Funding insights: What it means to be classed a ‘viable’ business

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In this new regular column, our resident expert Lending Partnerships Manager Mike Stanley will be chatting all things funding, from commenting on industry news to providing practical tips to help you get cash in the bank.

In this week’s column, Mike looks at what the government initiatives BBLS and CBILS mean for the funding landscape right now? Are businesses in a good position to get funded? And what are your options beyond the schemes if you’re not deemed to be sufficiently ‘viable’ right now…

“It’s now been nearly two weeks since the new Bounce Back Loan Scheme went live (BBLS). And it seems to be so far so good, with much needed funds reaching many small businesses across the country.

“It was reported that over £2 billion was approved on the first day of launch with over 69,000 businesses getting the green light. To put that into context it took the Coronavirus Business interruption loan scheme (CBILS) four weeks to get to £2 billion.

What is the main difference between BBLS and CBILS?

“BBLS – Loans start from £2,000 with the maximum borrow being £50,000. These loans are 100% guaranteed by the government. There is no interest or payments to be made in the first 12 months. There are also no fees as well.

“CBILS – Loans start from £51,000 up to £5m. For loans up to £250,000 you will not be required to provide a PG. For loans above £250,000 a PG may be required. For those up to £250,000 the government will cover 80% of the loan amount.

“To date, there are now over 50 lenders offering CBILS facilities and 13 banks offering BBLS. While it is great to see so many more businesses being funded to help during these challenging times, these current initiatives are only able to lend money to “viable businesses”. And what makes a viable business is a bit unclear, as lenders are so far not being particularly transparent about this.

Schemes lending to ‘viable businesses’

“From conversations that I have had with lenders and alternative lenders, it seems to be that businesses need to show good affordability, typically through profit in your last set of accounts.

“For BBLS you need to show you were a viable business as of December 2019. Whereas currently on CBILS, you need to show you are viable today and going forward which can be challenging for a lot of businesses right now. We have also seen customers declined due to unsatisfactory searches where a director was associated with a previous liquidated business and an unsatisfactory credit search.

“So how do you know if you are viable? The truth is it’s hard to say what viable is as it’s open to interpretation. But, from my experience, it would be businesses that are showing good profits, with low debts. Meaning the cost of your debt is not eating into your profit. You also need a good credit background. For example, directors have not been involved or associated with liquidated or possibly dissolved businesses. Also business owners with missed payments or defaults may be deemed unviable.

“Now I want to stress that what I say is not fact but just an opinion based on my experience across a wide range of funders. Every lender will have different policies and each financial product will have its own underwriting. So it’s not a one size fits all. For instance, a business loan versus refinancing assets will be viewed differently, as the assets within the business can be used as security by the lender. This gives the lender more flexibility with its customers’ scenarios.

“So what should you do now if you have applied for BBLS or CBILS and have been deemed not to be viable?

“Well there are other options. After the crash of 2008 we saw a number of what we call alternative lenders start to pop up and look to support business owners. Over the last few years that number has grown to over 300 alternative lenders.

What are alternative lenders and how are they different?

“Alternative lenders are deemed as such because not only do they have alternative views but can also offer alternative options. Over the last 12 years since the crash the high street banks have traditionally only looked to fund viable businesses or only fund larger transactions.

“In contrast, the alternative market has supported businesses looking to borrow as little as £1,000 roughly up to £500,000 with some happily funding into the millions. This is an area where the banks have, in recent years, shied away from.

So what can the alternative market offer you?

“The alternative market has many different facilities and many different lenders for each facility to offer support to different business types. Some will focus on certain sectors like manufacturing and/or construction while others will work with different specific verticals. This means that within the 300+ alternative lenders there should be something to support you and your circumstances.

“Whether it’s a straightforward business loan you want to inject some needed capital into your bank, a flexible facility or something unique to suit your business there is a good chance there is an option for you.

“During these hard times and different sources of information, I hope I have ironed out what options there are currently available. From government funding to alternative finance, there is something to help you now and into the future. Look at your position and decide what the best option is for you.”

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