The government backed loan scheme, CBILS, is ending for applications on 30th September, which, as I write this article, is 19 working days away. If your client needs to apply, now is the time to do it, to ensure the banks and lenders have all the information they need to confirm a full application by the deadline. The lenders then have up to 30th November to approve or decline the facility.
I heard today on an accountants’ zoom call that some bank managers were ringing their customers to tell them to apply for a CBILS facility before the deadline. And I could sense that some accountants thought this was bad practice. That the bank shouldn’t be encouraging the business to ‘get into debt’. This was one step too far for some of them, the banks were being too forceful.
So my opinion may well have shocked some of them, when I gave my response. If they can obtain a CBILS-backed facility, why haven’t they? The question shouldn’t be whether they ‘need’ the money, it should be more about what could they do with those funds if they had them? Could them employ them in the business and achieve more growth, more profit, and therefore more cashflow?
My personal viewpoint is that, whatever CBILS becomes next, it is highly unlikely to be as attractive as the terms which are offered by these state-backed loans in their current form. With no security or PGs under £250k, interest fee for 12 months, likely to include capital repayment holidays too, why wouldn’t you take advantage of that extra liquidity in your business? When are you going to have this opportunity again? Of course, the Chancellor may still decide to extend the scheme, but there is no clear sign of that yet. And so far, the lenders aren’t hearing any news about an extension either. So the clock really is ticking.
Many businesses have obtained Bounce Back loans, which, along with furlough grants and deferred taxes and other payments, may mean they have a positive cash situation. Perhaps they feel quite flush. But this is a false picture. When the projected cashflows are rolled forward into Q1 and Q2 next year, will they still have those reserves? Have they looked forward to that time? Have you forced them to face up to the reality of that? There are no top-ups to Bounce Back loans and this scheme also closes in early November.
‘Debt’ which has a negative perception for consumers, should be seen as a function of the working capital for a business, and is obtained to leverage assets and provide liquidity, which then allows a growth strategy to be implemented quicker. Those businesses which don’t have the luxury of being able to leverage their assets with this external source of financing will find that their growth is restricted. Maybe that’s the owners’ wish, maybe they don’t want to grow the business. Although, I don’t know many entrepreneurs who don’t have the ambition to earn more.
Granted, many businesses won’t qualify for a CBILS, maybe not being able to meet the pre-Covid viability criteria the lenders expect. But for those that do qualify, and can find a use for this low-rate, low-risk source of finance, why wouldn’t they apply? Our role as accountants to SMEs is to ensure that our clients are well-informed of the opportunities which are in the market. Don’t let them miss the boat.