual debt repayment cover ratio of 5 times. Then they would deduct any existing loan and asset finance repayments to check they had sufficient profit left to cover the CBILS loan repayments. We applied the 3-year EBITDA calculation and found the company could manage repayments of £3,000 per month.
Next, we discussed the collateral position. The CBILS comes with an 80% government guarantee up to £250,000 that the bank could call on if the company subsequently fails. The banks also want a charge over the company’s assets (i.e. a debenture) to allow them first call in a liquidation before they use the Governments guarantee. It has been clarified that the banks cannot request a personal guarantee from the directors in these cases.
We also discussed the merits of taking the loan over the maximum period of 6 years, so that the loan repayments would have the least impact on cashflow, and if the company could afford to repay the loan earlier that would be an option at no cost or penalty, as these are the terms of CBILS loans.
We obviously already had the company’s year-end accounts, but we also needed the latest management accounts and a cashflow forecast, which were items the Director needed the most help with. The beauty of the company using Xero (and already having us undertake a monthly review of their accounts) meant that the Director only had a few days transactions to balance off before the management accounts were ready. Due to Xero being cloud-based we were able to review and discuss the information remotely, making the whole process quicker and easier.
Next, we downloaded the company’s 2019 year-end accounts from our cloud filing system (our cloud-based systems have helped us work seamlessly) and double-checked they had made a profit every year and checked what the average profit was to calculate the affordability capacity.
The bank used a standard online form which asks how the Coronavirus has affected the business and other supporting narrative boxes which needed to explain the recent results, the action already taken by the directors and the outlook going forward. Of course, this narrative needed to echo what the forecast was showing to ensure the plan was credible.
We already knew that normally the bank would want a ‘3-way forecast’ which is P&L, Balance sheet and cashflow forecast which all needs to balance with each other. Producing these forecasts is a lengthy process, therefore we took an alternative approach of preparing a hybrid simplified cashflow (learn how we prepare these) From this, we looked reviewed closing monthly balances line to find the worst position in the year ahead. This was used to determine the size of the loan needed. We also decided it would be reasonable, based on the facts, to assume there would be a sharp 3-month decline in business with a steady recovery after this.
Finally, we helped the director complete the online application form and submitted the application for £100,000. As you can imagine what followed was a period of uncertainty and anxiety whilst waiting for the bank to get back in touch. The bank was quick to come back and ask for a few extra pieces of information and clarifications to progress the application
On 28th April, the Director called to say they had been accepted for the full £100,000 with no repayments or interest in the first 12 months and no setup fees as these are payable by the Government. The client already has an extensive service package with us and by diverting some of the advisory services into this project there are no extra charges for this help. If the company’s sales subsequently turn out to be better than expected they can simply return the funds at no cost whatsoever and if they are worse they already have the tools to hand to make a further application with minimal work. This whole process took just 5 weeks.
To date, we have helped raise over £1m and we expect this to rise especially with the start of the Bounce Back loans scheme which opened on Monday 4th May for loans of up to £50,000 on an almost ‘self-certify’ basis with very little information required to support the standard application form.
If you need help, please feel free to contact us on 01530 833474 or email email@example.com