One of the rare positives of the current pandemic is the collective (for the most part) esprit de corps we can see emanating in society. In this spirit, it is true that most lenders and financial stakeholders wish to be supportive of borrowers during this period of disruption.
From speaking to various lenders and other financial stakeholders, they are acknowledging the part they can play to support businesses. However, these financial stakeholders do need business owners to proactively provide them with relevant information to enable them to establish how they can help.
From experience, without reliable information about the prospects of a business, it is extremely difficult to get lenders to commit to a lending line within a reasonable period of time.
So, what should this proactive action by business owners entail?
We’ve summarised five steps that business owners should urgently implement as part of a key lender stakeholder management plan during this uncertain time:
- Communicate frequently with key lenders so they are sighted on the current challenges faced by the business; the ‘self-help’ steps being taken to mitigate the impact; and the support required from lenders;
- Review all loans, overdrafts and any other debt instrument agreements to ensure that where a breach is expected, the lender is notified in advance by the business. Lenders hate surprises and if there is a going to be a breach, although not a surprise in the current climate, they would rather be forewarned so any possible mitigating action can be explored before the event;
- Prepare and share with key lenders a rolling 13-week short-term cash flow forecast which illustrates the anticipated net cash position of the business, ensuring that any expected drop-off in revenue is accurately factored in. This should show any forecast funding gap that key lenders may be required to help meet;
- Prepare and share with key lenders 12 months’ worth of integrated trading projections (profit and loss, balance sheets as well as cashflow) which reflect the post COVID-19 reality of where the business is. Providing the business’ lenders with an early view on the likely financial impact of the crisis on the business and the lenders’ respective exposure, should allow lenders not only to quickly assess what level of support they can provide, but also to provide for expected losses on their own books; and
- Engage professional advisers experienced in crisis and stakeholder management that can support business owners in juggling competing priorities as well as navigating some unchartered waters.
In addition to the above, don’t forget to make use of the other measures the Government has introduced to help businesses through this trying time. For example, rates holidays, VAT deferment and of course, the Coronavirus Business Interruption Loan Scheme (CBILS).
Read more about our views on this here.