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Over 100 days into the Coronavirus pandemic and many businesses are still actively looking for sources of funding, but it is important that they take the time to shop around, assess their full financial needs for the next 12 months and prepare a detailed proposal which will be accepted first time and access the most suitable and affordable funding.
Over the last three months, many business owners may have invested their own money into their business or taken smaller dividends to help with cash flow. In addition to this, there may be longer-term borrowing needs which have now been identified but knowing which source of funding is best for your business can seem daunting.
A recent survey by Kreston Reeves of businesses in the South East found 41% are still actively looking for sources of funding and 76% of the same businesses have had their cashflow directly affected by COVID-19.
Steps to take to find the best source of funding are to firstly approach your existing lender, they have built a relationship with you over time and have detailed information about how your business and accounts have been managed and they are focussing on their existing customers so there are a number of options and products available including reviewing the terms of existing lending. Secondly, speak to your existing private investors regarding further investment and/or consider attracting new investors.
Other options available to a business which was both ‘viable and profitable before the pandemic’ are the various Government Coronavirus Business Interruption Loan schemes including the Bounce Back Loan Scheme (BBLS) or the Coronavirus Business Interruption Loan Scheme (CBILS).
As of 30 June, there were 967,321 approved loan facilities under the BBLS worth over £29.51 billion (first-time approval rate of 81%) and 52,275 approved loan facilities under CBILS worth a total of £11.07billion (first-time approval rate of 50%). Applications can be made for BBLS up to 4th November, and until the end of September for CBILS although the Government may extend these further.
For small and medium-sized businesses, the Business Bounce Back Loan Scheme (BBLS) is available. Loans of £2,000 up to 25% of a business’ turnover or £50,000, whichever is lower. The scheme provides the lender with a Government-backed, 100% guarantee against the outstanding facility balance (both capital and interest). The borrower always remains 100% liable for the debt.
Businesses also have access to the Coronavirus Business Interruption Loan Scheme (CBILS). Businesses with a turnover up to £45m can borrow up to £5m. CBILS is for businesses that are viable but experiencing lost or deferred revenues leading to disruptions to their cash flow. A major feature of this loan is that it is interest-free to the borrower for 12 months and it can also include a capital repayment holiday of up to 12 months. Lending covered by this scheme includes term facilities, overdrafts, invoice finance facilities and asset finance facilities.
Most lenders are looking to see at least a 12-month detailed cashflow forecast but it does help to submit a supplementary document which explains more about your business. It is important to consider not just the immediate cashflow challenge but the effect on working capital over the next 12 months, to make sure you ask for enough money.
John Walsham, Funding and Business Development Consultant at Kreston Reeves, comments: “Many businesses are reviewing all of the issues they face and the possible effect on cashflow before actively applying for first round or additional funding which is sensible and guidance can be found online. There is a lot of reporting and financial information which businesses need to prepare, including detailed cash flow forecasts which need to be clear and succinct to have the best chance of success. It is advisable to seek external advice to help get this right first time. If you do choose to explore the wider funding options, pricing is an important consideration as there are a number of lenders offering CBILS. They are individually risk-rated loans with interest rates charged typically between 2.4%-6% over base rate, but I’ve seen some offered with interest rates as high as 10% over base rate.”
If you would like to discuss eligibility for funding and finding the best deal, do speak with your usual Kreston Reeves contact, or John Walsham.
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