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CBILS and BBLS: Securing finance and planning how to use it

Written by Ben Johnson on Monday, 01 June 2020. Posted in Funding, Finance

In the UK, over £7.25 billion has been paid to more than 40,500 businesses under the government’s Coronavirus Business Interruption Loan Scheme (CBILS).

CBILS and BBLS: Securing finance and planning how to use it

In the UK, over £7.25 billion has been paid to more than 40,500 businesses under the government’s Coronavirus Business Interruption Loan Scheme (CBILS). As for the newer Bounce Bank Loan Scheme (BBLS), more than 130,000 applications were also received on the first day of launch alone, with SMEs able to apply for between £2,000-£50,000.  Between both loan schemes, over £22 billion has been lent to SMEs.

There are great options out there, but it’s really important to think carefully about how you plan to use and repay a loan. 

In this article,  two experts have shared their insights: Katrin Herrling, CEO and Co-Founder of SME lending marketplace Funding Xchange, and Ollie Maitland, Co-Founder and Chief Product Officer at Capitalise.com - the adviser-led marketplace where businesses are supported by accountants to access funding. They’ve  shared some advice on navigating funding and what to consider to ensure its put to its best use

1. What is the difference between the two loans?

Bounce Back Loans aim to address the need for much simpler, smaller loans with a quicker process to unlock funding, for those that need money immediately. These loans are also 100% backed by the government, compared with 80% for CBILS, so experts say there is a limited risk for the banks and therefore loans will be issued much faster. While the amount of capital on offer is smaller, these are much quicker to approve and might become the more popular option rapidly.

2. Don’t forget that it’s debt

Whether it’s CBILS or BBLS, business owners should not forget that they will be expected to repay 100% of these loans, regardless  of the government guarantee. The fact is, it’s still a loan and a form of debt.

“Don’t use debt unless you have a plan to repay it,” Katrin said. “If you default on this loan, it’ll have a significant impact on your future ability to get credit.”

The government has created a website to help you understand what each of the schemes are and what you’re eligible for. With other schemes available that don’t need to be repaid such as the furlough scheme, and numerous others by sectors – such as hospitality – Katrin recommends spending some time digging into the detail to find what’s available to you specifically before committing to a loan. This is a really important step with long term impacts on your business, so it shouldn’t be rushed. 

Ollie suggests leaning on accountants for advice before taking on any debt. “If you don’t have an accountant, now might be a good time to get one. They are getting a view across all of these schemes, including grants. Free money is better than borrowed money at all stages”, Ollie said. It is worth keeping in mind that accountants are not just number crunchers; they are advisors too. 

3. Plan for your loan repayment before you take it on 

Before taking on any type of loan, our experts recommend working with your accountant to build any potential loan repayments into your business forecast. This will ensure you’re able to repay this in the future without damaging your business. 

“Some businesses may look at these schemes as easy money, without thinking through what the repayment will actually look like. Before moving forward, you need to understand what is required to pay back that money and build a specific plan,” said Katrin. 

4. Which lender should I use?

There are now around 74 lenders accredited, half of which accept applications from new and existing customers while just over 20 are banks only open to applications from existing customers.

“The other half are only able to process applications from their own customers. That means there’s a relatively small pool of banks that are willing to look at you if you haven’t had a business account with them for at least six months” Katrin said.

“If you’ve been declined by your bank,” Ollie added, “going to another bank will unlikely result in a different outcome, but going to alternatives in the CBILS programme is now a possibility.”

For businesses not successful with one of the banks, there are alternatives such as 15 regional lenders, over 20 specialist lenders and a handful of accredited digital lenders like Iwoca and MarketFinance  – with more expected soon. 

The team at Funding Xchange recently published a complete guide to CBILS lenders, while Capitalise has published a  Covid-19 Hub, and a guide on how to apply for the loans.

5. Don't just focus on tomorrow; focus on your business in 6-12 months

It can seem obvious to use funds to fight the most immediate fires, but it’s important to take a step back and think about the longer term health and viability of your business too. 

Sharing lessons from countries like Germany coming out of lockdown, Katrin says it’s important to think about how you’ll use debt to support yourself not just during the lockdown, but also looking at what will be needed to restart your business and grow in the future.

“During lockdown, you’re able to bring your costs down, but your revenue is much reduced,” Katrin said. “What can then happen in the unlocking phase, unfortunately, is those costs bounce back to 100%. For example, you’re paying rent again… but your revenues are still down by 40-50%, so you need to factor that into planning.”

“This crisis is unpredictable, but take control of what you want your business to be when you come out of this crisis. What do you want to be recognised for by your customers? What do you want to be recognised for by your team? Don’t just focus on the short term; think about how financing can shape your future business”, added Ollie. 

For instance, you could use capital to help you pivot to meet new customer demands, such as by incorporating e-commerce into your offering. You can use an array of cloud technology that’s available on the market to help you achieve this. You could also revamp your business model, to suit the new normal we are transitioning to. As an example,  Xero customer Stone Tyres in Merseyside has made use of its fleet of mobile tyre fitting vans enabling them to come to the customer to provide their services, and has received very positive feedback.

It’s important to consider all of the options available and not to be disheartened if you aren’t accepted for the first loan you apply for. There are more options out there and you will find one that suits your business. Now is a good time to build a relationship with an accountant if you haven’t already - they can help you thoroughly assess your options and ensure you’re making the right decisions for the future of your business.

About the Author

Ben Johnson

Ben Johnson

Ben Johnson began his career in Perth, Australia. His experience lies in creating fintech partnerships and solutions to help solve issues like late payments, making and receiving payments and accessing working capital. Ben has worked in the UK market for five years and is Financial Partnerships Manager at Xero.

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