We are delighted to announce that we are opening up Coronavirus Business Interruption Loan Scheme (CBILS) loans to new customers.
Funding the transition from lockdown
As large parts of the UK economy emerge from a pandemic-induced hibernation to take stock of the new post-lockdown reality, businesses’ needs for additional funding will be many and varied.
The Government has had to find a delicate balance between minimising the spread of Covid-19 at the same time as minimising the economic impact. A phased approach to the re-opening of different parts of the economy culminated in the return of haircuts, pubs and restaurants on 4 July in England, although some sectors remained closed.
However, being open for business and returning to pre-covid levels of business are two very different things and until an effective vaccine is widely available, it’s clear that many businesses will need to adjust to an environment where coronavirus persists, at hopefully low levels, with occasional localised flare-ups. There is also the risk of a more widespread second surge as we approach the annual cycle of winter flu and peak demand on NHS services.
In such an environment the need for lenders to show understanding and flexibility is paramount. The Government also has a key role to play in creating an environment that gives consumers the confidence to spend and businesses the confidence to retain jobs and invest for the future.
To achieve these twin aims the Chancellor made a clear signal in his summer economic statement on 8 July of a change in strategy from providing ongoing support to businesses through schemes such as the Job Retention Scheme, to stimulating more economic activity. Temporary suspension of stamp duty on the first £500,000 of property purchases is designed to provide a boost across many areas of the economy whilst cuts in VAT to 5% are more specifically targeted at the hospitality and tourism sectors.
Part of the challenge is to encourage consumers hitherto cautious about catching the virus to get comfortable with the idea of “going out” again; presumably one of the main objectives behind the “eat out to help out” discount voucher scheme. If people enjoy a good “trial run” on a quiet Wednesday afternoon in August it’s hoped they’ll be happy to repeat the experience – paying full price of course – from September as outdoor hospitality options start to reduce.
Consumer confidence also relies on people having certainty about their incomes, so it remains to be seen how effective the Job Retention Bonus of rewarding employers to take back furloughed employees will be. The Chancellor’s focus on schemes to support young people such as the Kickstart scheme, new traineeships, apprenticeships and additional career advisers suggests that the Government is expecting many younger people, particularly those employed in the hospitality sector, not to have long-term jobs to return to. There’s also a new batch of college and university leavers that will be looking to enter the job market.
Transitioning out of lockdown
Looking forward, the fact that many more businesses have now started trading again means that we have entered a different type of uncertainty as business owners try to reassess the viability of their businesses and plan for the future. Some may see demand for their products and services reduced, if not permanently, for a significant period. On the other hand, some businesses will see opportunities to expand as they benefit directly or indirectly from the Government’s stimulus packages covering investment in new physical and digital infrastructure, training, improving energy efficiency and kickstarting the housing market.
From a funding perspective ThinCats has been providing CBILS loans to existing borrowers since May and recently extended the scheme to new borrowers.
From our experience we see the most common funding needs are from businesses impacted by:
- Closure of operations due to lockdown restrictions
- Order shift or supply chain issues where orders have been postponed or there have been problems sourcing input materials
- General fall in demand for products or services due to reduced economic activity
- Cashflow issues cause by delayed payments by debtors
- Businesses whose underlying model has been impacted and are looking to diversify revenue streams, e.g. investment in online distribution or by acquiring new businesses
Whilst many of the initial conversations with existing borrowers were about supporting them to ensure short-term survival, we are seeing increasing interest from businesses who have weathered the pandemic in better shape than expected and are now seeking funding for growth purposes rather than survival.
This includes funding for acquisitions where businesses can take advantage of the Government’s payment of the first 12 months interest to enable the target acquisition to bed down without incurring any debt servicing costs. The main exclusion for acquisitions within CBILS is funding for MBOs and MBIs. Other than these, we can fund pretty much everything else that we normally would, and the Government will also cover the lender’s fee and legal costs for all CBILS loans.
We would expect a continuation of the trend for funding needs to switch from dealing with the initial impact of Covid-19 to more “normal” needs, despite having to navigate the half-way house purgatory of tiptoeing around coronavirus knowing it could flare up again at any moment. The problem is no-one knows how long this particular purgatory will last.
Another big unknown, that affects consumers, businesses and is also clearly worrying the Government, is the proportion of furloughed employees that return to full time employment once the Job Retention Scheme unwinds. If this is high and we can avoid a second surge in Covid-19 over the winter, then businesses are more likely to seek funding to expand. If low, and we have a bad winter requiring a return to significant lockdowns, then funding needs will likely return to being more about survival.
The next few months will be critical. The Government has signalled a shift from business support mode to economic stimulus mode with a clear economic and political imperative to minimise unemployment levels. However, because the potential for economic growth is so contingent on containing the virus, the Government cannot afford to take its eye off the health issues either.
This includes initiatives such as effective Track and Trace which will give consumers and businesses confidence that when pockets of the virus do re-emerge, they can be dealt with quickly within the affected locality. More widespread and frequent testing of all workers who regularly come into contact with members of the public, not just healthcare workers, would also help flush out those asymptomatic carriers who unknowingly continue to spread the virus.
Just as Covid-19 still lingers, so does the process of agreeing a future trading relationship with the EU. As we get closer to the end of year “deal or no deal” target date, businesses are having to dust off their Brexit plans and revisit how they may be impacted. Any early clarity on a new trading agreement would be highly welcome, although from previous experience it seems likely that negotiations will continue right up until the deadline.
Given this level of uncertainty, we believe that the Government needs to continue to play its part in preventing a repeat of the liquidity problems of the 2008 financial crisis when businesses were starved of vital funding. So far during the Covid-19 pandemic the government-backed loan schemes such as CBILS have been successful in stimulating lending to businesses and we would echo those that are encouraging the Government to make an early announcement on extending CBILS beyond the current September deadline.