Lenders announce relaxation to CBILS rules - but don't take this at face value!
Noel Guilford BA (Hons) FCA BFP
Helping entrepreneurial business owners to understand their business numbers so they can drive improvements in business performance.
It didn’t take long for the government’s new micro-loan scheme to get its own acronym. Following the creation of the government’s new Bounce Back Loans scheme it is now called the BBLS.
While we still await details of the scheme, further changes to the Coronavirus Business Interruption Loan Scheme (CBILS) have also been announced. The largest seven SME lenders (Barclays Bank UK, Danske Bank, HSBC, Lloyds Bank, NatWest, Santander and Virgin Money) have all stated that rather than relying on businesses providing forecasts and business plans in applications, lenders will use their own information whatever that means.
A joint statement from the seven largest SME lenders and UK Finance said: “Following the changes to the scheme announced today lenders will only ask businesses for information and data they might reasonably be able to provide at speed and we will not require the provision of forward-looking financial information or business plans from businesses applying for CBILS-backed lending, relying instead on our own information to assess credit and business viability.”
Whilst, on the face of it, this can be seen as a helpful improvement to speed up decision making it is nevertheless a worrying development which could encourage borrowing for which businesses have not fully assessed the consequences and how it will be repaid.
I would, therefore, advise caution for two reasons:
- Businesses should still assess carefully the amount of finance they may require and prepare a cash flow forecast. Whatever information a lender may have about them won’t be a substitute for a properly prepared plan. They should also understand the implications of taking on debt finance and be comfortable that this is the right solution for them at this time.
- The information lenders may have access to may be inaccurate and out-of-date or used as a ploy to reject an application when a carefully drawn up plan would show a completely different picture.
Businesses with existing finance should also consider other options provided by their lender such as capital repayment holidays, overdrafts and working capital extensions where appropriate.
Commenting on the changes Philippa Kelly, Head of the Financial Services Faculty at ICAEW, said: “We are pleased to see lenders taking the need to provide support quickly seriously, but the process must remain robust, for the benefit of businesses and the wider financial system.”
If you are at all concerned whether a CBILS loan is right for your business please take advice from your accountant or other adviser.
Stay safe.