Hamish Morrison of BHP spoke to the membership of Made in Group about how the UK Government’s CBILS product could help the UK manufacturing sector to pivot their business model, in response to COVID-19.
In the discussion with Hamish, he cited an example of one of his clients who has used a CBILS loan to scale up their online offering, to take advantage of the shift in how customers are interacting as a result of COVID-19.
Hamish said, “Naturally, CBILS applications are requests for funding as a result of the negative impact of COVID-19. If your business falls into this category and, for example, you have identified an opportunity to grow or develop your business in a new direction, there is every opportunity to go to your bank and seek additional funding to take advantage of these more positive changes as a result of COVID-19. This funding could be used, for example, where customers want you to onshore certain processes and you, therefore, need to invest in capital equipment. Another case we have seen involved the loan being used to fund higher stock levels as a result of increased demands for certain products.”
Hamish went on to talk about another case BHP has seen first-hand; “We've recently worked with a company who wanted to invest heavily in their online presence and used their CBILS loan as a significant proportion of the funding required for it. The inability of sales reps to visit customers had seen a significant decrease in orders and so scaling up the online side of their operations will help to reduce the impact of the virus whilst also strengthening the business going forward.”
But that’s not to say that there’s only one pathway to apply for the CBILS product. For Hamish, one of his pieces of advice was to plan for the worst-case and if that shows a funding requirement, apply for CBILS before the application period closing, even if you later choose not to draw it (or draw it and choose to repay it before the 12-month interest and capital repayment free period ends). In his own words, “You can be approved for a CBILS loan and choose not to draw it immediately. If you think you might need capital because you're unsure how long your business may be impacted for, then applying for it and sitting on that ability to draw it is a sensible and prudent thing to do because you’ll then have options depending on what happens.”
Talking about the importance of applying for the loan, even if you choose not to use it, can’t be underestimated. Reflecting on the news of the 2% economic contraction in Q1, Hamish stated things will certainly get worse in Q2 before they get better. “The first quarter saw a fall in the output of the economy of 2%, but it’s the quarter ended June ‘20 which will reflect the true nature of the situation, and economists are predicting a very sharp contraction of GDP.”
The Chancellor Rishi Sunak has suggested we might expect a quick bounce back from the economic downturn of Coronavirus. Applying this you may think, looking on a chart, that this would reflect a ‘V’ shape contraction and recovery. However, Hamish is a little more cautious and thinks a recovery could actually take longer and instead look more like a ‘U’ shape. “I think the key is how quickly we can kick back out the other side. Whilst initial economic forecasts seemed quite hopeful that it was a V-shaped dip in the economy with a quick return the consensus now seems to be it is more likely to be a U shape recovery.”
To finish our conversation, I asked Hamish to share some advice with the membership, and for him, he would recommend that you “Make sure that as a director, you continue to have those early discussions with your advisers. Understanding all your options and what you can and should be doing is a key area in which they should now be adding value.”