Experienced senior banking professional Dave Shalliday of Verde Corporate Finance (part of the GS Verde Group), has spent over 40 years in the banking industry. Having remained in touch with the banking profession, Dave shares his insights into the current status of the Coronavirus Business Interruption Loan Scheme (CBILS).
How are the banks viewing CBILS and the current state of applications?
The starting point for all the major banks is, was the business viable before Covid 19? If so, then it falls into the ‘worthy of support’ category and is therefore looked upon in a positive light.
The top down message within the banks is to find a way to assist, I have no doubt government scrutiny and the continuing repercussions of the banking crisis are a factor in that.
The banks have all looked favourably on requests for Capital repayment holidays and have also considered, following discussions with clients, to suspend the testing of financial loan covenants.
There is a perception that the process is slow, is that fair?
The advent of the Business Bounce Back Loan scheme is anticipated to speed up the pace of getting lower level funds, to the borrowers bank account. Other schemes such as the Job Retention Scheme (JRS), which underwrites 80% of wages, has now started to work effectively after initial delays, and grant funding through Local Authorities seems also to be effective in delivering cash.
From a practical perspective, whilst there is undoubtedly a will to stream-line the process and move at pace, the pressures on the banking infrastructure are immense. In the last few days, we have seen Barclays and Lloyds, two of the biggest lenders to the UK business community, marking multi £bn provisions for the anticipated costs of loan defaults, arising from the Covid 19 pandemic.
Another consideration at play here is the infrastructure stresses that the banks find themselves under. One of the banks I spoke to, advised that on average, they would expect up to 3,500 calls a day to their call centres, but they are currently receiving upwards of 25,000 calls.
If you add to this the additional complexities of home working, which we are all wrestling with, we can begin to understand some of the practical issues the banks face.. A medium sized UK bank (not one of the big 4) advised me that they would normally have 500 people working from home on any given day, but now they have 22,000 people working remotely.
What can businesses do to help the process?
All of the above points to the absolute imperative need for businesses to make their request for assistance as accurate as possible and make it easier for their bank to say “Yes”.
The quality of submissions for CBILS has been mixed. Where management have engaged with their advisers and presented a fully articulated case, the experience has generally been positive. However, other examples of businesses just hurriedly throwing together financials and expecting the bank to ‘pick the bones out’ have been less positive, and this will almost certainly result in either delays, while more information is sought, or worse, declines.
What information is crucial, and what of the Personal Guarantee expectation?
Whilst government stand behind these loans as guarantors, it has been made very clear to the banks that they are expected to apply normal and rigorous due diligence to funding requests.
Management teams need to ensure there is clear financial evidence that demonstrates the viability of the business pre-covid 19. They should present a minimum of 13 weeks cashflow forecast, including underlying assumptions. It should also be clear in demonstrating how much is required and the impact that will have on the business.
Shareholders should consider how much cash they have taken out of the business in recent years. It is possible that with some of the banks, this may impact on whether a guarantee is required or not. Some banks have already stated that they will not ask for guarantees, however this is a decision for the individual bank.
The funding case should also attempt to demonstrate a realistic route back, and impact on cash, to trading in a post-covid 19 world.