From XU Magazine, 
Issue 24

Managing cash flow with finance: Helping clients survive and thrive

Maintaining healthy cash flow is key for businesses at any stage, but it’s especially so amid the COVID-19 pandemic. With the government’s coronavirus business support schemes coming to an end, Nikki Gandhi, Partnerships Manager at MarketFinance, explains how to choose from the financial support still available and how accountants, as the trusted advisor, can best support businesses to not only survive COVID-19, but thrive.
This article originated from the Xero blog. The XU Hub is an independent news and media platform - for Xero users, by Xero users. Any content, imagery and associated links below are directly from Xero and not produced by the XU Hub.
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The impact of COVID-19 on the UK economy became clear this August as the ONS confirmed a 20.4% drop in GDP for the three months to June 2020. Government lockdown measures, which took effect from 23 March, forced the closure of businesses across the UK. For some it was temporary but for many the impact was permanent, resulting in the biggest drop in GDP between quarters since records began. Britain has now officially entered its first recession since the 2008 global financial crisis.

Government support schemes nearing closure

While the recession will knock business and consumer confidence, the closure of the UK government’s coronavirus support schemes for businesses in the coming months will add to the pressure. The Coronavirus Business Interruption Loan Scheme (CBILS) as well as the Bounce Back Loan Scheme (BBLS), designed to support businesses adversely affected by the pandemic, have done well to get the economy back on its feet in the second quarter.

CBILS applications are due to close at the end of September. Lenders have until 30 November to approve this government-backed funding. The BBLS, for loans less than £50,000, will close in early November. As the furlough scheme ends, and with uncertainty around the direction the economy will take, there have been calls to extend both CBILS and BBLS applications into 2021. This has the potential to save many businesses that haven’t yet made it over the hump.

Understanding the schemes: setting clients up for success

With these government schemes soon coming to an end, now’s as good a time as any to consider how you can help your clients secure funding.

The Bounce Back Loan Scheme (BBLS)

If your clients need up to £50,000 of working capital to get through this rocky period, for example, to pay staff salaries or simply maintain cash flow, a bounce back loan is a compelling option.

The BBLS allows a lender to provide a loan between £2,000 and £50,000, up to 25% of a business’ turnover. The government will cover the first 12 months of interest payments, while for the remaining five years the rate is set at 2.5% per annum.

Around 1.16 million businesses that have lost revenue or seen cash flow disrupted due to COVID-19 have already accessed finance through the scheme, totalling £35bn so far. BBLS loans are available until 4 November through a range of accredited lenders or partners.

The Coronavirus Business Interruption Loan Scheme (CBILS)

The CBILS was launched to support small and medium-sized businesses losing revenue or experiencing cash flow disruption due to the pandemic. Businesses with an annual turnover of up to £45 million can apply for between £50,001 and £5 million in government-backed loans, asset finance, overdrafts and invoice finance before 30 September.

At MarketFinance, we make it quick and easy for businesses to get funding through invoice finance and business loans. We’re now also accredited to provide revolving credit facilities and loans through the CBILS.

According to CBILS figures published by UK Finance on 11 August, lenders have now approved £13.4 billion worth of funding to 59,520 companies impacted by COVID-19. So with just one month left to apply, what do businesses need to know to secure finance through CBILS?

Choosing a CBILS funding option

At MarketFinance, we offer two options through the CBILS: loans and revolving credit facilities (which work in a similar way to invoice finance). While having options is great, deciding which to choose can feel overwhelming. These solutions could both potentially help your clients, but depending on client cash flow needs and business models, there may be one option that’s more useful.  

CBILS loans

A CBILS loan can be helpful for any business that needs a lump sum to kickstart their way back to business as usual. For those that don’t rely on invoices being paid to keep cash flow healthy, an instant cash injection from a CBILS loan could keep the books balanced and help a business get back on track faster. For example, if a business needs to make practical changes to comply with social distancing guidelines, a CBILS loan is a quick and easy way to access the funds needed to cover those upfront costs. A CBILS loan can also be used to refinance a loan taken out through the BBLS.

Businesses will still need to pay the loan back in full. However, the government will pay the first 12 months of interest leaving the business to pay regular instalments on the principal. After the first year, a business’ repayments will be made up of both the interest and the principal.

We offer CBILS loans from £50,001 to £150,000 for 2 to 3 years. We also offer businesses the flexibility to choose our no-payment option. In other words, businesses can opt not to make any repayments for the first 12 months so they only start paying off their loan in year two.

CBILS revolving credit facilities

For most growing businesses, invoices issued for completed work are the biggest asset. But they might not be paid for 30, 60 or even 90 days, with COVID-19 disruptions pushing out normal payment terms even further in some cases. That leaves a lot of cash tied up in outstanding invoices.

MarketFinance offers a CBILS revolving credit facility which enables businesses to unlock that cash. Think of your outstanding invoices as a tank full of working capital. Having a CBILS facility lets you open the tap whenever you like to instantly let that cash flow. When invoices are paid, the tank gets topped up again so you can continue the cycle.

This option is great for businesses looking to trade their way back to the new normal. Because the facility is backed by invoices, business owners will need to make sure they have outstanding invoices available. It’s a good fit for those that want a flexible way to bridge gaps in cash flow, accessing funds as and when they need to. As with a CBILS loan, fees and interest are covered by the government for the first 12 months.

CBILS funding in action

Chris Sharp, Chairman of Video Partners Limited, said the business didn’t meet the lending criteria of his bank, so was referred to MarketFinance where he was approved for a £350,000 revolving credit facility.

“We are a free entertainment service, where our viewers watch movies and TV shows online for free,” Chris says. “Our revenue is driven by advertising and so we saw first hand how the recent crisis affected advertising spend in our sector.”

MarketFinance’s revolving credit facility gives Chris access to the cash he needs to keep the business running while Video Partners awaits payment from its advertisers.

Their accountant, Kasa Business Services, played a hands-on role in the CBILS application process. “They were key in helping me prepare documentation for MarketFinance: filing accounts, keeping management accounts up to date and understanding the current government regulations on VAT,” Chris explains.

“It’s a tough market, but if you qualify for a CBILS loan and believe that your business can repay the loan, the finance gives some security in these unstable times.”

Beyond government support

Whether taking out a government-backed loan or looking for alternative financing, cash flow management and forecasting is essential for helping your client’s business to stand the test of time.

Online accounting software is almost a given now for businesses and advisors who care about staying on top of their finances. Software like Xero includes short term cash flow projections that can provide business owners with a view of their cash position for the next three months.

Meanwhile, more complex cash flow forecasting apps like Float, Fluidly and Futrli can help you to prepare for various eventualities, and much further into the future. These apps integrate with your accounting software to predict future cash flow, helping you and your clients make the right decisions well ahead of time.

But bear in mind, the information you get out is only as good as the information that goes in. Making sure your clients have real-time financial data flowing in, and reconciling regularly, will ensure the numbers you’re looking at are accurate.

Knowing whether your client can afford to borrow £60,000 or £600,000 could be the difference between that business surviving the coming months, or thriving in years to come.

Why leave it there?

To learn more about how MarketFinance can support your clients right now

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