Colin Burns is a Director in our debt advisory team and a CBILS expert. Many business owners are facing the anxiety of having their CBILS application rejected by their bank. In this article Colin offers his expertise as to reasons behind the banks’ rejections.
"There are only two reasons why your CBILS application has been turned down – eligibility or viability."
In common with many other businesses, you may have already been turned down for a CBILS loan. Whilst this is hugely frustrating, there may be a number of reasons for this, so it is worthwhile going over the main issues we see from the front line so you are better prepared if you are looking to make an application to another lender or even appeal a decline.
It is worth remembering that most lenders remain inundated with CBILS applications. While they are getting through the backlog, this is taking much longer than expected as applications are often light on detail making it hard for bank staff to quickly assess the case. This is a principle reason for delay, although not always the reason for a decline.
There are only two reasons why your CBILS application has been turned down – eligibility or viability – I explain both below.
The eligibility rules are set by the Government and administered by the British Business Bank (‘BBB’). They are very ‘broad brush’ and without room for compromise.
If your business is not eligible, you won’t be able to access CBILS. If a lender were to provide a loan to an ineligible business, they would find their Government guarantee invalid should they come to claim on it. As such, lenders aren’t minded to take any risks around eligibility.
Some eligibility requirements can get quite technical, such as the “business in difficulty” criteria which has caught out several high growth businesses with accumulated losses.
However, part of the eligibility criteria is a requirement that the lender considers the proposal ‘viable’. This is where most applications fall short and is a decision firmly left for the lender to adjudicate on.
As I’ve previously mentioned, this is for the lender to gauge. There are broad ‘guidelines’ from the BBB and this revolves around the assumption that if a business was good in 2019 then, post COVID-19, the business should also be good in 2021 and the assessment of viability should therefore be based on prior year financials. But here lies a key problem. Lenders are approaching this in different ways. Some may ask for your last filed statutory accounts, others may accept management information to demonstrate profitability, either way if these statements do not demonstrate an ability to comfortably meet the loan costs then the application will be declined.
It is crucially important to make sure your loan application is also sized properly in the first instance, with affordability based on prior year financials. Getting this wrong will detract from your chances of success and possibly create further barriers if you want to appeal – even for a lower amount!
There are other reasons why your loan might be turned down. Lenders will expect you to show you have exhausted other avenues of relief e.g. Job Retention Scheme, VAT deferrals, HMRC time to pay arrangements to name but a few. Failure to address these will go against you and it would be wise to ensure any application has this covered in some detail.
Most lenders will also want to see a cashflow forecast which clearly shows a need for the level of funding sought. There is an art to this but crucially it needs to demonstrate that the loan applied for will cover your requirements and ‘see you through’ the pandemic.
"Navigating the CBILS application process can be a bit of a minefield."
In many cases this will mean forecasting a material drop in revenues and projecting losses for the year. In normal times this would not be a good basis to start a lending application but, as I mentioned earlier, lenders will be expecting this and will, in any event, be looking at the past 12 months for a profit trend.
Navigating the CBILS application process can be a bit of a minefield, so a fully considered application is essential to paving the way for a positive outcome. We are also keeping a close eye on other lenders joining the queue to become an accredited member of the CBILS scheme so, if you have already been declined and don’t feel there is scope to appeal to your existing lender, there may be alternative lenders who will take a different view!
If you feel you need assistance, then our Debt Advisory team are well placed to guide you through the pitfalls and help maximise your chances of success.
When a travel business saw declining revenues due to COVID-19, its owners asked us to secure a loan to safeguard jobs.
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