Could you (and should you) get a business interruption loan? 

Tanwen Dawn-Hiscox

Tanwen Dawn-Hiscox

Deputy Editor

Since the beginning of the coronavirus outbreak in the UK, British companies have borrowed £38.4bn under the government’s three emergency credit programmes.

One such programme is the Coronavirus Business Interruption Loan Scheme.

Watch the whole panel debate, where we spoke to chartered accountant Yasser Khan, restaurateur Graeme Fulton, and chef patrons Nick Gayler, Kate Ahrens, Paul Foster and Simon Hulstone

Firstly, what is a business interruption loan? 

As explained by accountant and partner at GrowFactor, Yasser Khan, the business interruption loan was designed to help small and medium businesses who have been negatively affected by Covid-19.

With applications capped at £5 million, it is 80% backed by government, who will cover fees and interest for 12 months and doesn't entail any personal guarantees. In the words of chef owner of Salt, Paul Foster, "if your business fails, you don't lose your house."

The 10 page application is relatively straightforward, and, as of today, there are more than 50 lenders under the scheme. 

You should seek a business interruption loan if either of the following apply to you: 

1) You'd like to plug any cashflow holes - like supplier bills, electricity bills etc - resulting from your restaurant being closed during lockdown

The advice given to Nick Gayler, which he thought wise to pass on, was the following: "Take it. If you need it, use it, if you don't, don't." 

2) You want to invest in and grow your business

How should you go about applying for a business interruption loan?

1) Build a robust plan

2) See what you can do to lean out your business for the next few months

3) Ask yourself - how long can you get by without a loan, and consequently, how much do you need? 

Yasser said: "If we can predict when businesss can get back to some kind of normality, how long do you think you can last without a loan, and how much do you think you'll need. 

However, be aware, as Paul Foster explained, that after 12 months, repayments will rise quite highly.

He said: "Hopefully we'll be giving some back ahead of then, but before then, it's peace of mind because I don't know where we're at." 

What if your application is turned down?

1) Try, try again

Yasser stressed that even though banks have bigger guarantees - as the loans are 80% backed by government - they are more reluctant to give them out as there are no personal liabilities on the borrower's part and because of the sheer volume of applications being processed.

If you applied for a loan but were turned down, you may be able to apply again.

You may, however, want to apply with a different lender. Follow this link for the full list of government-accredited lenders and partners.

2) Seek help from a financial advisor

As tragic as it may be, applications by single businesses through organic channels are considerably less likely to be approved. Applying with the help of a broker puts your application in different sets of hands, and simply increases the chances of it being seen as credible. 

Yasser explained: "The reason why people are being rejected is because the applications aren't being put in front of the right people who can make those decisions. 

"Unfortunately, what we've seen is that the application and the people you speak to matters a great deal in terms of the route which the application takes. 

"So if it goes via a funding intermediary or a broker, the bank managers who have a relationship with those brokers are much more likely to look at that application rather than it just coming from the front end. 

"We've seen that where - banks that have denied CBILS to their to some of our clients, we've taken the application, tweaked it a little and then taken it to the right people, and managed to turn the decision around. 

"It is a case of getting it through the right channels, it is a case of putting forward the best case in terms of the business plan and the financials and making sure that all of the financials are up to date - that the forecast shows the correct picture that it needs to.

What if the Coronavirus Business Interruption Loan isn't for you?

It isn't the end of the road. Other government credit schemes include: 

1) Bounce back loans

The chosen route for Nick Galer - who was denied his first application for a BIL - Graeme Fulton and Simon Hulstone, bounce back loans are fit for purpose. 

100% government-backed, applications are usually processed on very short notice, and allow one to borrow between £2,000 and £50,000. 

No interest will be charged and no repayments will need to be made in the first 12 months, and, after 12 months, all banks will charge a fixed 2.5% annual interest. At least eight banks are offering them - see a full bank-by-bank list

Simon Hulstone explained that although he had originally envisaged taking out a CBIL, hearing about other people's difficulties in applying, and of the many rejections, he decidedto seek another option. They cashed in on a business grant, and then the bounce back loans were introduced. 

"I thought: 'Let's go for it and ask for £50,000, and if we need it we need it.' It's sitting in a bank account, but if it was withdrawn, we'd have missed out on that opportunity."

Graeme Fulton said that since the financial crash and the changes to banks' lending policies, "we've never ticked the boxes for loan from a mainstream bank.

"We needed the BBL more for the situation that we've put ourselves in.

"We've borrowed money from private investors and we have had some from mainstream banks as well but never at the most competitive rates, because they don't want to lend to our sector - especially not to us and the figures we show as a business.

He said the business needed two bounce back loans just to clear our supplier debt, as it prioritised keeping employee jobs safe. 

And, because they're 5 weeks ahead on their furlough payments, he said: "When we reopen we should be in a pretty good place to start back again.

2) 'The Future Fund' 

The Future Fund provides government loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equal match funding from private investors.

These convertible loans may be an option for businesses that rely on equity investment and are unable to access other government business support programmes because they are either pre-revenue or pre-profit.

The scheme is open for applications until the end of September 2020.

Click here for more information and eligibility terms.

What if none of the government's current credit schemes are for you?

Sit tight and wait for government guidelines, a potential rent moratorium extension and any other measures which might see you through the coming months. Consider whether opening at low capacity is a higher loss than not opening at all. 

Kate Ahrens, who chose not to apply for any loans, is hopeful that some certainty will be provided in the coming weeks. 

"Our biggest debts at the moment are related to ongoing costs, the biggest one being rent," she said, adding that these would "ordinarily be paid with the turnover of our pub." 

"We took the decision that if we were to take out a big loan to cover those costs, fundamentally that's not cost-effective because I've got no guarantee of being able to make the repayments on those loans.

"We felt that if we couldn't even persuade ourselves that we could repay it, there was no way we'd ever persuade a bank.

"Therefore getting ourselves into debt to pay ongoing costs was essentially just not a sustainable business model.

If you're stuck in a difficult financial situation and need advice, please contact us on our social channels or by private message and we'll do our best to point you in the right direction.

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Tanwen Dawn-Hiscox

Tanwen Dawn-Hiscox

Deputy Editor 19th June 2020

Could you (and should you) get a business interruption loan?