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How can I improve liquidity before CBILS funding?


Businesses throughout the UK have spiraled into an unexpected race for survival, as required freedom of movement restrictions to contain Covid-19 infections, and to protect the NHS from over demand, has artificially suspended economic activity.

In this continuing series of articles, we outline the most frequently asked questions by our clients and offer our insights. In this article, we discuss how companies should think about internal liquidity and the possible timeline to access the UK government’s loan schemes. 

How can I improve liquidity before CBILS funding?

SMEs biggest liabilities are typically HMRC payments (i.e. VAT, NI and PAYE employee tax), salaries, suppliers, landlords, lenders and business rates. Many of these are covered through government schemes, while others can be bilaterally negotiated. More broadly, liquidity can be increased through internal and external means. Below, we consider the former. 

Internal liquidity is created through a forensic assessment of liabilities. Companies must identify where capital is being spent and what can be stopped, suspended or delayed, within existing pre-existing contractual agreements. For example, if supplier payments are contractually due within 60 or 90 days, but payments are historically settled within 30 days, breathing space already exists. Other options may include mothballing certain business lines or exploring opportunities to cancel orders or reduce stock levels to free up cash. That said, we encourage companies to think strategically their approach to suppliers and customers. Instead of simply delaying all payments protected by existing contract agreements or commercial rent due to the government eviction moratorium, where possible, consider liabilities in the context of post-lockdown visible business demand and maintaining relationships which could be important to support a quick bounce back after the lockdown. 

Understanding the post-lockdown strategic aims of your customers may inform your own decisions in respect of how many staff to furlough, through the Coronavirus Job Retention Scheme (CJRS), and more accurate orders to suppliers. Many companies are in emergency scenario mode, but liability mitigation should consider potential future revenues to support post-lockdown recovery. 

How long does it take to access CBILS? 

The simple answer is this depends on your company’s financial viability. Companies that can demonstrate viability before the Covid-19 outbreak; that the pandemic is the direct cause of cash flow disruption; and have existing relationships with accredited lenders, can expect credit approval in around a month. For companies with a history of losses, or are in the middle of a turnaround strategy, expect the credit approval process to take longer.

All sides are working with highly imperfect and incomplete information. We believe BTG Advisory is well placed to help across the financial supply chain. For banks, we can conduct independent financial due diligence on prospective loan customers and make an assessment – which as a company we will stand behind – on financial viability. Outsourcing these assessments will free-up banks already fielding substantial enquires and inform bank credit committee decisions with independent, empirical professional judgements.

For companies, management teams and shareholders, we can help provide evidence to demonstrate financial viability to accredited lenders. Our independent financial due diligence process involves, inter alia: (i) and examination of companies’ historical trading, (ii) assessment of recent strategic decisions to mitigate the impact of Covid-19, (iii) evaluation of cash flow forecasts, (iv) assessment of Covid-19 on current forecast scenarios. Independent assessment of financial viability supports banks’ credit decisions and companies’ legitimate CBILS loan requirements. In addition, we can support companies that need to increase short-term cash flows and access to liquidity before CBILS funding.

Events are fast-moving and strategic decisions should be made with appropriate professional advisers. If you would like professional advice to identify the options open to your company to raise internal liquidity, please do get in touch.  

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