COVID-19, much like a recession, has had a significant impact on the UK economy. Back in March who would have predicted the effect that this pandemic would have had not just on businesses in the UK but around the globe. With a second lockdown, many businesses find themselves struggling with cash flow and looking for additional funding to help them ride through the Covid storm.
Despite Government introducing welcomed funding support and subsidies (such as grants, rates relief, VAT deferrals and the Job Retention Scheme), many businesses still need to secure additional borrowings and loans.
What information is required to secure additional lending?
The good news is that bank lending is currently available, however, the criteria has tightened. Banks are increasingly looking for additional information to help them make informed decisions as to what they see as appropriate lending levels for a business.
In seeking further funding, it is vital that businesses are equipped with comprehensive facts, figures and projections in order to have a meaningful conversation with their bank. Forecasting is critical if a business is to present a compelling request for additional funds. Along with their financials, this will include recognition of future challenges, cash flow and the timing(s) of future cash injections.
Typically, a lender will look for:
- The last 3 years finalised accounts – this will show that pre March 2020 you had a viable business and had the ability to manage all existing debt.
- Current Management Information which bridges the gap between the finalised accounts and projections. Typically, these will need to be prepared and signed off by your accountant.
- Projections and Cash Flow Forecast – fully documented figures to prove to a prospective lender that all scenarios have been identified and considered with evidence on the ability to service all existing and future lending. Scenarios should include loss of clients, supplier solvency, redundancy payments, furloughing staff, deferral of VAT etc.
In normal circumstances, a business would review the previous year’s figures to create its sales, cash flow and profit and loss forecasts, which would provide the information needed to see its cash flow trends and variations. In the current environment, additional flexibility, assumptions and contingency planning are required.
Demonstrating to a lender that as a business you have a solid grasp of your financial performance is crucial when securing funding. This is where your accountant is invaluable – supporting you in presenting compelling, comprehensive and timely information that provides potential lenders with the detailed information they require to make fully informed decisions about your business.
What other alternatives are there?
Whilst additional lending will be right for some businesses, others will look internally to identify what other viable / alternative options are available to them. The obvious one is to look at how to reduce costs through a programme of short-term and long-term cost reduction initiatives while retaining competitive advantage. Your accountant can provide a diagnosis on spend, advice on how to procure the best value from suppliers and/or introduce quality control processes and governance.
For some businesses restructuring may be the right route and making financial adjustments to the balance sheet as opposed to the Profit & Loss may be an alternative in securing the necessary changes required to thrive during these challenging times.
How can Everett King help?
Here at Everett King we are here to help and support. We can prepare your financial forecasts and help you raise finance through your current bank and/or alternative lenders, leaving you to continue to do what you do best – running your business during these unprecedented times. We support businesses across Wales and Southern England with forecasting, financial planning, cost reduction programmes and restructuring strategies to enable them to continue to trade. If you would like to work with an accountancy firm that has the survival of your business at its heart then why not contact us today for more information.