Corona shock: Approaching your bank for funding

The Coronavirus pandemic is going to have a dramatic effect on every businesses cash flow.

How best to access bank support via CBILS

The government is providing guarantees but these loans will be delivered by the banks and other lenders.  Bear in mind these are not grants but loans and so you need a structured approach.

We’re seeing lenders trying to be helpful, but unsurprisingly being cautious about additional lending. Remember that the government is only guaranteeing 80% of the debt. That means that the bank is supposed to lend only to those that in other circumstances they’d have backed. And even with the recent improvement to the CBILS regime, if it all goes wrong and the bank is in recovery mode, it must still come after the company for 100% of the debt – and its owners if they’ve given guarantees – before relying on the 80% government guarantee. So in the worst case the bank is potentially exposed on the 20%.

Helpfully the government now says guarantees on loans below £250,000 are banned, but that might mean they’ll be reluctant to lend at those levels? Either way it focuses the mind!

That said, lenders are trying to adapt and act quickly. They can see that at some time in the future, most businesses should get back to the new ‘normal’.  We hear of more frequent credit committees to speed responses and that they’re prioritising the business in most short-term need.

What lenders will be thinking

Your bank will be thinking along these lines:

• How was the business performing pre-Coronavirus? How much debt and headroom did it have and what did its financial ratios look like?
• Would we have lent to the business before the crisis?
• Just how much debt could the business have supported pre-crisis?
• What impact will the pandemic have on the particular industry sector long-term?
• Does the management team have the right strategy (have a look at our article on devising a strategy for Coronavirus), skills and controls to plot a course through the storm?
• How much additional funding does the business need to get through the next few months?
• What will the business be like after the Corona crisis and will it then be able to service the extra debt?

If you can address the bank’s questions in a well argued, cogent, calm, and professional way yet acknowledging the severity of the situation you’re more likely to succeed.

For this to work you need to give lenders good quality information, and a robust forecast.

What to present to the bank

To get the best out of your bank:

1. You should include and present fairly your business history. How did you perform last year? Or a month or two ago compared to your original budget? What had you expected as a full year result for the current year?
2. Sensitivity analyses will be more important than ever. So assess your funding gap under different Corona-influenced scenarios. How will your cash inflows and outflows be affected? What happens if the impact lasts 6-9 months or if there’s a slow recovery over an even longer period? Your scenarios should combine your pre-Coronavirus trajectory with the current economic shock and show how you’ll get through to the new ‘normal’.
3. You should incorporate into your scenarios different financing options and consider how you’ll measure business performance and financial covenants.

And remember your Bank Manager is a person too and they’ll also be under pressure.

Get help

You’d expect us to suggest this but you’re more likely to pull together a robust plan and access finance if you can involve someone outside your organisation to challenge you and facilitate discussions. You may have existing advisers, non-executive directors or coaches who can help.

We’re offering a free and confidential voice or video call to any business that wants a sounding board. And we can get more actively involved helping with planning, forecasting, bank presentations, and advising on the other government support schemes.

Call us today, we’d be interested to know how you’re tackling this.