Understanding cashflow is vital

Economic depressions are synonymous with lenders tightening their belts but what is unusual about our current predicament is the surge in loans provided to businesses.

This is, of course, linked to the plethora of government guaranteed loans available now.

Figures provided by the British Business Bank indicate that, as of late July, an unprecedented £49bn has been injected via these schemes in just five months.

My advice to all businesses, particularly those who have borrowed, is to thoroughly understand your cash flow. It’s nothing you won’t have heard before, but it’s important now more than ever.

Both the Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) come with periods of payment holidays and subsidisation of fees and interest.

While these terms are greatly appealing now, the loans must be repaid eventually, and the risk is that repayments commence unexpectedly and are not budgeted for. This will only be exacerbated by the withdrawal of other forms of emergency government support later this year.

The loans must be repaid eventually, and the risk is that repayments are not budgeted for

Looking ahead at the lending landscape, I would expect most lenders to pull back when the government backed loan schemes halt at the end of September. Businesses seeking finance after this deadline should expect a more rigorous application process.

Be prepared to talk about the impact coronavirus had on your business, the proactive steps you took to manage the situation and, if you received a BBLS/CBILS loan, what it was used for.

Present a business plan and forecasts which contain reasonable assumptions and models including a contingency plan for a second wave.

As lenders, I hope that we can take forward some of the technology driven positives, which have resulted in streamlined processes and quicker decisions, to permanently make getting funding simpler.

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