Coronavirus: The banks were slow to get on board, but there are greater challenges ahead
When the full impact of Coronavirus began to be felt in mid-March the Chancellor announced measures to support UK business by first introducing the Coronavirus Business Interruption Loan Scheme (CBILs) and quickly following it with the Job Retention Scheme (JRS).
These were the immediate lifelines to business in the UK that had been called for, but it was vital they were more than just soundbites and delivered quickly. Clearly the intent of CBILs was to provide UK businesses with an immediate source of cash as the UK economy shuddered to a halt and bridge the gap, where relevant, to the JRS grant.
However, the initial conditions of CBILs meant access to money was slow if not non-existent. Requirements for security, 45-day turnaround timeframes and a requirement to first explore conventional lending options left borrowers dumbfounded at the difference between what was promised and reality. The Banks did not react quickly enough to this and as a result many businesses looked to alternative finance providers with higher interest rates but more immediate access to cash. The impact of these decisions will be felt over the coming months.
Read more: Banks under fire for slow start to CBILS scheme
In recent days following the Chancellors revision to the CBILS scheme last week we have finally seen banks get on board with the message of supporting UK Business and money has started to flow. Whilst there remains a process to follow, cash can be accessed in a matter of days from your existing lender subject to meeting the CBILs requirements.
With lending of amounts below £250,000 now being able to be achieved quickly and reduced security required for higher levels of borrowing, many businesses are now revisiting their banks to access the CBILs lending.
The irony is that these funds are likely to be received at the same time as the first payments under the JRS rather than bridge the gap. Consequently, the continual flow of money within the UK economy has decreased significantly in the last few weeks as businesses hold cash without this planned additional liquidity. Whilst the tax deferments have assisted the lack of liquidity has resulted in payments to landlords and other businesses in the supply chain being dramatically impacted with a knock-on effect in both the UK and the rest of the world. This is most harshly felt in those countries without any government assistance programmes.
Whilst the Banks may have been slow to get on message in supporting British Business perhaps the greater challenges lie ahead. In the near future coronavirus will pass and people will return to work and the UK economy will start to function again. However, as a result of depleting reserves to deal with the crisis or additional borrowing it is likely many businesses will face a shortfall in their working capital requirements to function effectively at pre-coronavirus levels.
Suppliers will be wary and with work forces hopefully fully intact monthly outgoings will likely exceed receipts initially. At this point the Banks will need to be both brave and proactive with their customers to assist in providing additional finance.
This may be simply in the form of working capital finance or a combination of conventional lending – loans and overdrafts – as well as specific working capital finance. Banks will need to be flexible in granting short term overdraft facilities or extending drawdown percentages on invoice discounting facilities, levers that can easily be gradually reduced over time.
As a result of coronavirus, it may well be that the business has insufficient uncharged security, but the same measurement of viability as used for the CBILs lending should be used in assessment for this new borrowing. Was the business viable prior to coronavirus and can its forecasts support the lending required? If so the banks will need to support British Business as they get back on their feet.