Summing up the market from our various conversations with Banks, Finance Houses and Accountants
Latest Coronavirus Government Lending Figures
|Scheme||Value of facilities approved||# of facilities approved||Total number of applications|
|Bounce Back Loan Scheme (BBLS)||£40.20bn||1,336,320||1,660,845|
|Coronavirus Business Interruption Loan Scheme (CBILS)||£17.16bn||73,094||159,277|
|Coronavirus Large Business Interruption Loan Scheme (CLBILS)||£4.57bn||623||1034|
*As per the latest official figures reported to the Treasury at close of play on 18th October
According to The National Audit Office (NAO), up to an eye watering 60% of emergency Covid loans made under the bounce back loan scheme may never be repaid. That equates to a massive £26 billion tax payers could lose as a result of organised crime, fraud or default. Given the speed and haste with which the measures were put together, its unsurprising the scheme carried lighter and less stringent checks for applicants given it was targeted at smaller businesses unable to qualify for alternative funding support. With demand far greater than anticipated, the total value of these loans is now expected to be in the region of £38-£48bn, with initial predictions being £18bn-£26bn. The British Business Bank, who supervise the scheme, did initially raise concerns over it’s security checking procedures in May and at the time of writing, there have been 1.55 million applications and 1.26 million approvals representing an approval rate of 81%. There is of course some empathy for the government’s plight here; they had to get money to small businesses quickly as the financial pressures increased. Has solving one problem however created an even bigger one in the long term? Only time will tell.
In other news this month, there have been wide-spread reports of many banks not accepting new applications for business bank accounts. We’ve yet to hear this from any of the clients we work with, but it’s a story that seems to be gathering pace. It is seemingly due to increased demand for the government support loans such as CBILs and the Bounce Back Scheme, with banks prioritising their existing customers pressing requirements. One report stated that HSBC had closed applications for new business bank accounts at the end of September and as of last week (October 9th) Metrobank appeared to have followed suit with a temporary pause on new accounts in place. Lloyds had stopped accepting new account applications at the beginning of the pandemic, with Santander, RBS/Natwest and TSB also doing the same, all be it at differing stages. Barclays however are accepting new business customers but understandably with few other options demand is extremely high and waiting times are lengthy. Does this open the door for digital banking platforms to increase their market share given the high street banks stance on new business customers? Starling Bank, Monzo, Tide and Revolut are just some of the digital platforms still accepting new business customers so there are options available.
Clear and present danger – how to protect your business cashflow
Business and risk go together like snakes and ladders. So it makes sense, even when hoping for the best, to plan for the worst – smart entrepreneurs take steps to protect themselves from the unexpected. Different stages of a business are more risky than others. Four out of five fail within the first five years, a statistic that has been pretty consistent for decades. But even well established companies can be caught unawares – just look at the way the 2008 credit crunch took the banks by surprise and worse, Covid 19 has created circumstances none of us could have ever foreseen. So, what can the smart business do to protect itself? The risks are many, but most experts believe the number 1 reason for business failure is cashflow – or lack of it. Best advice is to be eternally vigilant as far as this aspect of your business is concerned. But here are some tips:
• Understand your business model – is it cash positive or cash negative? In other words, will you get paid by your customers before you have to pay your suppliers, or after? If it’s the latter, how will you find the cash to bridge the gap?
• Don’t keep all your eggs in one basket. If you have one big client and there’s a problem with payment you are in serious trouble. Try to spread the risk by having lots of clients.
• If you are heavily reliant on one or two clients it might be worth investing in bad debt protection
• Avoid poor credit management. Keep on top of your sales ledger and have a good system for managing your debtors – and if people are slow to pay, be quick to chase them.
• Following on from the previous point, it might make sense you outsource your credit management to professionals who specialise in this aspect of business. It could prove a lot easier, more efficient and less costly!
• Anticipate growth. Perhaps difficult in the current climate but if you land a new order or contract that’s especially big, will this overstretch you?
• As 2020 has shown, expect the unexpected. Have a cashflow contingency plan just in case. That might be a reserve of working capital or a provider of finance you can go to if the need arises.
As always, good luck with everything, stay safe and if we can help in any way we’re happy to do so.
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