How are banks supporting SMEs through the COVID-19 crisis?
Barclays have been one of the first funders to make use of the Coronavirus Business Interruption Loan Scheme (CBILS) and hosted a live webinar on April 1st to discuss how this is being used across their Business Bank.
They were quick to point out that they see two channels being available to SMEs at present, with help available via:
- Direct from government backed arrangements; and
- Direct from banks and funders.
Guidance was provided in which they stressed the need for business owners to understand the Government schemes available e.g. sick pay support, Job Retention Scheme, grants, VAT deferral, and how businesses must explore all schemes and apply for support as soon as possible.
Barclays’ current offering
Day to day lending operations are still running and all financial products are still available to Barclays clients, albeit certain sectors and businesses are being prioritised (e.g. those linked to NHS).
Coronavirus Business Interruption Loan Scheme (CBILS)
Their thoughts on the much publicised CBILS are summarised as follows:
- It is important to acknowledge the rules and general eligibility criteria including revenue threshold of up to £45m, and maximum lending requests of £5m. This is there to provide additional lending, not for refinancing or for growth capital, and to support trading through current challenges.
- Affordability is a critical measure which will be appraised on a ‘look back’ basis (i.e. using 2019 financial results). A 12-month interest holiday is designed to give applicants a period to get back to where they were trading prior to COVID19 and lockdown.
- Applicants will be asked about what planning has taken place and what action has been taken, again with reference back to underlying business viability. This is only used to support lending outside of normal lending appetite, e.g. if a commercial mortgage could be appraised on a ‘normal basis’ then it will be done ahead of assessment of any CBILS request.
- Existing lending should be appraised to ascertain whether this could be restructured through measures such as payment holidays or facility extensions. Given the financial appraisal which will take place the value of a robust financial presentation including a robust financial model cannot be underestimated.
- Interest rates for any CBILS lending will be generally around 2-5% with the first 12months paid by the government (paid and not deferred), with capital repayment at the discretion of the bank and 6-12month holidays considered by Barclays. Affordability testing is again the key hurdle to surpass.
The information needed to appraise any requests will vary by applicant, with inexperienced applicants well placed to work with advisers to understand the form and layout of any request and to discuss expectations of all parties. Eligibility checkers and support telephone lines are available but are seeing significant volumes of calls so applicants may find value in speaking to advisers who have experience with this funding route.
Cash advance timing will vary
- Under £250k is simpler as security requirements are reduced (and no PGs) and monies should be provided in days or a few weeks.
- Over £250k but without security available and Barclays have a track record so can be appraised quicker – several weeks.
- Over £250k, security is available and no borrowings in place with Barclays. Expected to be weeks due to security assessment and the legal process.
Given the scale of issues being faced by SMEs it is pleasing to see a major bank take action to speak to a large audience and confirm their stance on CBILS. The MHA Tait Walker team have been very active in supporting clients with applications through these channels and can assist businesses looking at which government schemes are available to them and how best to utilise these.
This blog was written by Lee Humble, Corporate Finance Associate Partner at MHA Tait Walker.