The old saying ‘turnover is vanity, profit is sanity, but cash is reality’ has never been more relevant than during the current crisis. For many businesses which have seen income depleted, cashflow management has become something of a necessity.
This has been exacerbated by the fact that despite the various announcements about government assistance for businesses, little of that help has actually started to flow through yet.
Although the grants for small leisure, hospitality and retail businesses are now being paid, alongside the grants for those businesses that pay little or no business rates, employers are unlikely to see any actual payment for furloughed workers until towards the end of this month, and the self-employed will have to wait until June before the promised help reaches their bank accounts.
All this means that for many, simply surviving and paying wages has become a major challenge – and finding sources of finance is a priority.
Before seeking new loans, the first thing that businesses should do is assess what expenditure they can delay in order to cover the most urgent bills.
HMRC has already announced that VAT payments which are falling due can be deferred for the time being; they are also being flexible when it comes to Time To Pay arrangements for a range of other taxes, including corporation tax, self-assessment income tax and PAYE costs.
Next step is to talk to your existing bank to see if there is flexibility when it comes to existing borrowing. Whether it’s loans, mortgages or HP arrangements, lenders are increasingly open to repayment holidays, which might give you the breathing space you need before the government help starts coming through. Also, it is often far easier to arrange a temporary increase to your existing overdraft than applying for additional financing.
Your existing bank should be the starting point when it comes to considering the Coronavirus Business Interruption Loan scheme as well. Because you have a relationship with them, the application process should be simpler and faster. However, there is nothing to stop you making parallel applications to one of the many challenger banks. Many are seeing this as a long-term opportunity to build relationships with new clients, so they may be more receptive than one of the big four.
Finally, whatever route you take, you will give yourself the best chance of success if you are well-prepared with any application. That means preparing cashflow forecasts for various scenarios (for example, different lengths of lockdown), have your historical accounts to hand, and have at least a basic business plan about how you are intending to emerge from the crisis. There may be increased flexibility from lenders, but they are still operating lending criteria.