Grabbing a lifebelt when you are drowning makes sense, but when that so-called lifebelt is a business loan to survive the Coronavirus pandemic, you need to read the small print before signing on the dotted line.
The various government support schemes for SMEs may have made big headlines, not least their claims about making loans available for SMEs, but the devil is likely to be in the details.
No matter how panic-stricken you might be it is worth making sure you know exactly what you are getting into when applying for a loan under the Coronavirus Business Interruption Loan Scheme (CBILS). The difficulty many businesses are having getting through to someone at the bank is an indication of the problem, albeit it is hardly surprising given that banks have run down their SME support teams over the past twelve years.
Before even contacting a bank the first step is to take a deep breath and ensure you know exactly who to approach and what you can apply for. There are ample details about the process on the British Business Bank website here. However, the reality is that banks are likely to prioritise their own customers and among them, their long term ones.
The next step is to prepare a forecast showing how much is needed, what it will be used for and how a loan will be repaid.
Most banks have now undertaken to not pass on their usual loan application fees to customers because the Government has promised to cover the first 12 months of these and the interest payments.
However, you should be mindful of what happens after that in terms of your liabilities. According to the BBB website: “The lender has the authority to decide whether to offer you finance. If it can do so on normal commercial terms without having to make use of the scheme, it will”. This means you may be offered a loan but not under CBILS.
The Big Four banks have agreed that they will not take a personal guarantee (PG) from directors as security for lending below £250,000. However, this message hasn’t trickled down the chain in all cases such that managers are still demanding them. The other issue is that non CBILS loans may be offered in which cases the bank can request PGs and in some instances may want a charge over your home.
Despite there being 40 lenders listed as offering loans under CBILS, in practice most of them are small regional lenders who will not apply to you although they are worth checking out to see if you meet their criteria.
For years I have cautioned those seeking business finance and have advised directors to be extra careful about guarantees so make sure to read and understand what you are letting yourself in for. Indeed, I would also advocate involving your spouse in the decision if there is the slightest prospect of you losing your home. These loans are often sold by ‘nice’ banks to ‘nasty’ ones.
Surviving this dreadful situation is fraught with complexity. Decisions about staff with scope for furloughing them is one area that is complicated since contracts of employment must be honoured – there is a link for some good advice on all this from Acas.
Decisions about delaying payments to suppliers and other creditors is another huge issue, while it may be expedient, not paying liabilities as and when they fall due means that a company is insolvent.
It may be tedious, but you need to consider the possible consequences of decisions taken in the heat of the moment so you need to approach problems in a calm and rational manner and ideally you should discuss them with turnaround and insolvency professionals who have considerable experience dealing with such crisis situations.
Whatever you do, don’t just focus on the immediate benefits of decisions but consider the second and third order consequences of decisions before acting on them, despite this caution don’t delay action, most of it is common sense.
Check out https://www.onlineturnaroundguru.com/ for more tips on survival