A recent survey of small businesses has revealed that only a quarter of them are confident of their survival into 2021, with many worried about cash flow. Those businesses that took out Bounce Back Loans (BBLs) have already used up most of this funding.
Some two-thirds of businesses are waiting longer to be paid, with a significant number having had their customer payment terms renegotiated to three months or more. As they wait longer for cash to come in, these businesses in turn are withholding payments to suppliers.
If cash flow is an issue, businesses need to view sales and contracts in a completely different light. Payment terms are likely to be more important than short-term profitability.
The latest high-profile corporate collapse will see creditors of the Arcadia Group badly hit. With such giants of the high street unable to survive, it is essential to check a customer’s financial health before going ahead with a large sale or contract.
Coronavirus Business Interruption Loan Scheme (CBILS)
The CBILS is going to be the key to winter survival for many cash-strapped businesses. It is not possible to benefit from both this scheme and a BBL, but a BBL can normally be refinanced into a CBILS. The CBILS borrowing limit is £5 million, so considerably more than the BBL maximum of £50,000. With four times the number of lenders in the CBILS, there is much more choice. However, there are some downsides:
• The government only guarantees 80% of the loan, rather than 100%.
• Interest rates are set by the lender, rather than a set rate of 2.5%.
• The application process can be more onerous, rather than just making a self-declaration.
• Repayment terms are stricter, with, for example, no automatic repayment holiday.
The CBILS runs until 31 January 2021, although, with lenders reporting high levels of demand, don’t wait to apply.
Details of how to apply for a CBILS can be found on the British Business Bank’s website.