Shaw & Co responds to the Government’s extension of CBILS funding deadline

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Shaw & Co, the specialist corporate finance advisory firm, has responded to the announcement made by the government today, Thursday 24 September 2020.

Rishi Sunak, Chancellor of the Exchequer,  has granted businesses a two months extension to apply for the coronavirus business interruption loan scheme  (CBILS), specifically designed for businesses with turnover of up to £45 million and unveiled on 23 March. Business owners originally had until midnight on 30 September to apply for the scheme. The deadline has been extended until 30 November.

The implications for the UK economy

Many SMEs require Government-backed support as the Covid-19 pandemic continues to impact the economy. The businesses, who managed to survive the lockdown, have had to face working capital requirements as well as expenses related to social distancing upon reopening, whilst no longer being able to rely on furlough. Thus, many have only just grasped their emergency funding requirement.

In this context, the extension of the scheme will enable the Government to maintain public support to SME businesses across the UK. This support is vital to ensure the survival of many businesses particularly as there is continued uncertainty around travel, fitness, hospitality, leisure, restaurants and many other ‘epicentre’ sectors. The effects of Covid are expected to continue on these businesses in the foreseeable future.

Shaw & Co believes it is highly unrealistic to assume that business in 2021 will see a return to 2019, as too many jobs have been lost and a large number of enterprises have closed as a result of the pandemic, economic downturn and the significant drop in overall demand from consumers.  A recent report by KPMG predicts that it will take until 2023 to recover to 2019 levels and that assumes a Brexit deal and no further lockdowns.

Many businesses may only just be coming to terms with the challenges that lie ahead, as any hope of a “V” shaped recovery is fast slipping away. The extension allows those that did not seek CBILS support in the early stages of this crisis to reconsider their position and for others to consider extending their facility. Of particular interest is the vast number of alternative lenders now accredited that have a greater appetite than the high street banks. Many who took facilities from the traditional banks, may want to look at refinancing their CBILS during this extension window.

Of all lending granted in the UK since lockdown began 85-90% has been in the form of CBILS or the Government-backed Bounce Back Loan Scheme (BBLS). The lending volumes in 2020 are up considerably compared to those of 2019, so SMEs are greatly indebted and are heading into a very tough trading environment. There is persistent pressure on businesses to term out current debt load, raise equity, consolidate to rationalise costs, or to just cut costs.

Shaw & Co is playing its part in supporting businesses in these unprecedented times, by helping clients to access over £36m of CBILS lending. Shaw & Co’s debt advisory team has provided advice to over 500 businesses, through its dedicated CBILS Support Service, which was launched on 27 March.

Limits to CBILS

Although vital to businesses, it is worth noting that the CBILS has its limits. It took some time for lenders to truly understand requirements which resulted in confusion around real estate SPVs development eligibility. Many lenders have been accredited but some only received their accreditation late in the crisis.

Overall, there has a considerable focus on existing clients, whereas only a limited portion of lenders are considering new clients.

In addition, banks have a limited appetite for any kind of lending risk in the current climate and the scheme is hugely bureaucratic and not an easy way to get emergency funding.

Jim Shaw, founder and CEO of Shaw & Co, commented: “The Chancellor’s announcement of an extension deadline was expected and shows that the Government continues to see the SME trading environment as challenging and in need of continued support.

“The pandemic continues to have a massive impact on businesses. Upon reopening, following the end of Government-imposed lockdown, businesses must face capital requirements and unexpected expenses to comply with safety measures. Unfortunately, it is to be expected that the worst is still ahead of us.

“In that sense, the CBILS deadline extension is welcome news for business owners. Getting worthy businesses through major issues which are not of their causing is a good thing. On the other hand, the implication for future taxes is hugely worrying.”