The Coronavirus Business Interruption Loan Scheme has been providing support to business during the COVID-19 outbreak and UK lockdown with government-backed, low-interest loans. While some have reported struggles in accessing these loans, over £8.9 billion worth of funding has been given to firms via the scheme.
However, even if you have succeeded in getting a CBILS loan, it may not mean your financial problems are sorted. Depending on how much credit you manage to get and your business’s unique situation, there may be cases where you require financial support beyond the scheme.
If this is the case for you, the likelihood is that you won’t want to take out another loan, that said you can have multiple CBILS loans as long as they don’t exceed £5m in total. Doing so would increase your company’s regular outgoings (potentially creating further financial strain), negatively affect your credit score and impact your cash flow.
Fortunately, there are alternative types of finance that companies can utilise in conjunction with CBILS, allowing you to further improve your financial situation in these challenging times.
Cash flow management
In tough times, businesses often find a lack of income and requirement to meet their regular outcomes lead to reduced cash flow. While a loan can help you to address this, you may still need to put solutions in place to increase your working capital.
One way in which you can boost your business’s cash flow is through invoice finance. With invoice finance, a lender pays up to 90% of the money owed to you from your outstanding invoices. This means that you can get the funds upfront rather than having to await payment from your customers. However, your customers must be able to pay you in the time period set by your lender, as you could otherwise be left to foot the payment yourself. Invoice finance can also be done discretely, so your customers never need to know that you are using a lender – also known as confidential invoice discounting.
Another way to improve cash flow is with the sale leaseback of your plant, machinery and equipment. This is when a lender essential ‘buys’ your equipment or machinery from you and leases it back to you in exchange for regular payments. This option is particularly useful if you have significant equity tied up in your assets, which can then form collateral for the lender.
Trade and supply chain finance
If a lack of working capital is affecting your ability to fulfil orders, trade and supply chain finance may be a solution for you in line with any funds you receive from CBILS.
Trade finance can be used by businesses who utilise imports to fulfil orders. With this, a lender funds your imported supplies from overseas, provided that you have orders in place that they will fulfil. This closes the gap between the beginning of your sales cycle and the completion of the order, saving you from having to await payment before you can begin to compile goods for an order. In this sense, trade finance allows you to keep productivity up, which is particularly vital in a time when many businesses have experienced downtime.
Similarly, supply chain finance allows you to fund stock you need from suppliers, who are paid by your chosen lender. You then can extend your payment terms, with the lender giving you a longer timeframe to repay (usually 90 to 120 days). Unlike trade finance, you do not need to have existing orders in place, but the stock is used as collateral for the loan while sat in your warehouse. This means you can get the materials you need (this finance usually encompasses a broad range of different stock types) without having to pay for it in full straight away.
Both trade and supply chain finance will help to free up capital in your business and work towards increased productivity, which can be beneficial for companies who are beginning to restart operations following COVID-19’s interruption.
Credit management processes
When you have secured a loan, it is crucial to make sure that it is being put to good use; this is where credit management comes in. At a time where many businesses are facing financial hardship, as are your suppliers and customers, putting the right processes in place can keep things running smoothly and prevent further cash flow issues.
Credit management can be carried out by you, by your staff or you can get advice from an external financial advisor. Regardless of who manages your credit, there are some best practices to follow.
One such practice is making yourself aware of your regular customers’ financial situations. This is particularly significant if you fear they may be undergoing struggles in the current climate. This could be done by undertaking credit checks or simply engaging in conversation with customers. Following these, you should be confident as to whether your customers will be able to meet payments for the services you provide. Otherwise, you may face delayed or outstanding debts, which will cause trouble for your own cash flow.
Similarly, you should have processes in place for late payments. Start by giving customers a clear deadline for payment and ensure you are invoicing them as soon as possible. An automated system should deliver regular reminders to customers on unpaid invoices, and, if the situation continues to develop, know when to pick up the phone and call them. In extreme cases, you may need to consider freezing services for specific customers or consulting a legal advisor.
Having credit management processes in place can be tough, particularly when your customers may be struggling, but having them is essential to protecting your financial situation and enable you to recover.
Cutting your expenses
Rather than seeking additional finance after receiving a CBILS loan, it is worth looking at how you can trim expenses further to alleviate the strain.
Take time to look over your accounts, regular outgoings and any other costs associated with the business. While doing this, make a note of any payments that aren’t a necessity – even if it is just a temporary move. This is particularly apt if your business is facing reduced operations or output, and perhaps does not need as many supplies as usual.
Once you have identified which costs are surplus to requirement, take steps to cut them out. This could include cancelling services, putting contracts on hold or speaking to suppliers about extending payment terms.
You always have the option to reintroduce these services and costs back into your business once you are in a more stable financial state, or increased operations require it.
Seek advice
Manoeuvring the current financial landscape can be hard, particularly in a time where economic confidence is low. While having a CBILS loan can provide much-needed support, there are additional funding sources out there that can be used in combination with your loan. So, if you need extra help, it is important to utilise the channels to further improve your financial situation and post-coronavirus recovery.
If you need advice on what funding may be suitable for you alongside your CBILS loan, our team of experts can help. With knowledge across a range of finance types, we can help you to find the solution for whatever obstacle your business is facing.
Please call the team today for a free consultation on 0203 327 0567 or email [email protected].